By TIOL News Service

AHMEDABAD, OCT 30, 2018: THE ISSUE IS - Whether if due to change in management a part of outstanding loan is waived off, which has never been claimed in past as deduction then provision of section 28 (iv) r.w.s. 41(i) can not be applied to tax waived amount as Revenue income - YES IS THE VERDICT.

Facts of the case

The assessee company, engaged in business of providing information technology services, had filed return for relevant AY. During assessment, AO noticed that assessee had shown an amount of Rs. 3,21,66,204/- being liability ceased to exist. The assessee was asked to explain why this amount should not be treated as income u/s. 28(iv) of the act. The assessee explained that there was an outstanding loan liability due to M/s. Adani Agro Pvt. Ltd of Rs. 7,00,25,697/- out of this outstanding loan an amount of Rs. 3,21,66,204/- was no longer required to be paid therefore the same was credited to P&L Account. The AO did not accept the explanation of the assessee and treated the ceased liability as its income. On appeal, CIT(A) deleted the addition made by the AO.

Tribunal held that,

++ the amount written back was actually an outstanding loan which was never routed through the P & L account of any previous year. The CIT(A) has deleted the addition stating that waiver of loan amounted to capital in nature. During the year under consideration management of the assessee company was taken over by Ascendum Group form Adani Group and in such process balance loan of Rs. 3.22 crores was waived off and liability was no longer required to be paid. It is noticed that the assessee company has taken a loan from Adani Agro Pvt. Ltd for the purpose of investment in capital assets and a part of the loan was written off during the year under consideration. It is undisputed fact that the loan was taken for the purpose of investing in the capital assets because of change in management a part of the loan was waived off, which was claimed as deduction because of being receipt of capital nature. During the course of assessment before the assessing officer the assessee has placed reliance on the decision of Jurisdictional High Court in the case of CIT vs. Chetan Chemical, wherein it is held that if no allowance of deduction has been claimed in any of the preceding years in respect of the liability cases to exist, then, there is no question of applying the provision of section 28 (iv) r.w.s. 41(i) of the Act. After considering the facts and the findings, it was held that no infirmity was found in the decision of the CIT(A). Therefore, the appeal of the Revenue is dismissed.

(See 2018-TIOL-1962-ITAT-AHM)