Pr. Commissioner Of Income Tax-7,Mumbai Room v. M/S. Orient Press Ltd.,20, Pragati Industrial Estate, Lowerparel, Mumbai 400 011

Digitallysigned bySHRADDHASHRADDHAKAMLESHKAMLESHTALEKARTALEKARDate:2023.02.1717:59:53+0530 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY. ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL (IT) NO.735 OF 2018 APPELLANT :Pr. Commissioner of Income Tax-7,Mumbai Room No.315, AaykarBhavan, Maharshi Karve Road,Mumbai 400 020Mumbai Room No.315, AaykarBhavan, Maharshi Karve Road,Mumbai 400 020 ..VERSUS.. :M/s. Orient Press Ltd.,20, Pragati Industrial Estate, LowerParel, Mumbai 400 011. RESPONDENT ----------------------------------------------------------------------------------------- Ms. Swapna Gokhale, Advocate for the Appellant. Mr. Kumar U. Kale, Advocate for the Respondent. -------------------------------------------------------------------------------------------------------- CORAM:DHIRAJ SINGH THAKUR ANDVALMIKI SA MENEZES, JJ.DATE:10th NOVEMBER, 2022. ORDER: (PER : VALMIKI SA MENEZES, J.) .This is a Tax Appeal under Section 260A of theIncome Tax Act, 1961 (“the Act”), against the order dated20.12.2016, passed by the Income Tax Appellate Tribunal(“ITAT”), Mumbai, in ITA No.3681/Mum/2014, which relatesto Assessment Year 2008-09. Relevant to the Assessment Year 2008-09, theRespondent – assessee had filed its Return of Income on16.10.2008, declaring nil income. The return was processedunder Section 143(1) of the Act, and was selected for scrutiny,pursuant to which Notice under Sections 143(2) and 142(1) ofthe Act, was issued to the assessee by the Assessing Officer.After response was filed by the assessee, and after the assesseewas heard, an Assessment Order came to be passed on29.12.2010; in the assessment order, the assessee was held liableto pay additional taxes and interest due to disallowance madeunder Section 14A of the Act, and under Section 41(1) of theAct, in the amount of Rs.15,22,32,432/- on the ground thatthis was the principal amount on a loan taken by the assessee,which was waived by financial institutions i.e. IND Bank,Indian Oversees Bank, ICICI Limited, IDBI Limited and UTIMutual Fund, in terms of a One Time Settlement (OTS).Whilst disallowing the amount of Rs.15,22,32,432/-, theAssessing Officer has opined that even though the same was areceipt of capital nature, the amount had become the assessee’sown money and applying the ratio of the judgment in M/s–Solid Containers Ltd. ..V/s.. DCIT, Spl. Range 1, Mumbai -----(2008TIOL459HCMumbaiIT), passed by this Court, dueto subsequent event of waiver by the banking institutions, theprincipal amount has attained a totally different quality and istreated as the assessee’s income for the year. Consequently, theAssessing Officer made disallowances of the said amount underSection 41(1) of the Act, adding the amount ofRs.15,22,32,432/- as income of the assessee charging tax,penalty and interest on the same. 2.The Respondent challenged the Assessment Orderdated 29.12.2010, before the Commissioner of Income Tax(Appeals)-13, (“the Commissioner (Appeals)), Mumbai, in anappeal, who on considering the reply, reversed the order of theAssessing Officer dated 29.12.2010 only with respect to thedisallowance of the amount of Rs.15,22,32,432/-, holding thatthe same was waived under the OTS Scheme of the financialinstitutions, and that since the said amount was towardspurchase of land and other capital assets in the nature ofmachinery, that amount was not chargeable to tax underSection 41(1) of the Act, nor was it a profit and gain of businessunder Section 28(iv) of the Act. Accordingly, the Appellate Authority set aside the order of the Assessing Officer to thelimited extent of the disallowance of Rs.15,22,32,432/-. Forwant of challenge to the remaining part of the appellate order,by the Respondent, the same has become final. Authority set aside the order of the Assessing Officer to thelimited extent of the disallowance of Rs.15,22,32,432/-. Forwant of challenge to the remaining part of the appellate order,by the Respondent, the same has become final. The Appellant challenged the order of theCommissioner (Appeals) dated 12.03.2014, before the ITAT,which has dismissed the appeal by the impugned order dated20.12.2016, upholding the findings arrived at by the AppellateAuthority. The impugned order dated 20.12.2016 of the ITAT,is sought to be challenged before us in an appeal filed underSection 260A of the Act, on the following proposed substantialquestions of law : “A.Whether on the facts and in thecircumstances of the case and in law, the Hon’be ITAThas erred in deleting the addition of Rs.15,22,32,432/-made u/s.41(1) of the I.T. Act, 1961 without properlyappreciating the fact that the decision of theJurisdictional High Court in the case of M/s. SolidContainers Ltd vs DCIT, Spl.Rg.1, Mumbai (2008-TIOL-459-HC-Mumbai-IT) is squarely applicable tothe case of assessee ? B.Whether on the facts