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2014 (11) TMI 729 - AT - Income TaxExclusion of loan written back to credit of P&L a/c – Applicability of section 41(1) – Loans waived by group companies - Held that:- In the audited financial statements the Trustees of the assessee have recognised liabilities written back, dividend and bank interest as income - Loss on sale of investments was claimed as expenditure - No doubt entries in the books of accounts do not determine the taxability or otherwise of a transaction, but at the same time the entries give a good indication as to the understanding of the management of the nature of the transactions - The assessee claims that it is a pass through entity - the parent company, has taken into account the income, expenditure and losses of the assessee Trust while computing its income - The assessee for the AY 2009-10 has disclosed dividend income as well as interest income - If the arguments of the assessee has to be accepted, then it has to be seen as to in which entitity’s hands this income has been offered to tax - From the facts on record this is not clear - If the loss on sale of investments has been booked in the hands of the Holding Company or any of the Subsidiary Companies, on the ground that they are the real owners, then the dividend income has to be taken in their account - This needs verification. Be it as it may, when the loan taken by the assessee is written off, the same cannot be treated as income of the assessee u/s 41(1) as the loan was taken on capital account – in Logitronics Pvt. Ltd. vs. CIT [2011 (2) TMI 12 - DELHI HIGH COURT] has laid down the principle that if a loan was taken for acquiring a capital asset, waiver thereof would not amount to any income exigible to tax - the liabilities written off cannot be brought to tax - The assessee is not claiming any deduction on the loss on sale of investments - The issue now boils down to dividend income and bank interest - As the facts are not clear, the issue of taxability of dividend and interest should be set aside to the file of the AO for fresh adjudication after verification – Decided in favour of assessee.
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