Waiver of Working Capital Loan Taxable u/s 28(iv) and not u/s 41(1)

ITO Vs M/s Sri Vasavi Polymers P. Ltd. (ITAT Visakhapatnam)

The issue under consideration is whether CIT(A) is correct in deleting the addition made by AO under section (u/s) 41(1) for waiver of working capital loan and charge it under section 28 of the Act?

ITAT states that the twin conditions required to be satisfied for taxing the benefit received by the assessee. i.e., the expenditure should be Revenue expenditure or the loss incurred and the same ought to have been allowed as deduction. The benefit received by the assessee should be relating to such expenditure which was claimed and allowed in the earlier years. In the instant case, the trading liability or the expenditure or deduction was claimed by the assessee in respect of interest paid on the OCC loan. In respect of principal amount, though the assessee has gained the benefit by way of one time settlement the same cannot be brought to tax u/s 41(1) because the OCC loan represents the principal which was never claimed as expenditure. The AO also did not make out a case that the principal amount was debited to the Profit & Loss account in the earlier years. Therefore there is no case for making addition u/s 41(1) in respect of the principal amount.Further, in the instant case what the assessee has received was remission of liability which was in the form of cash or money and the difference amount of principal which was settled by onetime payment was never debited to Profit & Loss account. Therefore, on the basis of the decision of Hon’ble Supreme Court in case of Mahindra and Mahindra supra the appeal of the revenue is dismissed and that agree to taxing the remission of liability u/s 28(iv).

FULL TEXT OF THE ITAT JUDGEMENT

This appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-9, Hyderabad in ITA No.10300/CIT(A)-9, Hyd/2017-18 dated 09.08.2018 for the Assessment Year (A.Y.)2013-14. with the delay of 1 day. The department has filed condonation petition and submitted that the delay was due to the administrative reasons beyond the control of the department, hence requested to condone the delay and admit the appeal. After hearing both the parties , we condone the delay and admit the appeal.

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