M/S. ACIT RG 10(1), MUMBAI v. THE MUSIC BROADCAST PVT. LTD, MUMBAI

ITA 4456/MUM/2008 | 2005-2006
Pronouncement Date: 30-04-2014

Appeal Details

RSA Number 445619914 RSA 2008
Assessee PAN AACCM4036H
Bench Mumbai
Appeal Number ITA 4456/MUM/2008
Duration Of Justice 5 year(s) 10 month(s)
Appellant M/S. ACIT RG 10(1), MUMBAI
Respondent THE MUSIC BROADCAST PVT. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2014
Appeal Filed By Department
Bench Allotted I
Tribunal Order Date 30-04-2014
Date Of Final Hearing 26-02-2014
Next Hearing Date 26-02-2014
Assessment Year 2005-2006
Appeal Filed On 30-06-2008
Judgment Text
I IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH MUMBAI BEFORE SHRI D. KARUNAKARA RAO AM AND VIVEK VARMA JM ./I.T.A. NO.4438/M/2008 ( / ASSESSMENT YEAR: 2005 - 2006 ) MUSIC BROADCAST PVT LTD. FLOOR 5 RNA CORPORATE PART OFF WESTERN EXPRESS HIGHWAY KALANAGAR BANDRA (E) MUMBAI - 400 0 51. / VS. ADDL. CIT - RANGE 10(1) R.NO.454 FLOOR 4 AAYAKAR BHAVAN MUMBAI 400 020. ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO.4456/M/2008 ( / ASSESSMENT YEAR: 2005 - 2006 ) ACIT - RANGE 10(1) R.NO.454 FLOOR 4 AAYAKAR BHAVAN MUMBAI 400 020. / VS. MUSIC BROADCAST PVT LTD. FLOOR 5 RNA CORPORATE PART OFF WESTERN EXPRESS HIGHWAY KALANAGAR BANDRA (E) MUMBAI - 400 051. ./ PAN : AACCM 4036 H ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SATISH KHOSLA MANISH MALLIK JAYESH KARIA MANJUSHA TODANKAR AND HEMANTWANI / REVENUE BY : S D SRIVASTAVA CIT - DR / DATE OF HEARING : 26.02 .2014 / D ATE OF PRONOUNCEMENT : 30 .04 .2014 / O R D E R PER D. KARUNAKARA RAO AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS. THESE TWO APPEALS ARE FILED AGAINST THE ORDER OF THE CIT (A) - X MUMBAI DATED 25.4.2008 FOR THE ASSESSMENT YEAR 2005 - 2006. SINCE THE GROUNDS RAISED IN BOTH THE APPEALS ARE CONNECTED T HEREFORE FOR THE SAKE OF CONVENIENCE THEY ARE CLUBBED HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE AND GROUND WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS. 2 ASSESSEES APPEAL - ITA NO.4448/M/2008 2. FIRSTLY WE SHAL L TAKE UP THE APPEAL ITA NO.4448/M/2008 WHICH IS FILED BY THE ASSESSEE ON 27.6.2008 AGAINST THE ABOVE CITED ORDER OF THE CIT (A) AND THE GROUNDS RAISED IN THIS APPEAL READ AS UNDER: 1. THAT THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR AS IT IS AGAINST TH E APPELLANT IS AGAINST THE LAW FACTS CIRCUMSTANCES NATURAL JUSTICE EQUITY AND ALL OTHER KNOWN PRINCIPLES OF LAW. 2. THAT THE TOTAL INCOME COMPUTED AND THE TOTAL TAX COMPUTED IS HEREBY DISPUTED. 3. THAT THE AUTHORITIES BELOW HAVE APPRECIATED THE ENTIRE I SSUE IN THE RIGHT PERSPECTIVE AND THE FINDINGS ARE TOTALLY AGAINST THE FACTS EMERGING ON RECORD. 4. THAT THE AUTHORITIES BELOW ERRED IN MAKING AN ADDITION OF RS. 8.10 CRS DISALLOWING THE INTEREST LIABILITY INCURRED BY THE APPELLANT. 5. THE CIT (A) ERRED IN CONFIRMING THE ABOVE ADDITION U /S 40(A)(IA) OF THE ACT ON THE PREMISE THAT THE APPELLANT HAD NOT DEDUCTED THE TDS . THE FINDINGS ARE CONTRARY TO THE LAW AND FACTS ON RECORD. 6. THE AUTHORITIES BELOW ERRED IN MAKING AN ADDITION OF RS. 1.45 CRS UNDER SECTIO N 43B OF THE ACT TOWARDS THE SERVICE TAX LIABILITY . FROM THE ABOVE MENTIONED GROUNDS GROUND NO.1 TO 3 ARE GENERAL IN NATURE. CONSIDERING THE GENERAL NATURE OF THE SAID GROUNDS THEY ARE DISMISSED AS GENERAL. FURTHER W ITH REGARD TO REST OF THE GROUND NO.4 TO 6 TWO ISSUES ARE THERE WHICH NEEDS TO BE ADJUDICATED. 3. THE FIRST ISSUE RELATES TO THE ADDITION OF RS. 8.10 CRS ON ACCOUNT OF INTEREST LIABILITIES. IN THIS REGARD THIS IS THE CASE OF THE ASSESSEE THAT THE SAID INTEREST INCOME WAS NOT PAYABLE BY THE ASSESSEE. ON THE OTHER HAND THE REVENUES CASE IS THAT THE SAME IS PAYABLE TO THE DIGIWAVE INFRASTRUCTURE & SERVICES LTD. BRINGING OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE CASE OF ITO VS. M/ S. DIGIWAVE INFRASTRUCTURE & SERVICES LTD VIDE ITA NO.690/MUM/ 2009 (AY 2005 - 2006) WHICH IS PLACED AT PAGE 12 TO 18 OF THE PAPER BOOK III LD COUNSEL MENTIONED THAT AN IDENTICAL ISSUE CAME BEFORE THE I TAT IN THE SAID CASE WHEREIN IN IT WAS HELD BY THE TR IBUNAL THAT THE SAID INTEREST AMOUNT ALREADY ACCRUED ACCORDINGLY THE TRIBUNAL UPHELD THE OPINION OF THE CIT (A) IN THAT CASE. THE P ARA GRAPHS 5 AND 6 OF THE SAID ORDER OF THE TRIBUNAL (SUPRA) DATE 30.6.2011 ARE RELEVANT IN THIS REGARD. FURTHER LD COUNS EL MENTIONED THAT THE ASSESSEE DEDUCTED THE TDS ON THE SAID INTEREST INCOME AND THE COPY OF WHICH SHALL BE MADE AVAILABLE TO THE AO IF THE MATTER WAS SET ASIDE TO HIS FILES. 3 4. ON THE OTHER HAND LD CIT - DR HAS NO OBJECTION IN THIS REGARD. 5. WE HAVE HEAR D BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE AS WELL AS THE CITED ORDER OF THE TRIBUNAL (SUPRA) DATED 30.6.2011 . ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL WE FIND THE PARA 5 AND 6 OF THE ITATS ORDER IS RELEVANT I N THIS REGARD. FOR THE SAKE OF COMPLETENESS OF THIS ORDER THE SAID PARAS ARE REPRODUCED HERE UNDER: 5 . THE ASSESSEE IS IN APPEAL AGAINST THE CONFIRMATION OF ADDITION OF RS. 8.1. CRS AS TAXABLE INTEREST. THE FACTS OF THIS GROUND ARE THAT ON THE ABOVE SAID LOAN OF RS. 139.58 CRS ADVANCED TO MBPL AT THE RATE OF 9% THE ASSESSEE DID NOT SHOW ANY INCOME AS INTEREST. THE AO HELD THAT INTEREST OF RS. 8.1 CRS ACCRUED TO THE ASSESSEE FROM MBPL ON SUCH LOAN. TH E ASSESSEE WAIVED OFF LOAN AND ALSO INTEREST OF RS. 16.97 CRS RECEIVABLE FROM MBPL. ON GOING THROUGH SCHEDULE 14 OF THE BALANCE SHEET IT WAS SEEN BY THE AO THAT THE ASSESSEE HAD GIVEN THE FOLLOWING NOTE: - DURING THE YEAR THE COMPANY HAS ENTERED INTO A GREEMENTS WITH BMPL AND OTHER WAVING / NOVATING THE LOAN OF RS.1 396 MILLION AND INTEREST RECOVERABLE OF RS. 170 MILLION AGGREGATING TO RS. 1 566 MILLION FROM MBPL. CONSEQUENTLY THE COMPANY HAS RECORDED A WRITE OFF RS. 1 566 MILLION. THE CURRENT YEARS INTEREST OF RS. 81 MILLION HAS ALSO BEEN WAIVED BY THE COMPANY. IN THE OPINION OF THE AO THE AMOUNT OF RS. 8.1 CRS WAS CHARGEABLE TO TAX . THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE LD CIT (A) ON THIS ISSUE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT THE ASSESSEE RECEIVED LOAN OF RS. 116.52 CRS FROM INDYA.COM AND GAVE LOAN OF RS. 139.58 CRS TO MBPL. THE ASSESSEE PAID INTEREST TO INDYA.COM AND ALSO CHARGED INTEREST FROM MBPL. AS PER THE AGR EEMENT DATED 31.3.2005 INDYA.COM WAIVED THE LOAN OF THE ASSESSEE - COMPANY. SIMILARLY MBPL INCURRED HUGE LOSSES AND WAS NOT IN A POSITION TO REPAY THE ADVANCE GIVEN BY THE ASSESSEE. ON 31.3.2005 THE MINUTES OF THE MEETING OF DIRECTORS OF THE ASSESSEE - COM PANY APPROVED THE WAIVER OF PRINCIPAL AMOUNT I.E. RS. 139.58 CRS DUE FROM MBPL. THE ACCRUED INTER E ST WAS NOT WAIVED . RATHER THIS SUM DUE FROM MBPL WAS DIVERTED IN FAVOUR OF ANOTHER COMPANY NAMED RADIOVANI FOR RS. 22 CRS. THUS IT IS EVIDENT THAT THE ASSESSEE - COMPANY DID NOT WAIVE THE ACCRUED INTERE ST BUT ASSIGNED THIS AMOUNT DUE FROM MBPL IN FAVOUR OF ANOTHER COMPANY FOR RS. 22 CRS. 6. FROM THE ABOVE WE FIND THAT THE FACTS ARE IDENTICAL AND THE ISSUE IS ONE AND THE SAME. WE HAVE NO INFORMATION ON THE ASSESSEES CLAIM OF TDS THEREFORE WE FIND MERIT IN THE PRAYER OF THE LD COUNSEL FOR REMANDING THE MATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUE COHERENTLY AFTER CONSIDERING THE SAID ORDER OF THE TRIBUNAL DATED 30.6.2011 IN THE CASE OF M/S. DIGI WAVE INFRASTRUCTURE & SERVICES LTD (SUPRA). AO IS DIRECTED TO MAINTAIN CONSISTENCY IN ACCORDANCE WITH THE RULES AND SET PRINCIPLES IN THIS REGARD. IT IS NEEDLESS TO 4 MENTION THAT THE ASSESSEE MAY BE AFFORDED A REASONABLE OPPORTUNITY OF BEING HEARD AS PER T HE PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY THE FIRST ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. 