and in thecircumstances of the case and in law, the Hon’ble ITAT has erred in deleting the addition of Rs.15,22,32,432/-made u/s.41(1) of the I.T.Act, 1961 by relying on thedecision of the Hon’ble Bombay High Court in the caseof M/s. Mahindra & Mahindra Ltd vs CIT 261 ITR501 (Bom) without properly appreciating that the factsof the case relied upon are different from the facts of thecase relied upon are difference from the facts of theinstant case. In the case of M/s. Mahindra & MahindraLtd (supra), it has been held that the entire loanagreement was not obliterated by such waiver. However,in this case, the entire loan agreement with the variousinstitutions has been obliterated by one time settlementof dues entered by the assessee ? C.Whether on the facts and in thecircumstances of the case and in law, the Hon’ble ITAThas erred in deleting the addition of Rs.15,22,32,432/-made u/s.41(1) of the I.T.Act, 1961 without properlyappreciating the fact that because of the waiver of loanamount, it has assumed the character of a trade surplusand therefore has to be treated as deemed income of theassessee u/s.41(1) of the Act, for the year underconsideration ?” 3.Though, the proposed substantial questions of law are three in number, in substance the challenge to the orderpassed by the Appellate Authority and the ITAT was primarilyon the ground that the deletion of the addition of 6 Rs.15,22,32,432/- allowed by those Authorities under Section41(1) of the Act, was contrary to the judgment of this Court in-Solid Containers Ltd. ..V/s.. Deputy Commissioner of Income Tax and Another, reported in (2009) 308 ITR 417, and furtheron the ground that the ratio laid down in the judgment of thisCourt inMahindra and Mahindra Ltd. ..V/s.. Commissioner-of IncomeTax, reported in (2003) 261 ITR 501 (Bom), wasnot applicable to the facts of the case. 4.We have heard Ms Swapna Gokhale, learned Counselfor the Appellant and perused the record of the proceedingsbefore the Assessing Officer, the Appellate Forum and ITAT.Mr Kumar Kale, learned Counsel appearing for the Respondenthas not filed any reply in the matter, but supports theimpugned orders. 5.Ms Swapna Gokhale, learned Counsel for theAppellant submits that Solid Containers Ltd. (supra), refers tothe judgment of the Hon’ble Supreme Court in Commissionerof Income Tax, Madurai ..V/s.. M/s T. V. Sundaram Iyengarand Sons Ltd.,reported in (1996) 222 ITR 344, and hasconsidered the question of claim of deduction from taxable 4.We have heard Ms Swapna Gokhale, learned Counselfor the Appellant and perused the record of the proceedingsbefore the Assessing Officer, the Appellate Forum and ITAT.Mr Kumar Kale, learned Counsel appearing for the Respondenthas not filed any reply in the matter, but supports theimpugned orders. 5.Ms Swapna Gokhale, learned Counsel for theAppellant submits that Solid Containers Ltd. (supra), refers tothe judgment of the Hon’ble Supreme Court in Commissionerof Income Tax, Madurai ..V/s.. M/s T. V. Sundaram Iyengarand Sons Ltd.,reported in (1996) 222 ITR 344, and hasconsidered the question of claim of deduction from taxable income of waiver of loan, which was a capital receipt, put downas an expense, and therefore, was not an income under Section41(1) of the Act. It was further submitted that Solid ContainersLtd. (supra), has also considered the judgment of this Court inMahindra and Mahindra Ltd. (supra), which was also a case ofwaiver of the principal amount by way of an OTS deciding aquestion whether it wascovered under Section 41(1) of theAct, and could be treated as business income under Section28(iv) of the Act. It is the submission of the learned Counsel for theAppellant that though the judgment of this Court in Mahindraand Mahindra Ltd. (supra), was upheld by the Hon’bleSupreme Court in Commissioner ..V/s.. Mahindra andMahindra Ltd., reported in (2018) 93 taxmann.com page 32(SC), the ratio of the said two judgments would be inapplicableto the facts of the present case. Learned Counsel thereforecontends that a wrong application of the judgments of theHon’ble Supreme Court and of this Court in Mahindra andMahindra Ltd. (supra), to the facts of the present case wouldgive rise to the substantial questions of law proposed by the 6.This Court, in Mahindra and Mahindra Ltd. (supra),was concerned with the case of a waiver of a loan amount on acontract for supply of tools and dies, which the assessee claimedbenefit of depreciation over a period of time. In that case, afterconsidering the loan arrangement between the parties in itsentirety, the Appellate Authority has held that there was nobenefit to the assessee on waiver of the contract and as suchthere was no value of any benefit or perquisite arising in favourof assessee under Section 28(iv) of the Act. In that judgment,this Court has also addressed the alternate submission on behalfof the revenue that, the waiver on the contract constitutedremission of trading liability, and