Waiver or One Time Settlement of loan not taxable under section 28 (iv) – ITAT deletes the addition following judgment of Supreme Court

Waiver or One Time Settlement of loan not taxable under section 28 (iv) – ITAT deletes the addition following the judgment of the Supreme Court

ABCAUS Case Law Citation:
ABCAUS 2394 (2018) 07 ITAT

The instant appeal had been filed by the assessee challenging the order of the Commissioner of Income Tax (Appeals) in confirming the addition made u/s 28(iv) of the Income Tax Act 1961 (the Act) on account of one time settlement of loan with Bank.

The assessment was reopened by issue of notice u/s 148 of the Act upon receipt of information that the assessee company had undergone the one-time settlement with the bank by waiving loan amount.

The assessee responded that as per the assessee company had settled by the one-time payment of loan amount outstanding in the books and accordingly the same was written off as per the settlement scheme.

However the AO relying on the agreement of settlement, according to which the waiver was of much larger amount held it to be taxable under section 28 (iv) of the Act.

The Tribunal noted that the Hon’ble Supreme Court had held that on a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the Act, the benefit which is received has to be in some other form rather than in the shape of money.

The Hon’ble Supreme Court had held that in a case of cash receipt due to the waiver of loan, the very first condition of Section 28 (iv) of the Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, was not satisfied.

Following the dictum laid by the Hon’ble Apex Court, the Tribunal opined that it is evident that the waiver of loan cannot be taxed under section 28 (iv), which had been done by the Revenue in the case.

The Tribunal set aside the order’s of the authorities below and decided the issue in favour of assessee.

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