7. THE SECOND ISSUE RELATES TO THE ADDITION OF RS. 1.45 CRS U/S 43B OF THE ACT TOWARDS SERVICE TAX LIABILITY. AS MENTIONED IN THE ASSESSMENT ORDER (PARA 26) THE FOLLOWING IS THE FINDING OF THE AO NAMELY - 26. THE ASSESSEE HAS NOT ADDED THE SERVICE TAX LIABILITY OF RS 1.45 CRORES FOR TAX U/S 43B OF THE INCOME TAX ACT ON THE GROUND THAT IT IS NOT ROUTED THROUGH PROFIT AND LOSS ACCOUNT. THE ASSESSEES CONTEN TION IS NOT ACCEPTED AND FOLLOWING TH3E ASSESSMENT ORDER FOR THE AY 2004 - 05 THIS AMOUNT IS ADDED TO THE ASSESSEES INCOME. THIS AO RELIED HEAVILY ON THE FINDING IN THE AY IMMEDIATELY PRECEDING ONE. AT THE OUTSET LD COUNSEL FOR THE ASSESSEE MENTIONED TH AT THE ISSUE IS NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE VIDE THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2004 - 05 VIDE ITA NO.1317/M/2008 DATED 4.9.2009. PARA 2 OF THE SAID ORDER OF THE TRIBUNAL HAS REFERENCE TO THE ISSUE RELATING T O THE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 43B OF THE SERVICE TAX PAYABLE. THE SAID GROUND RAISED BY THE ASSESSEE WAS ALLOWED RELYING ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. NOBLE AND HEWITT (I) P. LTD 305 ITR 324 AS WELL AS THE DECISION OF THE ITAT CHENNAI BENCH IN THE CASE OF ACIT VS. REAL IMAGE MEDIA TECHNOLOGIES (P) LTD 114 ITD 573. 8. PARA 7 AND 8 OF THE SAID ORDER OF THE TRIBUNAL ARE RELEVANT IN THIS REGARD WHICH READ AS UNDER: 7. WE HAVE HEA RD THE RIVAL CONTENTIONS AND PERUSED THE FACTS ON RECORD. THE FACT IS THAT THE ASSESSEE HAS NOT CLAIMED ANY AMOUNT AS DEDUCTION AND THE SERVICE TAX PAYABLE IS NOT A SUM ALLOWABLE UNDER THE INCOME TAX ACT IN ASSESSEES COMPUTATION. IT IS A TAX CALCULATED B Y THE ASSESSEE ON BEHALF OF THE GOVERNMENT AND THE SAME CANNOT BE CONSIDERED AS SUM PAYABLE BY THE ASSESSEE. THE APPLICABILITY OF SERVICE TAX UNDER SECTION 43B HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THE ITAT CHENNAI IN THE CASE OF ACIT VS. REAL IMAGE MEDIA TECHNOLOGIES (P) LTD 114 ITD 573 WHEREIN IT IS HELD AS UNDER: THE RIGOUR OF THE PROVISIONS OF SECTION 43B WOULD BE ATTRACTED ONLY TO A CASE WHERE AN ITEM IS ALLOWABLE AS DEDUCTION BUT BECAUSE OF THE FAILURE TO MAKE PAYMENT SUCH DEDUCTION WOUL D NOT BE ALLOWED. THE REGOUR SECTION 43B MIGHT BE APPLICABLE TO THE CASE OF SALES TAX OR EXERCISE DUTY BUT THE SAME 5 COULD NOT BE SAID TO BE THE POSITION IN THE CASE OF SERVICE TAX BECAUSE OF TWO REASONS: FIRSTLY THE ASSESSEE IS NEVER ALLOWED DEDUCTION ON ACCOUNT OF SERVICE TAX WHICH IS COLLECTED ON BEHALF OF THE GOVERNMENT AND IS PAID TO THE GOVERNMENT ACCOUNT ACCORDINGLY THEREFORE A SERVICE PROVIDER IS MERELY ACTING AS AN AGENT OF THE GOVERNMENT AND IS NOT ENTITLED TO CL AIM DEDUCTION ON ACCOUNT OF SERVICE TAX. HENCE ON THIS ACCOUNT ALONG ADDITION UNDER SECTION 43B COULD NOT HAVE BEEN MADE AND THE SAME HAD BEEN CORRECTLY DELETED BY THE COMMISSIONER (APPEALS). SECONDLY SECTION 43B USES THE EXPRESSION ANY SUM PAYABLE . FOR MAKING ANY DISALLOWANCE FIRST OF ALL IT HAS TO BE ESTABLISHED THAT SUCH SUM IS PAYABLE. THE WORD PAYABLE USED IN SECTION 43B MEANS THAT THERE IS A KIND OF OBLIGATION ON THE PART OF PAYEE TO MAKE THE PAYMENT WHICH IS ALREADY DUE. A PLAIN READING O F RULE 6 OF THE SERVICE TAX RULES WOULD SHOW THAT SERVICE PROVIDER BECOMES LIABLE TO MAKE THE PAYMENT OF SERVICE TAX BY THE 5 TH OF THE MONTH IMMEDIATELY FOLLOWING THE CALENDAR MONTH IN WHICH THE PAYMENTS ARE RECEIVED TOWARDS THE VALUE OF TAXABLE SERVICE. THE FIRST PROVISO PROVIDES FOR AN EXCEPTION IN CASE OF INDIVIDUALS OR PROPRIETARY FIRMS OR PARTNERSHIP FIRSMS AND IN SUCH CASES SERVICE TAX HAS TO BE PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT BY THE 5 TH OF THE MONTH IMMEDIATELY FOLLOWING THE QUARTER O F CALENDAR YEAR IN WHICH THE PAYMENTS ARE RECEIVED. THE ONLY DIFFERENCE IS THAT IN CASE OF INDIVIDUAL OR PROPRIETARY OR PARTNERSHIP FIRM PAYMENT HAS TO BE MADE ON 5 TH OF THE FOLLOWING MONTH AFTER THE FOLLOWING QUARTER OF CALENDAR YEAR WHEREAS IN THE CASE OF OTHER ORGANIZATIONS IT HAS TO BE PAID ON 5 TH OF THE MONTH IMMEDIATELY FOLLOWING THE COLANDER MONTH. BUT IN BOTH THE CASES THE LIABILITY ARISES TO MAKE THE PAYMENT ONLY AFTER THE SERVICE PROVIDER HAS RECEIVED THE PAYMENTS. IF THERE IS NO LIABILITY TO M AKE THE PAYMENT TO THE CREDIT OF THE CENTRAL GOVERNMENT BECAUSE OF NON - RECEIPT OF PAYMENTS FROM THE RECEIVER OF THE SERVICES THEN IT CANNOT BE SAID THAT SUCH SERVICE TAX HAS BECOME PAYABLE IN TE RMS OF CLAUSE (A) OF SECTION 43B BECAUSE TH A T CLAUSE SPECIFIC ALLY MENTIONS SUM PAYABLE BY THE ASSESSEE. IN THE INSTANT CASE SINCE SERVICE TAX WAS NOT PAYABLE BY THE ASSESSEE THE RIGOR OF SECTION 43B COULD NOT BE APPLIED TO ITS CASE. UNDER THE CIR UMSTANCES THERE WAS NOTHING WRONG WITH THE ORDER OF THE COMMISSIONER (APPEALS) ON THE ISSUE AND THE SAME WAS TO BE CONFIRMED. 8. FURTHER THE HONBLE DELHI HIGH COURT IN THE CASE OF BOBLE AND HEWIT (I) P. LTD (SUPRA) ALSO CONSIDERED THAT THE AMOUNT CANNOT BE CONSIDERED UNDER SECTION 43 B AS THE ASSESSEE DID NOT DEBIT THE AMOUNT TO THE P & L ACCOUNT AS AN EXPENDITURE NOR CLAIMED ANY DEDUCTION. ON BOTH THE PRINCIPLES THE ASSESSEES CASE IS COVERED AS ASSESSEE HAS NOT DEBITED THE AMOUNT TO P & L ACCOUNT NOR CLAIMED ANY EXPENDITURE . MOREOVER ON THE FACTS ALSO THE ASSESSEE HAS RECEIVED ONLY AN AMOUNT OF RS. 79 69 798/ - AS PER THE PROVISIONS OF SERVICE TAX AND THE SAME WAS ALSO PAID WITHIN THE LIMIT PERMITTED. THE BALANCE OF AMOUNT EVEN THOUGH RAISED IN THE BILLS HAS NOT BEEN RECEIVED AN ACCORDING TO THE RULES TH E SAME NEED NOT BE PAID UNLESS IT IS RECEIVED. LOOKING AT THE FACTS OF THE CASE AS WELL AS LAW ON THE ISSUE WE ARE OF THE OPINION THAT THE AO AND CIT (A) HAVE ERRED IN CONSIDERING THE AMOUNT UNDER SECTION 145A CONSIDERED BY THE AO DOES NOT ARISE AT ALL A S IT IS NOT A CASE OF VALUATION OF INVENTORY. CONSIDERING THE ABOVE WE UPHOLD THE GROUNDS OF THE ASSESSEE AND DELETE THE ADDITION SO MADE. ACCORDINGLY THE GROUNDS ARE ALLOWED. 