therefore, Section 41(1) of theAct stood attracted. That argument was also rejected on twogrounds, the first being that in order to apply Section 41(1) ofthe Act to a case, an assessee should have obtained deduction inthe assessment for any year in respect of loss, expenditure ortrading liability incurred by it and in that case, the assessee hadnot obtained such allowance or deduction in respect of theexpenditure or trading liability. The second ground for rejecting the contention based on Section 41(1) of the Act was,that there was no deduction given to the assessee in earlieryears, and therefore, the amount claimed towards waiver couldnot be included as income under Section 41(1) of the Act; itfurther held that the toolings constituted capital assets and werenot a stock-in-trade and hence waiver of the principal amount,which had been used for acquiring a capital asset, would be acase not covered by Section 41(1) of the Act. For easy reference,the relevant paragraphs of Mahindra and Mahindra Ltd.(supra), are quoted as under : rejecting the contention based on Section 41(1) of the Act was,that there was no deduction given to the assessee in earlieryears, and therefore, the amount claimed towards waiver couldnot be included as income under Section 41(1) of the Act; itfurther held that the toolings constituted capital assets and werenot a stock-in-trade and hence waiver of the principal amount,which had been used for acquiring a capital asset, would be acase not covered by Section 41(1) of the Act. For easy reference,the relevant paragraphs of Mahindra and Mahindra Ltd.(supra), are quoted as under : “8. At the very outset, we wish to point out three facts whichare undisputed : (a) that a loan was advanced by KJC to theassessee, (b) that the assessee had paid interest at 6 per cent,per annum for ten years being the period of contract, (c) thatthe assessee never got deduction for payment of interestunder Section 36(1)(iii) or under Section 37 of the Act.These three facts are not disputed by the Department.Therefore, we are required to consider the applicability of theprovisions of Sections 28(iv) and 41(1) of the Act in the lightof the abovementioned three undisputed facts. 9. At the outset, we wish to clarify that this judgment isconfined to the facts of this case. This is because the value ofany benefit or perquisite arising from business, ascontemplated by Section 28(iv), could accrue in numerousways. The income which can be taxed under Section 28(iv)must not only be referable to a benefit or perquisite, but itmust be arising from business. Secondly, Section 28(iv) doesnot apply to benefits in cash or money (see CIT v. Alchemic Pvt. Ltd., [1981] 130 ITR 168 (Guj)). Applying Section28(iv) to the facts of this case, one finds that on June 18,1964, the assessee entered into an agreement to purchasetoolings from KJC. In 1964-65, India was facing foreignexchange crunch. In the circumstances, around June 7, 1965,the Government of India and the Reserve Bank of India, inthis case, approved the arrangement under which KJC(supplier of toolings) was permitted to advance a loan of $6,50,000 to the assessee for ten years bearing interest at therate of 6 per cent., free from income-tax. KJC was later ontaken over by AMC and as a part of take-over, AMC agreedto waive the principal amount of the loan and not theinterest. In the circumstances, as stated in the above threeundisputed facts, the assessee paid interest at 6 per cent, perannum, for ten years, being the contractual period.According to the Assessing Officer, the loan arose frombusiness dealings. According to the Assessing Officer whenAMC waived the loan, the credits became part of businessincome; that prior to such waiver, the credits representedliability. In the circumstances, the Assessing Officer has taxedsuch credits as business income. However, in this connection,there are two important facts which are overlooked by theAssessing Officer. Firstly, the assessee has continued to payinterest at 6 per cent, for a period of ten years on the loanamount. In this case, the Assessing Officer has not gonebehind the loan agreement. In this case, the approval by theGovernment of India and the Reserve Bank of India are onrecord. In this case, the agreement for purchase of toolingswas entered into, much prior to the approval of the loanarrangement given by the Reserve Bank of India. Therefore,the loan arrangement, in its entirety, was not obliterated bysuch waiver. Secondly, in this case we are concerned with thepurchase consideration relating to capital asset. The toolingswere in the nature of dies. The assessee was a manufacturer ofheavy vehicles and jeeps. It required these dies for expansion.Therefore, the import was that of plant and machinery. Theconsideration paid was for such import. In the circumstances,Section 28(iv) is not attracted. Lastly, we may mention that, in this case, AMC agreed to forego the principal amount ofloan as a part of take-over arrangement with KJC to whichthe assessee was not a party. The waiver of the principalamount was unexpected. In the circumstances, one fails tounderstand how such waiver would constitute businessincome. 