Case Law Details
Kothari International Trading Limited Vs ACIT (Madras High Court)
The only point to be decided herein is whether the loan amount waived by the bank is taxable income or not. As already stated, in the decision referred by the learned counsel for the appellants in the case of CIT Vs. Mahindra and Mahindra, the assessees have submitted entire records and books of accounts. Therefore, from the facts, the Tribunal found that the loan amount has been shown in the Balance Sheet under the head “Loans-unsecured”, and hence, could not be brought to tax as it represents the waiver of a loan liability which was on the capital amount and is not in the nature of income. The said view was rightly upheld by the High Court and when the appeals along with Reference filed as Special Leave Petition, the Honourable Supreme Court has held that Section 28(iv) of the IT Act and Section 41(1) of the IT Act does not apply since waiver of loan does not amount to cessation of trading liability.
However, in this case, as already stated, the Assessing Officer has given opportunity to the assessee. But the assessee has not furnished the books and also details of the accounts in the previous year. Moreover, the Bank also not supplied any information in this regard. Therefore, in the absence of the particulars, the Assessing Officer, under Order u/s.143(3) read with Section 263 of the Act, found that it is taxable income.
The Income Tax Appellate Tribunal, after referring to the decision of this Court in CIT Vs Ramaniyam Homes P.Ltd., (2016) 384 ITR 530, pointed out in clear terms that the loan amount borrowed for acquiring an asset gets wiped off by repayment. But when a portion of the loan is reduced, not by repayment, but by the lender writing it off either under a one time settlement scheme or otherwise, only one entry gets into the books, as a natural entry. When a portion of the loan is waived, the total amount of loan shown on the liabilities side of the balance sheet is reduced and the amount shown as capital reserves, is increased to the extent of waiver.
A careful perusal of the Assessment order and the subsequent orders of the Appellate Authority show that in the absence of particulars sought for by the Assessing Officer and substantiating records and books of accounts with regard to the previous assessment orders for the previous years, they have arrived at the decision that waiver of the loan is based on the receipt and the income is taxable under section 28(iv) and 41(i) of the Act. Therefore, it is the duty of the assessees to furnish all the particulars including the accounts of the previous years. Unless the entire books of accounts of the assessees are submitted in the previous years, it is difficult to say how the assessees had treated the amount in their books of accounts. Therefore, under these circumstances, the decision relied on by the Honourable Supreme Court based on the factual aspects involved in that case, cannot be applied to the cases on hand. Here, the assessees have not submitted the particulars sought for by the Assessing Officer. Therefore, in the absence of any particulars pertaining to the previous years books of accounts, it is difficult to arrive at a decision and therefore, in order to grant one more opportunity for production of books and accounts to substantiate their case, we are inclined to remit the matter back to the Assessing Officer. Accordingly, the order of the Income Tax Appellate Tribunal is set aside and the matter is remitted back to the Assessing Officer and the appellants/assessees are directed to submit the entire particulars including books of accounts for the year 2003-2004 and also of the previous years. Further, the ICICI bank also shall submit the entire particulars regarding the loan transaction with the assessees. The Assessing Officer, after giving reasonable opportunity to the assessees as well as the Bank, for submission of the entire particulars, is directed to consider all the particulars and pass orders in accordance with law. However, if the appellants/assessees failed to submit all the particulars within one month from the date of receipt of the order, the order passed by the Income Tax Appellate Tribunal shall stand confirmed and the appeals stand dismissed without any further reference.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