6 9. THUS AS ALREADY HELD BY THIS TRIBUNAL IN THE ASSESSEES OWN CASE THE S ERVICE TAX COLLECTED BY THE ASSESSEE ON BEHALF OF THE GOVERNMENT DOES NOT CONSTITUTES THE ANY SUM PAYABLE BY THE ASSESSEE PER SE WITHIN THE MEANING OF SECTION 43B OF THE ACT. HONBLE DELHI HIGH COURT IN THE CASE OF BOBLE AND HEWIT (I) P. LTD (SUPRA) AL READY HELD THAT THE AMOUNT COULD NOT BE CONSIDERED U /S 43B AS THE ASSESSEE DID NOT DEBIT THE AMOUNT TO THE P & L ACCOUNT AS AN EXPENDITURE NOR CLAIMED ANY DEDUCTION. CONSIDERING THE ABOVE SETTLED NATURE OF THE ISSUE WE ARE OF THE OPINION THAT THE ASSESSE E MUST WIN ON THIS GROUND ALSO. ACCORDINGLY ISSUE NO.2 IS DECIDED IN FAVOR OF THE ASSESSEE. ACCORDINGLY THIS ISSUE IS ALLOWED IN FAVOUR OF THE ASSESSEE . 10. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ITA NO.4456/M/2008 (AY 2005 - 06) (BY REVENUE) 11. THIS APPEAL FILED BY THE REVENUE ON 30/6/2008 IS AGAINST THE ORDER OF THE CIT (A) - X MUMBAI DATED 25.4.2008 FOR THE ASSESSMENT YEAR 2005 - 06. IN THIS APPEAL REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 139.58 CRS ON ACCOUNT OF WAIVER OF LOAN WITHOUT APPRECIATING THE FACT THAT: A. THE TRANSACTION OF WAIVER OF LOAN WAS CONSEQUENT TO TERMINATION OF SERVICE AGREEMENT AND THEREFORE TAXABLE AS REVENUE RECEIPT. B. THE WAIVER OF RS. 139.58 CRS IS A SUM CHARGEABLE U/S 41(1) OF THE ACT. C. ALTERNATIVELY THE SAID SUM IS TO BE TREATED AS BENEFIT U/S 28(IV) OF THE ACT BECAUSE THE LOAN REPRESENTS COM PENSATION FOR TERMINATION OF CONTRACT. D. ALTERNATIVELY THE EXTENT OF LOAN SPENT TO MEET THE REVENUE EXPENDITURE BE TREATED AS REIMBURSEMENT OF EXPENSES CLAIM IN EARLIER YEARS AND THUS THE LOAN AMOUNT WAIVED IS REVENUE RECEIPT IN NATURE AND TAXABLE. 2. (I) O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 12.55 CRS IN RESPECT OF DEPRECIATION HOLDING THAT COST OF ASSETS CANNOT BE REDUCED MERELY ON ACCOUNT OF WAIVER OF LOAN WITHOUT APPRECIATIN G THE FACT THAT CESSATION OF LIABILITY IN RESPECT OF CAPITAL ASSETS WOULD REDUCE THE ACTUAL COST U/S 43(1). (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) HAS ERRED IN NOT CONSIDERING THE FACT THAT ALTERNATIVELY THE DIFFE RENCE IN THE LOAN WAIVER IN RESPECT OF FI XED ASSETS (RS. 30 CRS ) AND W.D.V. OF ASSETS I.E. AN AMOUNT OF RS. 12.55 CRS IS TAXABLE AS SHORT TERM CAPITAL GAINS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) HAS ERRED IN REST RICTING THE ADDITION OF RS. 22 CRS MADE U/S 41(1) TO RS. 8.10 CRS WITHOUT APPRECIATING THE FACT THAT THE TRADING LIABILITY OF INTEREST OF RS. 22 CRS CEASED TO EXIST ON THE DAY OF ITS CONVERSION INTO A FRESH LOAN IN THE NAME OF M/S. DIGIWAVE WHICH WAS THE C ONSIDERATION FOR AGREEING TO THE TRI - PARTITE AGREEMENT DATED 17.1.2005. 7 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 80.16 LAKHS ON ACCOUNT OF DISALLOWANCE OF CLAIM OF 35D WITHOUT APPRECIATING THE FACTS OF THE CASE. 12. LAST GROUND FIRST THE GROUND NO.4 RELATES TO THE APPLICABILITY OF PROVISIONS OF SECTION 35 D OF THE ACT IN RESPECT OF ADDITION OF RS. 80.16 LAKHS ON ACCOUNT OF DEFERRED REVENUE EXPENDITURE. IN THIS REGARD LD COUNSEL BROUGHT OUR ATTENTION TO THE FACT THAT THE CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE CONSIDERING THE FACT THAT THE SAID DIFFERED REVENUE EXPENDITURE WAS CLAIMED BY THE ASSESSEE OVER THE FIVE YEARS A ND THE SAID CLAIM WAS EVEN TUALLY ALLOWED BY THE REVENUE. RELEVANT PARA GRAPHS 8.3 & 8.4 OF THE IMPUGNED ORDER READ AS UNDER: 8.3. THE APPELLANT HAS OBJECTED TO THE SAID DISALLOWANCE AS FOLLOWS: 1. THE DISALLOWANCE AND THE REASONS GIVEN BY THE AO IS UN SUSTAINABLE AND UNTENABLE IN LAW AND IS ALSO AGAINST THE PROVISIONS OF THE ACT ON THE FOLLOWING BASIS. 2 . THIS IS NOT THE FIRST YEAR OF CLAIM OF THIS EXPENDITURE UNDER SECTION 35D AND CORRESPONDING AMOUNTS IN EARLIER YEARS HAVE BEEN PERMITTED AS ALLOWABLE DEDUCTIONS U /S NDER SECTION 35D. 3 . NO COGENT REASONS HAVE BEEN PROVIDED IN THE ASSESSMENT ORDER AS TO WHY THE ASSESSEE IS NOT ELIGIBLE TO CLAIM A DEDUCTION UNDER SECTION 35D. 4 . GIVEN THE PROVISIONS OF SECTION 35D AN OBSERVATION THAT THE AMOUNT OF EXPENDITURE AMORTIZED IN AY 2005 - 06 DOES NOT RELATE TO AY 2005 - 2006 IS NOT GERMANE. 5 . UNDER PROVISIONS OF SECTION 79 OF THE ACT (PERTAINING TO NOT ALLOWING CARRY FORWARD AND SET OFF OF LOSSES OF EARLIER YEARS IN THE CASE OF CHANGE IN SUBSTANTIAL SHAREHOLD ING) WHAT IS NOT PERMITTED TO BE SE T OFF OR CARRIED FORWARD IS THE BUSINESS LOSSES OF THE EARLIER YEARS THAT HAVE BEEN BROUGHT FORWARD ED NOT THE PRELIMINARY EXPENDITURE INCURRED AND SPECIFICALLY ALLOWED U /S 35D .. . IN VIEW OF THE ABOVE THE CLAIM FOR A DED UCTION MADE UNDER SECTION 35 D OF THE ACT SHOULD BE PERMITTED UNDER SECTION 35 D AND HENCE THE DISALLOWANCE MADE IN THE ASSESSMENT ORDER IN VIEW OF THE PROVISIONS OF SECTION 79 IS INCORRECT AND SHOULD BE DELETED. 8.4. IT IS SEEN THAT AMORTIZATION U/S 35 D IS ALLOWED IN EARLIER YEARS . SINCE THE BUSINESS HAS CONTINUED THE TREATMENT GIVEN I N THE EARLIER YEARS HOLDS GOOD FOR THIS YEAR ALSO . SECTION 79 IS INAPPLICABLE FOR THIS ISSUE AS TO THE EXTENT OF CLAIM FOR THE YEAR IS CURRENT YEARS EXPENDITURE AND NOT PREVIOUS YEARS LOSS. HENCE THE ASSESSEE GETS THE BENEFIT OF CLAIM U/S 35D. THE AO SHALL ALLOW THE ELIGIBLE DEDUCTION U/S 35D OF THE ACT. THE CLAIM OF THE ASSESSEE IS UNDISPUTEDLY ALLOWED BY THE REVENUE IN EARLIER YEARS. CIT(A) GRANTED RELIEF TO THE ASSESSEE BASED ON THESE FACTS AND THE CONTENTS OF PARA 8.4 ABOVE EXTRACT IS RELEVANT . CONSIDERING THE ABOVE AS WELL AS FOLLOWING THE PRI NCIPLE OF CONSISTENCY WE ARE OF THE OPINION THAT THE CIT (A) HAS RIGHTLY ADJUDICATED THE ISSUE OF ALLOWABILITY OF THE CLAIM U/S 35D OF THE ACT. NOTHING IS BROUGHT TO OUR NOTICE THAT THERE WAS NO SUCH CLAIMS IN THE EARLIER YEARS AND THE SAME WAS FINALLY RE VERSED BY THE TRIBUNAL. THEREFORE C ONSIDERING THE FAIRNESS AND UPHOLDING THE PRINCIPLE OF CONSISTENCY GROUND NO.4 RAISED BY THE REVENUE IS DISMISSED . 8 13. GROUND NO.1 2 AND 3 ARE INTER CONNECTED . WHILE GROUND NO.1 RELATES TO THE ADDITION ON ACCOUNT OF THE WAIVER OF LOAN OF RS. 139.58 C RS U/S 41(1)/28(IV) OF THE ACT GROUND NO.2 IS RAISED IN CONNECTION WITH SHORT TERM CAPITAL GAINS OF R 12.55 CR THE DIFFERENCE BETWEEN RS 30 CR AND THE WDV OF THE FIXED ASSETS WHICH ARE PURCHASED WITH THE SAID LOAN . BAS ICALLY THIS GROUND SUPPORTS THE APPLICABILITY OF PROVISIONS OF SECTION 50A OF THE ACT. FINALLY G ROUND NO.3 RELATE S TO THE DIRECTION OF THE CIT(A) WHO RESTRICTED THE DISALLOWANCE TO RS 8.1 CR AGAINST RS 22 ADDED BY THE AO. FOR THE SAKE OF CONVENIENCE AL L THREE GROUNDS WITH THEIR SUB - GROUNDS ARE CONSIDERED AND ADJUDICATED IN THE FOLLOWING PARAGRAPHS OF THIS ORDER . 