10. Alternatively, it was argued on behalf of the Departmentthat in this case waiver constituted remission of tradingliability and, therefore, Section 41(1) stood attracted. We donot find any merit in this argument. Firstly, in the presentcase, the prerequisite of Section 41(1) is not applicable. Inorder to apply Section 41(1), an assessee should haveobtained a deduction in the assessment for any year inrespect of loss, expenditure or trading liability incurred bythe assessee. In this case, the assessee has not obtained suchallowance or deduction in respect of expenditure or tradingliability. It is not disputed that the assessee has paid interest at6 per cent, over a period of ten years to KJC onRs.57,74,064. In respect of that interest, the assessee nevergot deduction under Section 36(1)(iii) or Section 37. In thecircumstances, Section 41(1) of the Act was not applicable.Secondly, even assuming for the sake of argument that theassessee had got deduction on allowance even then Section41(1) was not applicable because such deduction was not inrespect of loss, expenditure or trading liability. In order to getover this alternative argument, it was argued by theDepartment that the loan was used to buy toolings on whichassessee got depreciation allowance of Rs.27,29,585 and,therefore, the amount of Rs.27,29,585 should be set offagainst Rs.57,74,064. We do not find any merit in thisargument. The Department's case is that the assessee gotremission of Rs.57,74,064. Remission for depreciation is notin issue before us. The only argument of the Departmentthroughout has been that the waiver constituted remission ofRs.57,74,064. In the circumstances, we cannot direct set offof Rs.27,29,585 against Rs.57,74,064. It is important to bearin mind that before Section 41(1) came to be enacted,various judgments as reported in Mohsin Rehman Penkar v. CIT, [1948] 16 ITR 183 (Bom) and Orient Corporation v.CIT, [1950] 18 ITR 28 (Bom) had laid down that remissionwas not income and in order to get over those judgmentsSection 41(1) came to be enacted. In the case of CIT v. PhoolChand Jiwan Ram, [1981] 131 ITR 37 (Delhi), the asses-see-firm had purchased goods. They had also obtained loansfrom a party, accounts were settled and the balance wascredited to the partners' account. It was held by the DelhiHigh Court that the amount referable to loans was not atrading liability. That, only amounts allowed as deduction inearlier years could be treated as a trading liability. In otherwords, unless the amounts have been allowed as deduction inearlier years they cannot be treated as trading liability. In thecircumstances, Section 41(1) was not applicable. This caseapplies to the facts of our case also. In the case of CIT v.A.V.M. Ltd., [1984] 146 ITR 355 (Mad), it has been held bythe Madras High Court that every deposit money does notconstitute trading receipt. That, although such a receipt maybe in connection with business, it could not be dealt with bythe assessee as a receipt of its trade. Therefore, the amountsreferable to loans received for purchase of capital assetswould not constitute a trading liability and accordinglySection 41(1) was not attracted.” 7.The judgment of this Court in Mahindra and Mahindra Ltd.(supra), was challenged before the Hon’bleSupreme Court, which dismissed the revenue’s appeal. InCommissioner ..V/s.. Mahindra and Mahindra Ltd.(supra), theHon’ble Supreme Court, whilst upholding the judgment of thisCourt, has held as under : “11) It is a well-settled principle that creditor or his successormay exercise their “Right of Waiver” unilaterally to absolvethe debtor from his liability to repay. After such exercise, the 7.The judgment of this Court in Mahindra and Mahindra Ltd.(supra), was challenged before the Hon’bleSupreme Court, which dismissed the revenue’s appeal. InCommissioner ..V/s.. Mahindra and Mahindra Ltd.(supra), theHon’ble Supreme Court, whilst upholding the judgment of thisCourt, has held as under : “11) It is a well-settled principle that creditor or his successormay exercise their “Right of Waiver” unilaterally to absolvethe debtor from his liability to repay. After such exercise, the debtor is deemed to be absolved from the liability ofrepayment of loan subject to the conditions of waiver. Thewaiver may be a partly waiver i.e., waiver of part of theprincipal or interest repayable, or a complete waiver of boththe loan as well as interest amounts. Hence, waiver of loan bythe creditor results in the debtor having extra cash in hishand. It is receipt in the hands of the debtor/assessee. Theshort but cogent issue in the instant case arises whetherwaiver of loan by the creditor is taxable as a perquisite underSection 28 (iv) of the IT Act or taxable as a remission ofliability under Section 41 (1) of the IT Act. 12) The first issue is the applicability of Section 28 (iv) of theIT Act in the present case. Before moving further, we deem itapposite to reproduce the relevant provision herein below:- ‘28. Profits and gains of business or profession.