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2019 (11) TMI 753 - AT - Income TaxAddition u/s 41(1) - utilization of working capital towards capital expenditure in respect of waiver of loans stated to be working capital loan/term loan - HELD THAT:- Upon perusal of impugned order, we find that learned first appellate authority failed to clinch the issue in the correct perspective since it was the observation in the impugned order that discretionary payment on compassionate grounds would be capital in nature and therefore, not taxable in the hands of the assessee, which was not the case of revenue. It was also observed that the purpose of utilization of the funds were not, at all, relevant for the determination of the taxability of the waiver. Rather it is the prime argument of assessee that since working capital loan was utilized for the purpose of capital expansion and therefore, the same would not constitute trading liability within the meaning of Sec.41(1). The terms of term loan granted by SICOM were referred to while providing the relief, ignoring the fact that one-time settlement was done by the assessee with Dena Bank and the matter was related with determination of taxability of principal amount of working capital loan waived by Dena Bank. Nothing was brought on record to justify the conclusion that the provisions of Section 41(1) were not applicable to the case of the assessee overlooking the fact that the assessee was claiming as well as allowed deduction of interest on working capital loans in earlier years. Rather onus was placed on Ld. AO to establish this fact. Therefore, we find ourselves unable to subscribe to the view of learned first appellate authority, in this regard. Proceeding further, it transpires that the assessee obtained certain loans in the shape of non-convertible debentures and working capital loans in earlier years from Dena Bank. The working capital loan was secured by hypothecation of inventories, book debts and documentary DA bills and third-party cheques drawn in assessee’s favor. The assessee has claimed as well as allowed the deduction of interest on working capital loan, which is evident from its financial statements for various years, as placed on record. As submitted that total expenditure on capital expansion was ₹ 1880 Lacs which was financed out of NCD, term loan, working capital loan and internal accruals etc. as evidenced by addition to fixed assets, cash flow statements, statement of utilization of funds for capital expansion etc. This is contrary to the observation of Ld. AO that the assessee failed to prove such nexus despite being provided with adequate opportunity. Regarding differential interest amount of ₹ 148.33 Lacs, Ld. Sr. Counsel has submitted that such amount was never provided for in the books of accounts and therefore, the cessation of the same would not be covered u/s 41(1). We deem it fit to set-aside the order of Ld. CIT(A) on stated issues and direct Ld. AO to re-adjudicate the same de novo in the light of submissions made by Ld. Sr. Counsel, before us. The assessee, in turn, is directed to substantiate his stand, in this regard with documentary evidences including reconciliation of the interest differential.
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