14. RELEVANT FACTS IN THIS REGARD ARE THAT THE ASSESSEE BELONGS TO THE STAR INDIA GROUP OF COMPANIES ALONG WITH M/S. DIGIWAVE INFRASTRUCTURE & S ERVICES LTD (DIGIWAVE) AND M/S. RADIOWANI HOLDINGS PVT. LTD (RADIOVANI). ASSESSEE IS IN THE BUSINESS OF FM BROADCASTING SERVICES SINCE 1999. DURING YEAR S 8.2.2001 TO 17.1.2005 ASSESSEE RECEIVED AGGREGATE LOAN OF RS. 139.58 CRS FROM DIGIWAVE . CIT (A) EXTRACTED THE OTHER DETAILS IN THIS REGARD IN PARA 1.11 OF HIS ORDER WHICH READ AS UNDER: 1.11.. M/S. DIGIWAVE HAD PROVIDED TO THE APPELLANT COMPANY ON VARIOUS DATES LOAN OF RS. 139.58 CRS. THE SAID LOAN WAS SECURED ON HOST OF SECURITIES; CONSISTING OF SHARES HYPOTHECATION OF MOVABLES RECEIVABLE ETC AND WAS ALSO SECURED ON OTHER TANGIBLE AND INTANGIBLE PROPERTIES OF THE APPELLANT COMPANY. INITIALLY THE LOAN CARRIED INTEREST AT THE RATE OF 12% P.A AND LATER ON WAS REDUCED TO 10% P.A. TH E INTEREST PAYABLE HAS BEEN DULY ACCOUNTED IN THE BOOKS OF ACCOUNTS AND HAS BEEN CLAIMED AS DEDUCTION OVER THE YEARS. INTEREST HAS BEEN ALLOWED BY THE SUCCESSIVE ASSESSING OFFICERS IN THE ASSESSMENT ORDERS PASSED U/S 143(3) FOR VARIOUS YEARS INCLUDING THE IMPUGNED YEAR. THE ASSESSEE COM P A NY HAS UTILIZED THE AMOUNT SO BORROWED FOR THE PURPOSES OF ITS BUSINESS. IT IS ESTIMATED THAT ABOUT RS. 30 CRS HAS BEEN UTILIZED FOR ACQUISITION OF VARIOUS FIXED ASSETS AND THE BALANCE HAS BEEN UTILIZED TOWARDS ITS REGULA R BUSINESS TO MEET REVENUE EXPENDITURE . IT I S ALSO POINTED OUT BY THE ASSESSI NG OFFICER TH A T LARGE AMOUNT OF THIS LOAN WAS UTILIZED FOR PAYMENT OF LICENSE FEE TO MINISTRY OF INFORMATION AND BROADCASTING GOVERNMENT OF INDIA FOR SECURING AN RENEWAL OF LICE NSE FOR CARRYING ON THE BUSINESS OF RADIO BROADCAST. OVER A PERIOD OF TIME THE ASSESSE E HAS INCURRED MASSIVE BUSINESS LOS S AND AS AT THE YEAR ENDED 31.3.2005 THE ACCUMULATED LOSSES ARE TO THE TUNE OF RS. 112 CRS . EVEN DURING THE ASSESSMENT YEAR IN APPEAL IT HAS INCURRED LOSS. HOWE V ER ON ASSESSMENT IN VIEW OF THE ADDITIONS THE TOTAL INCOME HAS BEEN DETERMINED ON A POSITIVE INCOME. THROUGH AN AGREEMENT DATED 17.1.2005 21.1.2005 & 22.1.2005 THE SAID DIGIWAVE HAS WAIVED THE ENTIRE PRINCIPLE AMOUNT OF RS. 139.58 CRS. ON THE SAID DATE DIGIWAVE WAS DUE TO RECEIVE THE SUM OF RS. 139.58 CRS PLUS ACCUMULATED INTEREST OF RS. 25.1 CRS . AS MENTIONED THE ENTIRE PRINCIPAL AMOUNT WAS WAIVED WHEREAS OUT OF THE INTEREST OUTSTANDING A SUM OF RS. 3.1 CRS WAS WAIVED AND THE BALANCE RS. 22 CRS WAS ASSIGNED IN FAVOUR OF ANOTHER COMPANY M/S. RADIOVANI HOLDINGS PVT LTD. 9 15. THUS THE ENTIRE PRINCIPLE OF RS. 139.58 CRS WAS WAIVED AND THE ASSESSEE REPORTED THE SAME IN THE GENERAL ACCOUNT OF THE BALANCE SHEET AND NOT CREDITED TO THE P & L ACCOUNT . THEREFORE THE SAME WAS NOT OFFERED AS INCOME U/S 41(1) OF THE ACT. REGARDING THE INTEREST ACCRUED THEREON A SUM OF RS. 3.1 CRS WAS ALSO WAIVED WHICH WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT AND THE SAME WAS OFF ERED UNDER SECTION 41(1) OF THE ACT. R EGARDING THE BALANCE OF RS. 22 C RS IT WAS MENTIONED THAT THE SAID INTEREST AMOUNT WAS ASSIGNED IN FAVOUR OF THE ANOTHER COMPANY NAMED M/S. RADIOVANI. IN FACT THE SAID SUM OF RS 22 CR IS PAID SUBSEQUENTLY AFTER MAKIN G TDS AS PER THE STATUTE. EVENTUALLY IN ADDITION TO THE INTEREST AMOUNT OF RS 22 CR THE A O BROUGHT THE SAID SUM OF RS. 139.58 CRS TO TAX U/S 41(1) OF THE ACT AND ALTERNATIVELY U/S 28(IV) OF THE ACT. SUMMARY OF THE AOS CONCLUSIONS ARE NARRATED IN PARA 1.13 OF THE IMPUGNED ORDER WHICH READ AS UNDER: 1.13 THE ASSESSING OFFICER HAS GONE THROUGH THE ISSUE AT LENGTH AND HAS MADE THE ADDITION BY TAKING ALTERNATI V E PLEAS WHICH ARE CAPTURED HEREUNDER: 1. THE AO HAS HELD THAT THE WAIVER OF RS. 139.58 CRS IS A SUM CHARGEABLE UNDER THE SECTION 41(1) OF THE ACT. 2. ALTERNATIVELY THE SAID SUM IS TREATED AS BENEFIT US/ 28(IV) OF THE ACT. 3. THAT AT LAST TO THE EXTENT OF LOAN SPENT TO MEET THE REVENUE EXPENDITURE THE LOAN IS TO BE TREATED AS REIMBURSEMENT OF EXPENSES BY DIGIWAVE AND THUS THE LOAN AMOUNT IS REVENUE IN NATURE. 4. THE AMOUNT WAIVED OF RS. 30 CRS UTILIZED FOR ACQUISITION OF FIXED ASS ETS AND CONSEQUENTLY U/S 43(1) THE COST OF FIXED ASSETS SHOULD BE ADJUSTED WITH THE EQUIVALENT AMOUNT OF THE LOAN WAIVED. 5. OTHER ARGUMENTS OF THE ASSESSING OFFICER. 16. EVENTUALLY AT THE END OF THE FIRST APPELLATE PROCEEDINGS CIT (A) HELD THAT THE PRO VISIONS OF SECTION 41(1) ARE NOT TO BE APPLIED IN THIS CASE ON THE ISSUE OF THE ADDITION OF RS. 139.58 CRS FOR THE REASON THAT RELEVANT AMOUNTS WERE NEVER CLAIMED AS LOSS OR EXPENSES OR AS BENEFIT BY THE ASSESSEE. PARA 2.9 OF THE IMPUGNED ORDER IS REL EVANT IN THIS REGARD AND THE SAME READS AS UNDER: 2.9. ON VERIFICATION OF FACTS IN THIS CASE I FIND THAT THE SAID LOAN HAS NEVER HAS BEEN CLAIMED BY THE ASSESSEE NOR HAS BEEN ALLOWED BY THE ASSESSING OFFICER AS LOSS EXPENDITURE OR TRADING LIABILITY IN ANY OF THE PREVIOUS YEARS. HENCE IN THIS CASE SECTION 41(1) CANNOT BE INVOKED. THE AO IS CLEARLY IN ERROR IN INVOKING SECTION 41(1) OF THE IT ACT AS THE SAME IS AGAINST THE EXPRESS TENETS OF THE SECTION BESIDES THE RULING OF THE HIGH COURT. 17. ON T H E APPLICABILITY OF SECTION 28(IV ) CIT (A) RELIED HEAVILY ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD VS. CIT [261 10 ITR 501 (BOM)] AND THE CONTENTS OF THE PARA 3.15 OF THE IMPUGNED ORDER READ AS UNDER: 3.15. I FIND THAT IN THE INSTANT CASE ALSO THERE HAS BEEN A WAIVER OF LOAN. TO THAT EXTENT THE RATIO OF THE DECISION OF BOMBAY HIGH COURT IN MAHINDRA & MAHINDRA WOULD SQUARELY APPLY. 18. CIT (A) ANALYZED THE APPLICABILITY OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. TVS SUNDARAM IYENGAR & SONS LTD 222 ITR 344 (SC) AND DISTINGUISHED THE SAME AS PER THE DISCUSSION GIVEN IN PARA 3.16.4 WHICH READ AS UNDER: 3.16.4. THE FACTS IN THE ABOVE CASE ARE DISTINGUISHABLE ON THE FOLLOWING COUNTS: 1. IN THAT CASE THE ISSUE WAS REGARDING TREATMENT OF UNCLAIMED BALANCES WERE CLAIM WAS BARRED BY LIMITATION AND THE ASSESSEE CREDITED THOSE AMOUNTS TO THE P& L ACCOU NT. WHEREAS IN THE PRESENT CASE THERE HAS BEEN A POSITIVE ACT OF REMISSION BY THE LENDER AND THE ASSESSEE HAS CONVERTED THE REMITTED PAT OF THE LOAN INTO A CAPITAL RESERVE WITHOUT MAKING ANY ENTRIES THOUGH P & L ACCOUNT. 2. FURTHER IN THE CASE OF T.V. SUND ERAM IYENGAR & SONS NO VIEW HA S BEEN EXPRESSED BY THE HONBLE SUPREME COURT ON THE PROVISIONS OF SECTION 28(IV) AND IN FACT THE SUPREME COURT HAS NOT REFERRED TO ANY SPECIFIC PROVISIONS OF THE ACT. HOWEVER THE ISSUE BEFORE ME IS STRICTLY WITH REFERENCE TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 28(IV). 3. IN THE INSTANT CASE THE BUSINESS OF THE ASSESSEE IS NOT GIVING AND TAKING OF LOANS. THE ASSESEES BUSINESS IS THAT OF RADIO BROADCASTING. THEREFORE THE LOAN RECEIVED BY THE ASSESSEE WAS NOT FROM ITS CUSTOMERS / DEBTORS. 4. LOAN HAS BEEN RECEIVED FROM DIGIWAVE BY A SEPARATE LOAN AGREEMENT AGAINST HYPOTHECATION OF THE COMPANY MOVABLE AND IMMOVABLE ASSETS. 5. THE RELATIONSHIP OF DIGIWAVE WITH THE APPELLANT IS THAT OF A CREDITOR AND NOT OF A DEBTOR; THIS IS CONTRARY TO THE ABOVE CITED DECISIONS IN THE ORDER OF THE AP EX COURT. 6. THE LOAN AMOUNT HAS NOT BEEN ADJUSTED AGAINST ANY OTHER DUES TO M/S. DIGIWAVE UNLIKE THE ABOVE CITED CSES WHEREIN DEPOSITS WERE BEING ADJUSTED AGAINST SALES. 