—Thefollowing income shall be chargeable to income-taxunder the head “Profits and gains of businessprofession”,- ** (iv) the value of any benefit or perquisite, whetherconvertible into money or not, arising from businessor the exercise of a profession; ** ** **’ 13) On a plain reading of Section 28 (iv) of the IT Act, primafacie, it appears that for the applicability of the said provision,the income which can be taxed shall arise from the business orprofession. Also, in order to invoke the provision of Section28 (iv) of the IT Act, the benefit which is received has to be insome other form rather than in the shape of money. In thepresent case, it is a matter of record that the amount ofRs.57,74,064/- is having received as cash receipt due to thewaiver of loan. Therefore, the very first condition of Section28 (iv) of the IT Act which says any benefit or perquisitearising from the business shall be in the form of benefit orperquisite other than in the shape of money, is not satisfied inthe present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs.57,74,064/- can be taxedunder the provisions of Section 28 (iv) of the IT Act. 14) Another important issue which arises is the applicabilityof the Section 41 (1) of the IT Act. The said provision isre-produced as under: “41. Profits chargeable to tax.- (1) Where an allowanceor deduction has been made in the assessment for anyyear in respect of loss, expenditure or trading liabilityincurred by the assessee (hereinafter referred to as thefirst-mentioned person) and subsequently during anyprevious year,- (a) the first-mentioned person has obtained, whetherin cash or in any other manner whatsoever, anyamount in respect of such loss or expenditure or somebenefit in respect of such trading liability by way ofremission or cessation thereof, the amount obtainedby such person or the value of benefit accruing to himshall be deemed to be profits and gains of business orprofession and accordingly chargeable to income-taxas the income of that previous year, whether thebusiness or profession in respect of which theallowance or deduction has been made is in existencein that year or not; or ** ** **” (a) the first-mentioned person has obtained, whetherin cash or in any other manner whatsoever, anyamount in respect of such loss or expenditure or somebenefit in respect of such trading liability by way ofremission or cessation thereof, the amount obtainedby such person or the value of benefit accruing to himshall be deemed to be profits and gains of business orprofession and accordingly chargeable to income-taxas the income of that previous year, whether thebusiness or profession in respect of which theallowance or deduction has been made is in existencein that year or not; or ** ** **” 15) On a perusal of the said provision, it is evident that it is asine qua non that there should be an allowance or deductionclaimed by the assessee in any assessment for any year inrespect of loss, expenditure or trading liability incurred bythe assessee. Then, subsequently, during any previous year, ifthe creditor remits or waives any such liability, then theassessee is liable to pay tax under Section 41 of the IT Act.The objective behind this Section is simple. It is made toensure that the assessee does not get away with a doublebenefit once by way of deduction and another by not beingtaxed on the benefit received by him in the later year withreference to deduction allowed earlier in case of remission ofsuch liability. It is undisputed fact that the Respondent had been paying interest at 6 % per annum to the KJC as per thecontract but the assessee never claimed deduction forpayment of interest under Section 36 (1) (iii) of the IT Act.In the case at hand, learned CIT (A) relied upon Section 41(1) of the IT Act and held that the Respondent had receivedamortization benefit. Amortization is an accounting termthat refers to the process of allocating the cost of an asset overa period of time, hence, it is nothing else than depreciation.Depreciation is a reduction in the value of an asset over time,in particular, to wear and tear. Therefore, the deductionclaimed by the Respondent in previous assessment years wasdue to the deprecation of the machine and not on the interestpaid by it. 16) Moreover, the purchase effected from the Kaiser JeepCorporation is in respect of plant, machinery and toolingequipments which are capital assets of the Respondent. It isimportant to note that the said purchase amount had notbeen debited to the trading account or to the profit or lossaccount in any of the assessment years. Here, we deem itproper to mention that there is difference between ‘tradingliability’ and ‘other liability’. Section 41 (1) of the IT Actparticularly deals with the remission of trading liability.Whereas in the instant case, waiver of loan amounts tocessation of liability other than trading liability. Hence, wefind no force in the argument of the Revenue that the case ofthe Respondent would fall under Section 41 (1) of the ITAct. 