1. The Revenue has preferred the present appeal under section 260A of the Income-tax Act, 1961 (hereafter "the Act"), impugning an order dated March 28, 2014, passed by the Income-tax Appellate Tribunal (hereafter "the Tribunal") in I. T. A. No. 225/Del/2011 for the assessment year 2007- 08 whereby the assessee's appeal against an order dated November 2, 2010, passed by the Commissioner of Income-tax (Appeals) (hereafter "the CIT(A)") was allowed.
2. The principal controversy involves the taxability of a sum of Rs. 1,26,49,144, being the amount waived by the mutual funds/financial institutions/debenture holders as a concession for the financial restructuring of the assessee.
3. The assessee had filed a return of income for the assessment year 2007- 08 declaring nil income after adjustment of brought forward losses of Rs. 7,52,60,093. The return filed by the assessee was taken up for scrutiny and the Assessing Officer (hereafter "the AO") passed the assessment order dated October 23, 2009, under section 143(3) of the Act making certain disallowances with respect to the prior period expenses.
4. During the relevant period, mutual funds/financial institutions/debenture holders had waived certain amounts due from the assessee as a part of the financial restructuring scheme pertaining to the assessee. The amount waived included interest as well as the principal amount. The said amount was included as a revenue receipt and the assessment was made accordingly.
The assessment order dated October 23, 2009, was challenged before the Commissioner of Income-tax (Appeals), inter alia, on the ground that a sum of Rs. 1,26,49,144 which represented the principal waived by the mutual funds/financial institutions/debenture holders was not a revenue receipt but in the nature of a capital receipt and, thus, was not taxable. The Commissioner of Income-tax (Appeals) held that the waiver of the liabilities by the mutual funds/financial institutions/debenture holders was credited in the profit and loss account of the assessee and was related to the assessee's business and, therefore, was taxable under the Act. The Commissioner of Income-tax (Appeals) further observed that the assessee had not made a claim in respect of the aforesaid amount in its return of income nor had filed a revised return.
5. The assessee successfully appealed against the order passed by the Commissioner of Income-tax (Appeals) before the Tribunal. The Tribunal allowed the claim of the assessee and further held that in cases where no further investigation into facts was necessary, the assessee was entitled to make a fresh claim before Commissioner of Income-tax (Appeals).
6. The learned counsel appearing on behalf of the Revenue contended that as the assessee had not made a claim before the Assessing Officer in respect of the sum of Rs. 1,26,49,144, the assessment made by the Assessing Officer could not be impugned before the Commissioner of Income-tax (Appeals). The learned counsel appearing for the assessee disputed the aforesaid contention and drew the attention of this court to an office note issued by the Assessing Officer, which indicated that the assessee had, in fact, made a claim for the waiver of the said principal amount to be treated as a capital receipt.
7. During the relevant period, the assessee had written back a sum of Rs. 16.85 crores on account of extraordinary items in its profit and loss account. The aforesaid amount represented interest as well as the principal waived by the mutual funds/financial institutions/debenture holders in terms of a restructuring scheme pertaining to the assessee. In so far as the element of interest is concerned, there is no dispute that the same would be taxable by virtue of the provisions of section 41(1) of the Act. However, the sum of Rs. 1,26,49,144 represented cessation of principal liability, which, according to the assessee, was of a capital nature and, consequently, not taxable.
8. The office note referred to by the learned counsel for the assessee clearly indicates that the assessee had claimed the said amount as a capital receipt and had categorically submitted that the same had been inadvertently included in the computation of a taxable income by oversight.
9. In the circumstances, we are not inclined to accept the Revenue's contention that the said claim had been made for the first time before Commissioner of Income-tax (Appeals).
10. Indisputably, the amount of principal waived by the financial institutions cannot be taxed under section 41(1) of the Act as the same had not been debited to the profit and loss account in the earlier years nor had been claimed as a deduction from taxable income. The Tribunal had, accordingly, allowed the claim of the assessee.
11. The Tribunal had further noted that the Commissioner of Income-tax (Appeals) had considered the appellant's claim on the merits and that action had not been challenged by the Revenue. The Tribunal held that under the circumstances, the Revenue's contention could not be upheld. The learned counsel for the Revenue stated that since the order of the Commissioner of Income-tax (Appeals) was in its favour, there was no question of the Revenue filing an appeal and the observation made by the Tribunal in this regard was ex facie erroneous.
12. In our view, the observation made by the Tribunal was with respect to the Revenue's contention that the assessee's claim could not be considered on the merits. It is, in this context, that the Tribunal observed that the Commissioner of Income-tax (Appeals)'s action of examining the assessee's claim on the merits had not been challenged. The said observations do not relate to the decision of the Commissioner of Income-tax (Appeals) on the merits of the assessee's claim.
13. In the aforesaid circumstances, we are not inclined to entertain the present appeal.
14. It is clarified that the question as to whether the Assessing Officer could entertain a claim during the course of assessment proceedings is left open.
15. The appeal is, accordingly, dismissed. No order as to costs.