19. FURTHER HE ALSO DISCUSSED OTHER DECISIONS IN PARAS 3.16.1 ONWARDS AND HELD THAT THE PROVISIONS OF SECTION 28(IV) HAVE NO APPLICATION HERE. THE CONTENTS OF PARA 3.20 IS RELEVANT HERE WHICH READS AS UNDER: 3.20. ON THE OTHER HAND WAIVER OF LOAN IS NOT A BENEFIT OR PERQUISITE COVERED BY SECTION 28(IV). ON THE SAME ISSUE THE GUJARAT HI GH COURT IN CIT VS. CHETAN CHEMICALS (P) LTD 267 ITR 770 HAS EXAMINED THE APPLICABILITY OF SECTION 28(IV) AND HAS HELD THAT THE REMISSION OF SUCH LOAN BY CREDITOR OF THE COMPANY WOULD NOT AMOUNT TO A BENEFIT LIABLE TO TAX U/S 28(IV) OF THE ACT. RECENTLY THE SAME VIEW WAS REITERATED BY THE GUJARAT HIGH COURT IN 215 CTR 16. THE DISTINCTION DRAWN BY THE ASSESSING OFFICER THAT THE LOAN WAS UTILIZED FOR REVENUE PURPOSES AND CONSEQUENTLY MAHINDRA AND MAHINDRA DECISION WOULD BE INAPPLICABLE IS ALSO CONTRARY TO THE DECISN OF THE ITAT IN 67 ITD 304. IT IS HELD THAT THE LOAN WAIVER DOES NOT AMOUNT INCOME U/S 41(1) OR 28(IV). IN THIS CASE THE LOAN WAS OBTAINED FOR PURCHASE OF SHARES BY THE ASSESSEE WHO WAS DEALING IN SHARES AND SECURITIES. THERE ARE LARGE NUMBE R OF DECISIONS OF ITAT IN 101 ITD 103 14 SOT 546 AND OTHER CASES IN SUPPORT OF THE APPELLANTS CONTENTION AND AGAINST THE VIEW TAKEN BY THE ASSESSING OFFICER. IN THIS REGARD VIEW TAKEN BY THE SUPREME COURT IN 219 ITR 694 IN INTERPRETING THE WORDS WHETHE R CONVERTIBLE INTO MONEY OR NOT ALSO GO IN FAVOUR OF THE ASSESSEE. THUS VIEWED FROM THE ANGLE OF DECISIONS RELIED ON BY THE APPELLANT WHICH ARE DIRECT 11 ON THE ISSUE DUTY BOUND AS I AM TO FOLLOW THE DECISION OF JURISDICTIONAL HIGH COURT AND OTHER CASE LA WS DIRECTLY ON THE SUBJECT I HOLD THAT SECTIN 28(IV) IS ALSO NOT APPLICABLE INTHIS CASE. THE VIEW TAKEN BY THE ASSESSING OFFICER IS ERRONEOUS IN THE CONTEXT OF THE ABOVE SAID DECISIONS. 20. FURTHER IN CONNECTION WITH THE AOS ARGUMENT TO THE EXTENT TH AT THE LOAN WAS SPENT FOR REVENUE EXPENDITURE THEREFORE THE LOAN SHOULD BE TREATED AS REIMBURSEMENT OF EXPENSES BY DIGIWAVE AND THUS THE LOAN AMOUNT IS IN THE NATURE OF REVENUE PARA 4 ONWARDS IS RELEVANT IN THIS REGARD. FINALLY THE CIT (A) DISAPPROVED THE AOS FINDING AND HELD THAT THE VIEW OF THE ASSESSING OFFICER IS UNSUSTAINABLE. CONTENTS OF PARA 4 .4 ARE RELEVANT IN THIS REGARD WHICH READ AS UNDER: 4.4. ALL THAT SECTION 41(1) HAD DONE WAS TO NULLIFY THIS PRINCIPLE TO THE LIMITED EXTENT OF DEDUCTIONS WHICH HAVE BEEN ALLOWED IN COMPUTATION OF INCOME BUT WAS ULTIMATELY NOT FOUND PAYABLE. IT ALSO FOLLOWS THAT WHAT IS ESSENTIALLY A CAPITAL RECEIPT CANNOT BE LIGHTLY BROUGHT TO TAX AS INCOME UNLESS SUCH DEEMING IS DONE IN LANGUAGE WHICH DOES NOT ADMIT OF ANY AMBIGUITY. HENCE WITHOUT THE APPLICABILITY OF SECTION 41(1) REIMBURSEMENT OF EXPENSES WOULD NOT BE TAXABLE. IT HAS ALREADY BEEN HELD BY ME ABOVE THAT SECTION 41(1) IS NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. THEREFORE BOTH FROM THE FACTUAL PERSPECTIVE LEGALLY AND LOGICALLY SUCH A CONTENTION IS UNTENABLE HENCE IT IS REJECTED. 21. THE SECOND GROUND RELATES TO THE ADDITION OF RS. 12.55 CRS ON THE ISSUE OF APPLIC ABILITY OF EXPLANATION 10 OF SECTION 43(1) OF THE ACT WHICH HAD EFFECT OF DEPRECIATION CLAIM AMOUNTING TO RS. 12.55 CRS IN RESPECT OF THE PART OF THE LOAN OF RS. 139.58 CRS UTILIZED FOR PURCHASES OF FIXED ASSETS. ON THE AOS DISALLOWANCE OF RS. 12.55 CRS FOR THE AY 2005 - 2006 CIT (A) NOTED THE WAIVER OF LOAN DOES NOT AMOUNT TO SUBSIDY OR GRANT OR REIMBURSEMENT WHICH ALONE IS COVERED BY THE SAID EXPLANATION 10. HE HELD THAT THE SAID WAIVER NO WAY RESULT IN REDUCTION OF COST OF ACQUISITION OF THE ASSETS. FOR THIS HE RELIED ON THE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. COCHIN CO. (P) LTD (184 ITR 230). PARA 5.7 OF THE CIT (A)S ORDER ARE RELEVANT IN THIS REGARD WHICH READ AS UNDER: 5.7. IN VIEW OF THE ABOVE IT IS SUBMITTED THAT THE ASSESSEES CASE IS COVERED BY RATIO OF THE ABOVE JUDGMENT AND THEREFORE THE COST OF THE ASSETS CANNOT BE REDUCED MERELY ON ACCOUNT OF WAIVER OF THE LOAN. 22. HE ALSO REFERRED TO THE JUDGMENT IN THE CASE OF CIT VS. HIDES AND LEATHER PRODUCTS PRIVATE LIMITED 101 ITR 61 AS WELL AS THE JUDGMENT IN THE CASE OF SAHARANPUR ELECTRIC SUPPLY CO. LTD AND OTHERS VS. CIT 194 ITR 294 FOR IDENTICAL 12 PROPOSITION. FINALLY CIT (A) DELETED THE ADDITION OF RS. 12.55 CRS AS P ER THE DISCUSSION GIVEN IN PARA 5.10 AND 5.11 OF THE IMPUGNED ORDER WHICH READ AS UNDER: 5.10. IN CONNECTION TO THE ABOVE IT IS SUBMITTED THAT THE ASSESSEE DID NOT RECOVER THE COST OF THE ASSET AS DONE IN THE ABOVE CASES. THE COST OF THE ASSET WAS DISCH ARGED A THE TIME OF PURCHASE ITSELF AND WAIVER OF THE LOAN WHICH WAS UTILIZED TO PURCHASE THE ASSET DOES NOT IMPLY THAT THE COST HAS BEEN MET BY THE LENDER. THE LOAN WAS OBTAINED TO MEET THE ASSESSEES BUSINESS REQUIREMENTS AND WAS NOT OBTAINED MERELY TO F UND THE PURCHASE OF THE ASSETS. PURSUANT TO THE ENQUIRIES CONDUCTED BY THE MIB DIGIWAVE WAIVED THESE LOANS AND THE WAIVER WAS NO CORRELATION WITH THE PURCHASE OF ASSETS. IN VIEW OF THE ABOVE WE WISH TO SUBMIT THAT THE RATIO OF THE ABOVE JUDGMENTS IS NO T APPLICABLE TO THE ASSESSEES CASE DUE TO THE DIFFERENCE IN THE FACTS. 5.11. FOR THE DETAILED DISCUSSION REASONS AND THE DECISION GIVEN FOR GROUND NO.1 ABOVE THIS GROUND ALSO GOES IN FAVOUR OF THE APPELLANT. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 23. ON THE ISSUE OF APPLICABILITY OF PROVISIONS OF SECTION 50A AND THE TAXING OF THE SHORT TERM CAPITAL GAINS IT IS THE FINDING OF THE REVENUE OFFICERS THAT THE ASSETS WORTH RS. 30 CRS WERE PURCHASED OUT OF THE SAID LOAN OF RS. 139.58 CRS CIT (A) CONSIDERED THE FOLLOWING SUBMISSIONS OF THE ASSESSEE AND ALLOWED THE CLAIM OF THE ASSESSEE AS UNDER: 6.1. WITH REGARD TO THIS GROUND THE APPELLANT HAS SUBMITTED AS FOLLOWS: IN THIS CONTEXT IT IS SUBMITTED THAT THERE HAS BEEN NO SALE OF ASSETS DURING THE AY 2005 - 06 AND THEREFORE THE PROVISIONS RELATING TO CAPITAL GAINS INCLUDING SECTION 50A (IN RELATION TO CAPITAL GAINS ON A DEPRECIABLE CAPITAL ASSET) CANNOT APPLY IN THE ASSESSEES CASE. IT MAY BE NOTED THAT THE PROVISIONS OF SECTION 50A APPL Y ONLY IN THE CONTEXT OF SECTIONS 48 AND 49 WHICH RELATE TO CAPITAL GAINS ONLY AND HENCE SECTION 50A HAS NO APPLICABILITY TO THE ASSESSEES CASE. 6.2. F OR THE DETAILED DISCUSSION REASONS AND THE DECISIONS GIVEN FOR GROUND NO.1 THIS GROUND ALSO GOES IN FAVOUR OF THE APPELLANT. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. THUS THE CIT(A) HELD THAT THE PROVISIONS OF SECTION 50A OF THE ACT HAS NO APPLICATION TO THESE TRANSACTIONS AND DELETED THE ADDITION OF RS 12.55 CRORES. 