17) To sum up, we are not inclined to interfere with thejudgment and order passed by the High court in view of thefollowing reasons: (a) Section 28(iv) of the IT Act does not apply on thepresent case since the receipts of Rs.57,74,064/- are inthe nature of cash or money. (b) Section 41(1) of the IT Act does not apply sincewaiver of loan does not amount to cessation of tradingliability. It is a matter of record that the Respondent has not claimed any deduction under Section 36 (1)(iii) of the IT Act qua the payment of interest in anyprevious year.” --8.This Court, in Commissioner of Incometax8 ..V/s.. Santogen Silk Mills Ltd., reported in (2015) 57 taxmann.com208 (Bombay) , after referring to Mahindra and Mahindra Ltd.(supra), considering a similar case of a loan availed of foracquiring capital assets like machinery, waived by a bank, hasheld as under : (a) Section 28(iv) of the IT Act does not apply on thepresent case since the receipts of Rs.57,74,064/- are inthe nature of cash or money. (b) Section 41(1) of the IT Act does not apply sincewaiver of loan does not amount to cessation of tradingliability. It is a matter of record that the Respondent has not claimed any deduction under Section 36 (1)(iii) of the IT Act qua the payment of interest in anyprevious year.” --8.This Court, in Commissioner of Incometax8 ..V/s.. Santogen Silk Mills Ltd., reported in (2015) 57 taxmann.com208 (Bombay) , after referring to Mahindra and Mahindra Ltd.(supra), considering a similar case of a loan availed of foracquiring capital assets like machinery, waived by a bank, hasheld as under : “8.We have heard both sides and with their assistanceperused the paper book. It is not the argument of Mr. Pintothat the ground as noted in paragraph 1 of the tribunal'sorder and particularly at Page 40 ground no.5 was not theone which was forming part of the memo of appeal beforethe tribunal. There, the revenue specifically argued that theamount of loan retained by the assessee on account of onetime settlement with the banks constituted its income as perthe Section 28(iv) of the Income Tax Act though not underSection 41 (1) of the said Act. In such circumstances we donot see any justification for raising the question of law andparticularly formulated as question no.3 above. We do notthink that the said question arises for determination andconsideration in the background facts. 10. Thereafter, it was noted by the tribunal that during thecourse of assessment proceedings, the assessee filed revisedreturn of income on 20th October, 2009. In the originalreturn of income it had disclosed income from other sourcesat Rs.20.19 crores. Before the Assessing Officer, it was urgedthat this income arose on account of one time settlementwith two banks from which it had taken loans. The saidamount was shown in the Profit and Loss Account as an extra ordinary income. In the revised return of income, it wasclaimed that amount waived by the banks consisted ofinterest component of Rs.20.79 crores and principal amountof Rs.4.40 crores. The argument is that throughout thewaived principal amount did not result in income. TheAssessing Officer did not accept this argument and thereforethe assessee carried the matter before the First AppellateAuthority. He directed the Assessing Officer to verify theprincipal/interest portions of loan and if the principal portionof loan had not been claimed as deduction, then the sameshould be excluded from the taxable income. ordinary income. In the revised return of income, it wasclaimed that amount waived by the banks consisted ofinterest component of Rs.20.79 crores and principal amountof Rs.4.40 crores. The argument is that throughout thewaived principal amount did not result in income. TheAssessing Officer did not accept this argument and thereforethe assessee carried the matter before the First AppellateAuthority. He directed the Assessing Officer to verify theprincipal/interest portions of loan and if the principal portionof loan had not been claimed as deduction, then the sameshould be excluded from the taxable income. 