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2013 (9) TMI 403 - ITAT JODHPURCessation / waiver of interest liability - Deemed income u/s 41(1) - Applicability of section 41(1) of the Income Tax Act, when waiver of interest amount treated as capital receipt being related to preoperational period of the company - Assessee-company had raised loans from the Banks to start its business. Subsequently due to heavy losses the company was in trouble and a settlement with the Banks had saved it from a deep crisis. As per this agreement the Banks gave a waiver of interest amount to the company - Banks decided to waive a sum of ₹ 22,74,85,511/-, during the year under consideration against the overdue interest accumulated over the years including ₹ 7,31,55,195/- which pertained to pre-operative period. It was argued that the interest pertaining to pre-operative periods of ₹ 7,31,55,195/- was not offered for taxation because the company had neither claimed nor got deduction of this amount - Interest pertaining to pre-operative period was capitalized to the respective assets and deduction of depreciation on such assets had been claimed on the basis of written down value (WDV) of different block of assets – Held that:- 'Depreciation' claimed on the capital assets are not at all covered under provision of section 41(1) of the Income Tax Act – As per requirement of sec. 41(1) it is required that the assessee must have made a claim and it must have been either (i) allowed or (ii) deducted in any previus year. This allowance/deduction must relate to loss, expenditure or trading liability, incurred by the assessee as the case may be. This 'benefit obtained must be by way of 'remission' or 'cessation' of such loss, expenditure or trading liability – Hence, it is incorrect to say that amount of interest relating to the pre-operative period became part of trading operation of business and any benefit received on account of waiver of interest is in the nature of profits and gains of business in terms of provisions of section 28(iv) – Decided in favor of Assessee.
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