24. IN CONNECTION WITH GROUND NO.3 IT IS SUBMITTED THAT THE AO MADE ADDITION OF RS. 22 CRS ON ACCOUNT OF INTEREST ACCRUED U/S 41(1) OF THE ACT. THIS IS THE INTEREST ASSIGNED TO RADIOVANI ASSESSEE OFFERED ONLY A SUM OF RS. 3.1 CRS U/S 41(1) OF THE ACT AND NO T THE SAID AMOUNT OF RS. 22 CRS. IT IS THE SUBMISSION OF THE ASSESSEE THAT THE SAID AMOUNT OF RS. 22 CRS WAS PAID SUBSEQUENTLY TO THE RADIOVANI. AS PER THE DISCUSSION GIVEN IN PARA 7.4 OF THE IMPUGNED ORDER CIT (A) RESTRICTED THE DISALLOWANCE TO RS. 8.1 CRS INSTEAD OF RS. 22 CRS STATING THAT THE SAID AMOUNT WAS NOT ACCRUED CONSIDERING THE FAILURE OF TDS PROVISIONS READ WITH SECTION 40(A)(IA) OF THE ACT. THE SAID PARA 7.4 READS AS UNDER: 13 7.4. I HAVE EXAMINED THE ISSUE AND THE FACTS THERE IS NO DOUBT THAT THE APPELLANT PAID RADIOVANI THE SUM OF RS. 22 CRS IN THE FY 2006 - 2007. IN THE CIRCUMSTANCES IT IS NOT CORRECT TO HOLD THAT THERE WAS REMISSION OF EXPENSES. HOWEVER IT IS SEEN THAT THE INTEREST ACCRUED FOR FY 2004 - 2005 AMOUNTED TO RS. 8.10 LAKHS HAS N OT BEEN REFLECTED IN THE BOOKS OF ACCOUNTS OF DIGIWAVE FOR THE SAME PERIOD. IN ITS BOOKS OF ACCOUNTS DIGIWAVE HAS NOT CREDITED THE INTEREST FOR AY 2004 - 05 ON THE SUBMISSION THAT THE SAME HAVE BEEN WAIVED. I ALSO FIND THAT THE APPELLANT HAS NOT DEDUCTED AN Y TAX ON THIS AMOUNT IN THE CURRENT YEAR. HENCE EVEN BY VIRTUE OF SECTION 40(A)(IA) THIS AMOUNT IS NOT ALLOWABLE AS DEDUCTION. IN ITS CIRCUMSTANCES THE AO IS DIRECTED TO REDUCE THE DISALLOWANCE TO ONLY RS. 8.10 CS AGAINST RS. 22 CRS DISALLOWED. IN T HIS REGARD LD COUNSEL BROUGHT OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE CASE OF DIGIWAVE AND SAID ISSUE RELATING TO THE INTEREST OF RS. 8.1 CRS WAS DISCUSSED AND ALLOWED IN FAVOUR OF THE ASESSEE VIDE DISCUSSION GIVEN IN PARA 6 OF THE IMPUGNED ORDE R. THERE THE TRIBUNAL HELD THAT THE SAID AMOUNT OF RS. 8.1 CRS WAS ALSO ACCRUED. THEREFORE THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED IN CASE OF THE ASSESSEE ALSO CONSIDERING THE PRINCIPLES OF CONSISTENCY. CIT(A) CONFIRMED THE ADDITION TO THE EXTENT OF RS 8.1 CR IGNORING THE ASSESSEES CLAIM THAT THE ASSESSEE MADE TDS AS PER THE RELEVANT PROVISIONS CONSIDERING THE ABSENCE OF TDS CERTIFICATES. HOWEVER IN CONNECTION WITH THE REST OF THE ADDITION (IE RS 22 CR RS 8.1 CR) CIT(A) HE CONSIDERED THE ASSESSE ES SUBMISSION THAT THE WHOLE OF THE AMOUNT WAS ACTUALLY PAID BY THE ASSESSEE IN LATER AYS. WHEN THE LIABILITIES ARE SUBSEQUENTLY PAID THERE IS NO CASE OF CESSATION OF LIABILITIES AND THE ADDITION U/S 41(1) OF THE ACT IS NOT SUSTAINABLE. AGGRIEVED WITH THE SAID DELETION OF ADDITION THE REVENUE IS IN APPEAL. THUS THE CIT(A) GRANTED RELIEF TO THE ASSESSEE AS DISCUSSED PRO - TANTO. BEFORE THE ITAT 25. AGGRIEVED WITH THE ABOVE ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. LD CIT - DR FOR THE REVENUE NARRATED ABOVE FACTS OF THE ISSUES LEADING TO THE WAIVER OF THE LOAN OF RS. 139.58 CRS GIVEN BY THE DIGIWAVE TO THE ASSESSEE OVER THE PERIOD OF TIME AND OTHER BENEFITS THE ASSESSEE RECEIVED AND MENTION ED THAT TH ESE BENEFITS CONSTITUTE A CASE OF CESSATION OF LIABILITIES . THE REFORE THO SE BENEFITS ARE REQUIRED TO BE TAXED IN THE HANDS OF THE ASSESSEE AS IT IS ENRICHED ITSELF TO THAT EXTENT. IN THIS REGARD LD DR ARGUED THAT (I) THE TRANSACTION S IN QUESTION ARE D ONE AMONG GROUP CASES AND THERE IS NEED FOR LIFTING OF THE CORPORATE VEIL; (II) THE LOAN AMOUNT HAS BECOME THE INCOME OF THE ASSESSEE WHEN THE LOAN IS WAIVED; (III) THE MANNER OF APPLICATION OF THE SAID LOAN SUGGESTS THAT THE SAME IS A REVENUE IN 14 NATURE; ( IV) THE WAIVER BEING IN THE NATURE OF COMPENSATION SUPPORTIVE THE REVENUE NATURE OF THE LOAN; (V) THE COMMONSENSE APPROACH SUGGESTS THAT THE APPLICABILITY OF THE LOAN WITHOUT IT IS WAIVED; (VI) THE APPLICABILITY OF THE JUDGMENT IN THE CASE OF TVS SUNDARA M IYENGAR & SONS LTD (SUPRA); JUDGMENT OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. VARDHAMAN OVERSEAS LTD [2012] 343 ITR 408 (DELHI); JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD VS. DCIT [2009] 308 ITR 417 (B OM) ; CHIP SHAFT LTD ETC . 26. PER CONTRA LD COUNSEL FOR THE ASSESSEE MADE VARIOUS SUBMISSIONS. THERE ARE WRITTEN SUBMISSION TOO. THE SUMMARY OF THE ARGUMENTS OF THE LD COUNSEL S FOR THE ASSESSEE REVOLVE AROUND THE FOLLOWING NAMELY - (I) THE REVENUE HAS NOT CLEAR AS THE APPLICABILITY OF THE PROVISIONS OF SECTION 41(1) OF THE ACT. (II) THE ABSENCE OF THE COMMONSENSE APPROACH AS UNDERLINED BY THE HONBLE SUPREME COURT IN THE CASE OF TVS SUNDARAM IYENGAR & SONS LTD (SUPRA). (III) ABSENCE OF AOS FAILURE TO CONSIDER THE APP LICATION OF THE INCOME ACCRUED TO THE P & L ACCOUNT AND IMPOSSIBILITY OF GIVING FINDING OF THE FACT THAT THE SAID LOAN AMOUNT WAS UTILIZED FOR MEETING THE ADMINISTRATIVE COSTS; (IV) FINDINGS OF CLEAR CUT FIGURES OF INVESTMENT ON THE DEPRECIABLE FIXED ASSETS; (V) CL AIM OF INTEREST INCOME U/S 36(1)(III) OF THE ACT; (VI) THE DECISIONS RELIED UPON BY THE AO / CIT - DR ARE MERELY ON ACCOUNT OF TRADING RECEIPTS; (VII) THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD IS DISTINGUISHABLE ON FACTS; (VIII) THE PRAYER OF THE ASSESSEE FOR REMANDING THE MATTER TO THE FILES OF THE AO FOR ADJUDICATING THE ISSUE AFRESH IN VIEW OF THE DECISIONS RELIED UPON BY THE CIT (A) WERE NOT PRESSING TO SERVICE. FURTHER DURING THE PROCEEDINGS BEFORE US BOTH THE PARTIES MENTI ONED THERE ARE SOME WRONG FACTS CREPT INTO THE ORDERS OF THE LOWER AUTHORITIES. IN THIS REGARD LD COUNSEL FOR THE ASSSESSEE FILED THE LIST OF SUCH MISTAKES IN WRITING. F OR T HE SAKE OF COMPLETENESS OF THE ORDER WE HAVE SCANNED AND REPRODUCED THEM AT APPROPRIATE PLACE IN THIS ORDER. 15 27. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. THE PAPER BOOKS FILED BEFORE US ARE ALSO PERUSED. BOTH THE PARTIES HAVE RELIED ON VARIOUS JUDGMENTS A ND THEY ARE ALSO CONSIDERED APPROPRIATELY. AS SUMMARIZED ABOVE THE REV ENUE HAS VARIOUS OBJECTIONS TO THE CONCLUSIONS OF THE CIT(A). SIMILARLY THE ASSESSEES COUNSEL TOO RAISED FOR THE FIRST TIME VARIOUS ISSUES BEFORE US. BUT ONE UNDISPUTABLE FACT RELATES TO THE FACTUAL ERRORS ON FIGURES APPEARED IN THE ORDERS OF THE AO/CIT( A). THESE ERRORS RELATE TO THE (I) EXTENT OF USE OF THE WAIVED LOAN FUNDS ON CAPITAL ACCOUNT IE FOR PURCHASE OF P AND M FOR THE BUSINESS. IT IS MENTIONED IN THE ORDERS THAT THE SUM OF RS 30 CR WAS SPENT FOR P AND M AGAINST THE ACTUAL AMOUNT OF RS 23 CR; (I I) IF THE NATURE OF THE USE OF THE FUNDS FOR MARGIN MONEY FOR BANK GAURANTEE IF THEY ARE ON CAPITAL ACCOUNT; (III) AO IGNORED FACT THAT THE ASSESSEE REPORTED REVENUE EARNING OF AROUND RS 114 CR OR SO AND THERE IS FINDING ON THE END USE OF THESE FUNDS. TH E EXHAUSTIVE LIST OF SUCH ERRORS IS INSERTED IN THE SUBSEQUENT PARAGRAPHS OF THIS ORDER. W E FIND THERE ARE VARIOUS FACTUAL ERRORS CREPT INTO THE ORDERS O F THE REVENUE AND THEY ARE REQUIRED TO BE REMOVED BEFORE FINAL CONCLUSION S ARE DRAWN. FURTHER I T IS TH E PRAYER OF BOTH THE PARTIES BEFORE US THAT THE SAID ERRORS NEED TO BE REMOVED IN THE REMAND PROCEEDINGS . AS DISCUSSED ABOVE CIT - DR HOLDS THAT THE ADDITION OF RS 139.59 CR IS REQUIRED TO BE CONFIRMED IN VIEW OF THE JUDGMENT IN THE CASE OF SOLID CONTAINER S LTD: 308 ITR 417 (BOM) . ON THE OTHER HAND IT IS PRAYER OF THE LD COUNSEL THAT THE ORDER OF THE CIT(A) NEEDS TO BE CONFIRMED AS HIS DECISIONS ARE BASED ON THE OTHER BINDING JUDGMENT IN THE CASE OF MAHINDRA AND MAHINDRA LTD SUPRA . ALTERNATIVELY IT IS THE PRAYER OF THE ASSESSEES COUNSEL THAT CONSIDERING THE ERRORS LISTED ABOVE AND THE ABSENCE OF DECISIONS ON THE ISSUES RAISED BEFORE THE TRIBUNAL THE ISSUES MAY BE REMANDED TO THE FILE OF THE AO FOR FRESH CONSIDERATION. ON THE HEA RING THE PARTIES IN OUR VIEW THE CORE ISSUE RELATES TO THE ADDITION OF RS 139.59 CR AND THE SUSTAINABILITY OF THE SAID ADDITION IS BASED ON THE APPLICABILITY OF THE CITED JUDGMENT S OF THE BINDING JURISDICTIONAL HIGH COURT NAMELY MAHINDRA & MAHENDRA LTD 261 ITR 501: (BOM)(2003) AND SOLID CONTAINERS LTD: 308 ITR 417 (BOM). WE FIND THAT THE CIT(A) GRANTED RELIEF TO THE ASSESSEE IN THE FIRST APPELLATE PROCEEDINGS ESSENTIALLY RELYING ON THE JUDGMENT IN THE JUDGMENT IN THE CASE OF MAHINDRA & MAHENDRA LTD SUPRA. 