11. It is this order of the First Appellate Authority which waschallenged by the revenue in appeal before the tribunal. Theargument of both sides have been referred in details inparagraph 6 of the tribunal's order and it has held that onperusal of the loan agreement insofar as loan from ICICIBank is concerned (subject matter and part of this appeal)that was for purchasing machinery and availed by theassessee. As far as loan from ADCB is concerned, it wasconceded that the same was against hypothecation of stockand not a term loan. We are not concerned with that part ofthe order of the tribunal, however, it is material to note thatthe tribunal disallowed the claim made by the assessee andheld that as far as ADCB is concerned, the waiver of theprincipal amount would have to be construed as taxableincome. However, as far as ICICI bank is concerned, itwaived the principal amount of Rs.3.06 crores that was notfor carrying on any business activity but to acquire the capitalassets. This Court has consistently taken a view that the loanamount written off would not come within the purview ofSection 28(iv) of the Income Tax Act. The view taken by thisCourt in the case of Mahindra & Mahindra Ltd. v. CIT[2003] 261 ITR 501/128 Taxman 394and Solid ContainersLtd. v. Dy. CIT [2009] 308 ITR 417/178 Taxman 192(Bom.)would enable the tribunal and equally us to concludethat the loan written off would not be taxable under Section28(iv) of the Act. That issue specifically came up forconsideration in the matter of Mahindra and Mahindra and it was held that the said provision would apply only when abenefit or perquisite is received in kind and has noapplication where benefit is received in cash or money.Following this decision in the case of CIT v. Xylon Holdings(P.) Ltd. [2012] 211 Taxman 108/26 taxmann.com 333(Bom.)this Court held that the waiver would not comewithin the purview of Section 28(iv) of the Income Tax Act.Having perused this decision and in the peculiar facts andcircumstances of the present case we are of the view that thetribunal has rightly upheld the order of the Commissioner. Ithas concluded that the factual and legal position enables it tohold that the direction of the First Appellate Authoritycannot be said to be perverse. The view taken by him astermed by the tribunal is rational and judicious. More so,when the assessee company is a BIFR unit and it is in theprocess of revival, therefore, the banks waived loan as well asinterest component due from the assessee. Equally, the loansanctioned by ADCB and subsequently waived off has alsobeen offered to tax. It is only in the ICICI bank’s case thatthe tribunal took the above view and which we do not find asperverse or vitiated by a error of law apparent on the face ofrecord. As a result of the above discussion, the appeal failsand is dismissed. There will be no order as to costs.” 9.This Court, in Solid Containers Ltd. (supra),considered a case where the assessee had taken a loan fortrading activity, whose repayment had become time barred andthe question before this Court was whether the amount of loanin the hands of the assessee, which was not a capital asset,should be treated as liable to tax in the hands of an assessee, ashis income, being part of the trading of the assessee. On thosefacts, this Court in Solid Containers Ltd. (supra), was of the 9.This Court, in Solid Containers Ltd. (supra),considered a case where the assessee had taken a loan fortrading activity, whose repayment had become time barred andthe question before this Court was whether the amount of loanin the hands of the assessee, which was not a capital asset,should be treated as liable to tax in the hands of an assessee, ashis income, being part of the trading of the assessee. On thosefacts, this Court in Solid Containers Ltd. (supra), was of the opinion that the ratio of Mahindra and Mahindra Ltd. (supra)was not applicable, since the facts in Mahindra and MahindraLtd. (supra), were different in that loan amount, which hadbeen waived, was applied to create a capital asset. -10.This Court, in The Commissioner of Income Tax3 ..V/s.. M/s. Xylon Holdings Pvt. Ltd., (Income Tax AppealNo.3704 of 2010 dated 13.10.2012), has distinguished thisCourt’s judgment rendered in Solid Containers Ltd. (supra), onfacts, holding that Solid Containers Ltd. (supra), was a casewhere the assessee had taken a loan for business purpose andwaiver of the loan, in those circumstances was not a loan takenfor purchase of capital assets, and therefore, chargeable the taxin terms of the provisions of Section 41(1) of the Act. It then applied the ratio in Mahindra and MahindraLtd. (supra), since the liability to repay the loan in that case hadbeen waived, the loan amount having been applied to creationof a capital asset of purchase of a car, and held that in that case,Section 41(1) of the Act would not be applicable. The relevantparagraphs of the judgment in The Commissioner of Income-Tax3 ..V/s.. M/s. Xylon Holdings Pvt. Ltd. (supra), are quoted for ready reference as under : “4. The Commissioner of Income Tax (Appeals) by an orderdated 31/10/2008 allowed the respondent-assessee’s appeal.The Commissioner of Income Tax (Appeals) held that theliability to repay a loan taken towards the purchase of amotor car which had ceased cannot be subjected to tax. Thisis for the reason that the extinguishment of the loan whichwas taken for the purchase of a capital asset like a motor car isnot a revenue receipt. Hence the same is not taxable. 8. We have considered the submissions. The issue arising inthis case stand covered by the decision of this Court in thematter of Mahindra & Mahindra (supra). The decision ofthis court in the matter of Solid Containers (supra) is oncompletely different facts and inapplicable to this case. In thematter of Solid Containers (supra) the assessee therein hadtaken a loan business purpose. In view of the consent termsarrived at, the amount of loan taken was waived by thelender. The case of the assessee therein was that the loan wasa capital receipt and has not been claimed as deduction fromthe taxable income in the earlier years and would not comewithin the purview of Section 41(1) of the Act. However, thisCourt by placing reliance upon the decision of the ApexCourt in the matter of CIT v. T.V. Sundaram Iyengar andSons Ltd. 222 ITR 344 held that the loan was received bythe assessee for carrying on its business and therefore, not aloan taken for the purchase of capital assets. Consequently,the decision of this Court in the matter of Mahindra andMahindra Limited (supra) was distinguished as in the saidcase the loan was taken for the purchase of capital assets andnot for trading activities as in the case of Solid ContainersLimited (supra). In view of the above, the decision of thisCourt in the matter of Solid containers Limited (supra) willhave no application to the facts of the present case and thematter stands covered by the decision of this Court in thematter of Mahindra & Mahindra Limited (supra). Thealternative submission that the amount of loan written offwould be taxable under Section 28(iv) of the Act also came up for consideration before this Court in the matter ofMahindra & Mahindra Limited (supra) and it was heldtherein that Section 28(iv) of the Act would apply only whena benefit or perquisite is received in kind and has noapplication where benefit is received in cash or money.” 11.In the present case, the Commissioner (Appeals) hasconsidered the nature of the transaction on the principalamount of Rs.15,22,32,432/- and after examining in greatdetail, the transaction which consisted waiver of the loan, hascome to the following conclusion : (a)That the assessee was a Sick Industrial undertakingunder BIFR. (b)That the principal amount of Rs.15,22,32,432/-was taken as a loan and applied to its capital reserv; thatamount was by way of a term loan given for purchasingcapital asset or for financing the business and was usedtowards project cost, which included purchase of landand other capital assets in the nature of machinery. Theterm loan was sanctioned by these banks towardsproject cost and the waiver of the principal amount byway of a settlement was correctly accounted for ascapital reserve, and was therefore, not in the nature ofan income, which would be covered under Section41(1) of the Act. (c)That in the above facts, since loan amount wasapplied towards creation of capital, the judgment of thisCourt in Mahindra and Mahindra Ltd. (supra), and-Commissioner of Income Tax3 (supra), would apply inall force to the facts of the case. Consequently, the Commissioner (Appeals), oncoming to a specific finding of fact that the waiver was of a loanapplied towards creation of capital, has proceeded to allow theappeal to the extent that the additions made by the AssessingOfficer of Rs.15,22,32,432/- were deleted from the Income ofthe assessee. 12.The ITAT, in the appeal filed by the revenue, whilstadverting to the very same facts in issue referred to by theCommissioner (Appeals), has concurrently held, after applyingthe ratio of the judgments in Mahindra and Mahindra Ltd.-(supra) and Commissioner of Income Tax3(supra), that thecessation of liability to repay the bank loan taken for purchaseof capital asset did not result in a revenue receipt and it was nottaxable under Section 28(iv) of the Act, or under Section 41(1)of the Act. 13.In our view, there are concurrent findings of fact ofthe Authorities below that the amount of Rs.15,22,32,432/-,which falls subject matter of the waiver of the loan, was appliedby the assessee for creation of capital assets, as found onexamining the record. There being a concurrent findings of facton this issue, a substantial questions of law proposed by therevenue, would not arise. We also find that the loans, which were waived wereapplied to creation of capital assets, the three substantialquestions of law proposed by the revenue would be squarelycovered by the judgment of the Hon’ble Supreme Court inCommissioner ..V/s.. Mahindra and Mahindra(supra), and ofthis Court inMahindra and MahindraLtd...V/s..-Commissioner of IncomeTax(supra), and The Commissioner-of Income Tax3 ..V/s.. M/s. Xylon Holdings Pvt. Ltd. (supra).This being a case covered by the settled law, no substantialquestions of law as proposed would arise. 14.The income tax appeal is dismissed. No costs. (VALMIKI SA MENEZES, J.) (DHIRAJ SINGH THAKUR, J.)