16 WHEREAS BEFORE US LD CIT - DR RELIES ON ANOTHER JUDGMENT OF THE SAME COURT IN THE CASE OF SOLID CONTAINERS LTD SUPRA. THEREFORE WE ANALYSE THE FACTS OF THE BOTH THESE JUDGMENTS AND APPLY THE RATIOS TO THE FACTS OF THE PRESENT CASE IN THE FOLLOWING PARAG RAPHS. 28 . MAHENDRA & MAHENDRA LTD 261 ITR 501: (BOM)(2003): JURISDICTIONAL HIGH COURT HELD IN THIS CASE THAT WHEN THE LOAN USED FOR PURCHASE OF PLANT AND MACHINERY (BUT NOT THE INTEREST THEREOF) WAS WAIVED OF THE SAME DOES NOT ATTRACT THE PROVISIONS OF SECTION 28(IV) OF THE ACT. THEREFORE THE WAIVER OF SUCH CAPITAL LOAN IS NOT BUSINESS BENEFIT U/S 28(IV) OF THE ACT. CIT(A) HAS ERRONEOUSLY RELIED HEAVILY ON THE SAID JUDGMENT WHILE GIVING RELIEF TO THE ASSESSE E AND HE IGNORED FACT THAT IN THE PRESENT CASE THE LOAN OF RS. 139.58 CRS GIVEN BY THE DIGIWAVE TO THE ASSESSEE WAS NOT SPENT ON CAPITAL ACCOUNT. THE END USE OF LOAN WAIVED IS ALSO A RELEVANT FACT. ON THIS ACCOUNT IN PRINCIPLE THE ORDER OF CIT(A) IS REQ UIRED TO BE SET ASIDE. 29. SOLID CONTAINERS LTD: 308 ITR 417 (BOM): ON THE FACTS THAT THE ASSESSEE TOOK LOAN OF RS 6.86 LAKHS FOR BUSINESS PURPOSE WROTE BACK CREDITED TO RESERVE ACCOUNT AND FINALLY TREATED THE SAME AS CAPITAL ASSET. BUT THE AO HELD TH E SAME AS REVENUE RECEIPT U/S 41(1) OF THE ACT. OF COURSE THERE IS NO DISPUTE ABOUT THE INTEREST INCOME AS TAXABLE REVENUE RECEIPT. THERE IS NO CLARITY ON FACT S AS TO THE END USE OF THE SAID LOAN . HONBLE HIGH COURT HELD THAT IT WAS THE LOAN TAKEN FOR TRADING ACTIVITY AND ULTIMATELY UPON WAIVER THE AMOUNT WAS RETAINED IN THE BUSINESS BY THE ASSESSEE. THEREFORE THE AMOUNT HAD BECOME THE ASSESSEES INCOME AND WAS ASSESSABLE. HONBLE HIGH COURT DISTINGUIS HED ITS OWN JUDGMENT IN THE CASE OF MAHINDRA & MAHI NDRA LTD SUPRA ON THE GROUND THAT THE LOAN AGREEMENT IN ITS ENTIRETY WAS NOT OBLITERATED BY SUCH WAIVER. IN THAT CASE THE INTEREST OBLIGATIONS CONTINUED FOR 10 YEARS AS PER THE AGREEMENT. IT WAS ALS O DISTINGUISHED THE JUDGMENT IN THE CASE OF MAHINDRA & MAHINDRA LTD SUPRA THAT THE LOAN IN THAT CASE WAS SPENT FOR CAPITAL PURPOSES UNLIKE IN THE CASE OF SOLID CONTAINERS LTD SUPRA WHERE THE LOAN WAS FOR BUSINESS PURPOSES PROBABLY ON REVENUE ACCOUNT . IN SUBSTANCE THIS JUDGMENT IN THE CASE OF SOLID CONTAINERS LTD SUPRA WAS PRONOUNCED ESSENTIALLY BASED ON THE PRINCIPLES LAID DOWN BY ATKINSON J IN TATTERSALLS CASE (1939)7ITR316(CA) THAT BY COMMONSENSE THE M/S SOLID CONTAINERS LTD HAS 17 BECOME RICHER BY THE SAID LOAN AMOUNT WAIVED (PLACETUM 4 AT 308 ITR 42 1 ). WE FIND IT RELEVANT TO EXTRACT THE RELEVANT PARTS FROM THE JUDGMENT IN THE CASE OF SOLID CONTAINERS LTD SUPRA HERE AS UNDER: THE PRESENT APPELLANT CAN HARDLY DERIVE ANY ADVANTAGE FROM THE CASE O F MAHINDRA AND MAHINDRA AS IN THAT CASE A CLEAR FINDING WAS RECORDED THAT THE ASSESSEE CONTINUED TO PAY INTEREST A T THE RATE OF 6% FOR A PERIOD OF 10 YEARS AND THE AGREEMENT FOR PURCHASE OF TOOLIN G WAS ENTERED INTO MUCH PRIOR TO THE APPROVAL OF LOAN ARR ANGEMENT GIVEN BY THE RBI. THEREFORE THE LOAN AGREEMENT IN ITS ENTIRETY WAS NOT OBLITERATED BY SUCH WAIVER. SECONDLY THE PURCH ASE CONSIDERATION RELATED TO CAPITAL ASSETS. THE TOOLINGS WERE IN THE NATURE OF THE DIES AND THE ASSESSEE WAS A MANUFACTURER O F HEAVY VEHICLES. THE IMPORT WAS THAT OF PLANT AND MACHINERY AND THE WAIVER COULD NOT CONSTITUTE BUSINESS. THE FACTS OF THE PRESENT CASE ARE ENTIRELY DIFFERENT IN AS MUCH AS IT WAS A LOAN TAKEN FOR TRADING ACTIVITY AND ULTIMATELY UPON WAIVER THE AMOUNT W AS RETAINED IN BUSINESS BY THE ASSESSEE. THUS THE PRINCIPLES STATED BY THE SC IN THE CASE OF TV SUNDARAM IYENGAR AND SONS LTD 222 ITR 344 WOULD BE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE AMOUNT WHICH IS INITIALLY DID NOT FALL WITHIN THE SCOPE OF THE PROVISIONS RENDERING IT LIABLE TO TAX SUBSEQUENTLY HAD BECOME THE ASSESSEES INCOME BEING PART OF THE TRADING OF THE ASSESSEE. . 30. FROM THE ABOVE IT IS CLEAR THAT THE WAIVED LOAN AMOUNT SPENT ON ACCOUNT OF CAPITAL ACCOUNT IE ON P & M IN THE CASE OF MAHINDRA AND MAHINDRA LTD SUPRA THE PROVISIONS OF SECTION S 28(IV) AND 41(1) OF THE ACT HAVE NO APPLICATION. AS SUCH THE PROVISIONS OF SECTION 28(IV) CAN BE APPLIED TO BENEFIT OR PERQUISITE ONLY AND NOT TO THE BENEFIT IN CASH. THE S AME IS REITERATED BY THE HONBLE HIGH COURT OF BOMBAY VIDE THE JUDGMENT IN THE CASE OF SOLID CONTAINERS LTD SUPRA . FURTHER THE RATIO OF THIS JUDGMENT IS RELEVANT FOR THE PROPOSITION THAT THE WAIVED LOAN SPENT FOR BUSINESS PURPOSES CONSTITUTE ASSESSABLE INCOME BEING PART OF THE TRADING OF THE ASSESSEE. 31. APPLYING THE ABOVE RATIOS TO THE FACTS OF THE PRESENT CASE UNDER CONSIDERATION IT IS THE CASE OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS ENTERED INTO ERROR ZONES ON FACTS AND THE DETAILS OF THE SAME ARE TABULATED AND SUBMITTED BEFORE US. THE SCANNED COPIES OF THE SAID TABLE ARE REPRODUCED AS UNDER: 18 32. THE ABOVE INSERTIONS ARE MADE TO HIGH LIGHT THE FACTUAL MISTAKES ENTERTAINED BY THE AUTHORITIES BELOW. ERRORS ARE SIGNIFICANT IN TERMS OF QUANTITY. CIT(A) IS NOT CORRECT IN ASSUMING THAT THE WHOLE OF THE WAIVED LOAN WAS SPENT ON CAPITAL ACCOUNT AND NOT F OR BUSINESS PURPOSES. FURTHER IT IS A RELEVANT FACT TO NOTE THAT THE ASSESSEE EARNED A SUM OF RS 114.03 CRORES AND THE SAME IS PART OF THE COMMON FUNDS AMOUNTING TO RS 263.63 CR WHICH INCLUDES THE IMPUGNED WAIVED LOAN OF RS 139.59 CR. THE ASSESSEE HAS SUB MITTED THE SUMMARY FIGURES AT A GLANCE GIVING THE DETAILS OF 19 THE FUNDS RECEIVED AND APPLICATION OF FUNDS AND THE SAME INSERTED AS UNDER: 33. THE ABOVE SUMMARY WAS NOT AVAILABLE TO THE AUTHORITIES BELOW. THE ABOVE DATA SUGGESTS THAT OUT OF THE TOTAL FUNDS AMOUNTING TO RS 263.63 CR THE ASSESSEE HAS OTHER FUNDS OF EQUITY CAPITAL OTHER REPAID LOANS OF RS 9.97 CR AND REVENUE EARNING OF RS 114.03 CR. THE SAME ARE IN ADDITION TO THE WAIVED LOAN AMOUNT OF RS 139.59CR. THE SAID SUM OF RS 263.63 WAS APPROPRIATED BOTH ON REVENUE AND CAPITAL ACCOUNTS. IT IS THE CLAIM OF THE ASSESSEE BEFORE THAT THE SUM OF RS 23.02 WAS SPENT ON CAPITAL ACCOUNT AND NOT RS 30 CR AS ERRONEOUSLY STATED BY THE AO/CIT(A). IN ADDITION APART FROM OTHERS THE ASSESSEE SPENT A SUM OF RS 42.5 7 CR ON ACCOUNT OF MARGIN MONEY FOR BANK GAURANTEE GIVEN TO UNION OF INDIA. FURTHER THERE IS UNSPENT MONEY OF RS 3.83 CR. IN THE CASE OF THIS KIND WHERE THE COMMON FUNDS ARE INVOLVED IE OWN FUNDS AND LOAN FUNDS ARE MIXED IT IS THE CLAIM OF THE ASSESSEE T HAT IT IS ENTITLED TO THE BENEFITS IF ANY AND RELIED ON THE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 (BOM) FOR THE FOLLOWING PROPOSITION IF THERE WERE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAF T AND/OR LOANS TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST - FREE 20 FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION WAS EST ABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCTIBLE. APPLYING THE RATIO OF THE SAID JUDGMENT THE ASSESSEE ARGUES THAT THE NON WAIVED FUNDS ARE UTILIZED FOR BUSINESS PURPOSES AND THE WA IVED FUNDS ARE USED FOR CAPITAL PURPOSES IE FOR BUYING THE FIXED ASSETS AMOUNTING TO RS 23.02 CR AND PROVIDING MARGIN MONEY FOR BANK GRAURANTEE TO THE UNION OF INDIA AMOUNTING TO RS 42.57 CR. THESE FACTS AND ARGUMENTS ARE COME FOR DISCUSSION FOR THE FIRST TIME BEFORE US. SUBJECTED TO THE FINDING OF FACTS BY THE AO IN THE REMAND PROCEEDINGS WE FIND THE SAID CLAIM S OF THE ASSESSEE TO THE EXTENT OF USE OF WAIVED LOANS ON CAPITAL ACCOUNTS ARE REASONABLE AS THEY ARE SUPPORTED BY THE BINDING JUDGMENTS OF THE HON BLE HIGH COURT OF BOMBAY IN THE CASES OF MAHINDRA & MAHINDRA LTD SUPRA AND RELIANCE UTILITIES AND POWER LTD SUPRA . AO SHALL ATTEND TO ALL THE OTHER ARGUMENTS RAISED BEFORE US AND PASS A SPEAKING ORDER WHICH IS THE REQUIREMENT OF ANY APPEALABLE ORDE R. ACCORDINGLY THE GROUND 1 IS ALLOWED FOR STATISTICAL PURPOSE. OTHER ISSUES RAISED IN GROUND 2 AND 3 OF THE REVENUESS APPEAL 34 . SHORT TERM CAPITAL GAINS / DIFFERENCE IN DEPRECIATION SEC 50A OF ACT : IT IS THE CLAIM OF THE AO THAT THAT OUT OF THE SAID WAIVED LOAN OF RS 139.59 CR THE ASSESSEE INVESTED THE SUM OF RS 30 CRORES IN THE FIXED ASSETS. THIS ISSUE IS RAISED IN GROUND 2 OF THE REVENUES APPEAL. IN THIS BACKGROUND THE REVENUE HOLDS THAT THE DIF FERENCE OF AMOUNT BETWEEN THE SAID RS 30 CR AND THE WDV OF THE ASSETS CONSTITUTES SHORT TERM CAPITAL GAINS U/S 50A OF THE ACT. NO DEPRECIA TION CLAIM TO THE TUNE OF RS 12.5 5 CR FOR AY 2005 - 06 SHOULD BE ALLOWED. IN THIS REGARD ASSESSEE SUBMITTED THAT THE P ROVISIO NS OF SECTION 50A OF THE ACT HAVE NO APPLICATION AS THERE IS FACTUM OF SALE OF ASSETS. RELEVANT SUBMISSIONS ARE EXTRACTED IN PARA 6.1 OF THE IMPUGNED ORDER. BEFORE US IN ADDITION TO RELYING ON THE SAID SUBMISSION OF THE ASSESSEE LD COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT THE FACT OF RS 30 CR IS MATTER OF DISPUTE AND THE FIGURE SHOULD BE RS 23.02 CR ONLY. THEREFORE IT IS APPROPRIATE TO REMAND THIS ISSUE ALSO TO THE FILES OF THE AO FOR FRESH EXAMINATION. OTHERWISE HE RELY ON THE FAVORABLE OR DER OF THE CIT(A). PER CONTRA LD DR FOR THE 21 REVENUE FAIRLY SUGGESTED THAT THIS ISSUES MAY ALSO BE REMANDED ALONG WITH THE MAIN ISSUE ON THE WAIVER OF LAON OF RS 139.59 CR RAISED BY THE REVENUE. WE FIND MERIT THE CLAIM OF LD DR AND REMAND THIS ISSUE TO THE FILE TO AO FOR FRESH DECISION IN MATTERS. 35. INTEREST RELATED CLAIMS: GROSS INTEREST ACCRUED ON THE SAID WAIVED LOAN OF RS 139.59 CR IS RS 25.104 CR. WHILE ONLY RS 3.10 41 000 WAS WAIVED INTEREST IS CREDITED THE BALANCE OF RS 22 CR WAS NEITHER WAIVED NOT OFFERED AS INCOME OF THE ASSESSEE. IN FACT THE SAID RS 22 CR WAS ASSIGNED BY THE M/S DIGIWAVE (LENDER) IN FA V OUR OF THE M/S RADIOWANI HOLDING P LTD. AO ADDED THE SAME AS INCOME OF THE ASSESSEE U/S 41(1) OF THE ACT. AS PER THE AO TH E TRADING LIABILITY CEASED TO EXIST. WITHOUT PREJUDICE THERE IS REFERENCE TO THE ADDITION OF A SUM OF RS 8.1 CR U/S 36(1)(III) OF THE ACT. IN THIS REGARD THE CIT(A) VIDE PARA 7.1 TO 7.4 OF THE IMPUGNED ORDER GRANTED A PART RELIEF HOLDING THAT THE ADDITIO N TO THE EXTENT OF RS 8.1 CR IS JUSTIFIED AND GRANTED RELIEF ON THE BALANCE OF RS 22 CR. RELEVANT PARAGRAPH 7.4 READ AS UNDER: 7.4 I HAVE EXAMINED THE ISSUE AND THE FACTS THERE IS NO DOUB T THAT THE APPELLANT HAS PAID RADIOVANI THE SUM OF RS 22 CRORES IN THE FINANCIAL YEAR 2006 - 07. IN THESE CIRCUMSTANCES IT IS OT CORRECT TO HOLD THAT THERE WAS ANY REMISSION OF EXPENSES. HOWEVER IT IS SEEN THAT THE INTEREST ACCRUED FOR RY 2004 - 05 AMOUNTED TO RS 8.1 LAKHS HAS NOT BEEN REFLECTE D IN THE BOOKS OF ACCOUNTS O F D IGIWAVE FOR THE SAME PERIOD. IN ITS BOOKS OF ACCOUNTS DIGIWAVE HAS NOT CREDITED THE INTEREST FOR 2004 - 05 ON THE SUBMISSION THAT THE SAME HAVE BEEN WAIVED. I ALSO FIND THAT THE APPELLANT HAS NOT DEDUCTED ANY TAX ON THIS AMOUNT IN THE CURRENT YEAR. HENCE EVEN BY VIRTUE OF SECTION 40(A)(IA) THIS AMOUNT IS NOT ALLOWABLE AS A DEDUCTION. IN THE CIRCUMSTANCES AO IS DIRECTED TO REDUCE THE DISALLOWANCE TO ONL Y RS 8.1 CR AGAINST RS 22 CR DISA LLOWED. 36. BEFORE US LD COUNSEL RELIED ON THE WRITTEN ARGUMENTS EXTRACTED IN PARA 7.3 OF THE IMPUGNED ORDER AND REITERATED THAT THE CLAIM IS ALLOWABLE. WHOLE OF THE SUM OF RS 22 CR WAS SUBSEQUENTLY PAID AND RELEVANT TDS WAS DONE TOO. HE OBJECTED TO THE FINDING OF TH E CIT(A) IN MATTERS OF TDS AND ALLOWABILITY OF THE CLAIM OF DEDUCTION U/S 36(1)(III) OF THE ACT. THE CLAIMS OF (I) PAYMENT OF THE SAID SUM OF RS 22 CR IN SUBSEQUENT AYS AND (II) AFFECTING TDS ON THE SAID PAYMENTS IN OUR OPINION IS A MATTER OF FACT S. THEREF ORE AO IS DIRECTED TO EXAMINE THE CLAIMS AFRESH AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSSESSEE. LD COUNSEL MADE A STATEMENT AT BAR TO FILE RELEVANT TDS PAPERS BEFORE THE AO IF AN OPPORTUNITY IS GRANTED. ACCORDINGLY THE A SSESSEE IS DIRECTED TO EVIDENCE TO PROOF OF PAYMENT OF 22 TDS ON THE IMPUGNED PAYMENTS OF INTEREST AMOUNTS. OTHERWISE W E AGREE WITH THE PROPOSITION OF THE CIT(A) THAT THERE IS NO CASE FOR CESSATION OF LIABILITIES WHEN THE SAID LIABILITIES ARE PAID BY THE ASSESSEE SUBS EQUENTLY. FURTHER IN THE REMAND PROCEEDINGS WE DIRECT THE AO TO MAINTAIN CONSISTENCY IN MATTERS OF HIS DECISION WITH THE VIEWS OF THE TRIBUNALS ORDER IN THE CASE OF DIGIWAVE INFRASTRUCTURE & SERVICES LTD VIDE ITA NO.690/MUM/ 2009 (AY 2005 - 2006) WHICH I S PLACED AT PAGE 12 TO 18 OF THE PAPER BOOK III . THERE IS REFERENCE TO THE SAID SUM OF RS 8.1 CR IF THE SAID INTEREST IS ACCRUED OR NOT. 37. ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THE GROUNDS 1 TO 3 TO THE FILE OF THE AO PRO - TANTO . IN THE REMAND PROCEEDINGS THE AO SHALL EXAMINE THE FA CTS AND APPLY THE BINDING LEGAL PROPOSITIONS DISCUSSED ABOVE. AO SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH THE BINDING PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY THE GROUNDS 1 TO 3 ARE ALLOWED FOR STATISTICAL PURPOSE. 38. IN THE RESULT BOTH THE APPEAL OF THE ASSESSEE AND THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUN CED IN THE OPEN COURT ON 3 0 T H APRIL 2014. S D / - S D / - ( VIVEK VARMA ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 3 0 .4 .2014 . . ./ OKK SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. / DR ITAT MUMBAI 6. / GUARD FILE . 23 //TRUE COPY// / BY ORDER / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI