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2022 (6) TMI 945 - AT - Income TaxAddition u/s 41 - cessation of liability towards unsecured loans availed from financial institutions in terms of order of the BIFR - assessee is a sick company under Sick Industrial Companies (Special Provisions) Act - assessee argued that remission of capital liability by virtue of scheme sanctioned by the BIFR cannot be brought to tax u/s.41(1) of the Income Tax Act, 1961, because the BIFR has granted immunity from taxation by specific direction in their order - HELD THAT:- As from the order of the BIFR, it is very clear that reliefs and concessions allowed towards repayment of liability cannot be brought to tax u/s.41(1) of the Income Tax Act, 1961. Further, as per the provisions of section 32 of Sick Industrial Companies Act, 1985, order of the BIFR is binding on the Assessing Officer, because once there is direction, it overrides all other provisions, including provisions of Income Tax Act, 1961. In this case, there is a specific direction from the BIFR to the income-tax department to allow immunity from the provisions of section 41(1) and other relevant provisions of the Income Tax Act, 1961. Therefore, we are of the considered view that once there is immunity from the provisions of section 41(1) of the Income Tax Act, 1961, whatever amount credited to profit & loss account on account of remission / cessation of liability, then same cannot be brought to tax u/s.41(1) of the Income Tax Act, 1961. This view is fortified by the decision of M/s.Kriloskar Oil Engines Ltd. [2012 (7) TMI 736 - ITAT, PUNE] where the Tribunal, after considering relevant facts has held that directions given by the BIFR is binding on the Assessing Officer and thus, remission / cessation of liability cannot be brought to tax u/s.41(1) of the Income Tax Act, 1961. Amount credited to profit & loss account towards remission of liability by the order of BIFR is capital liability and thus, remission of such liability cannot be brought to tax u/s.41(1) of the Income Tax Act, 1961. This legal principle is supported by the decision of CIT Vs Mahindra & Mahindra Ltd [2018 (5) TMI 358 - SUPREME COURT] where it has been considered an identical issue and held that waiver of loan for acquiring capital assets cannot be treated as remission of trading liability and brought to tax u/s.41(1) of the Income Tax Act, 1961 or u/s.28(iv) of the Income Tax Act, 1961. Therefore, we are of the considered view that the Assessing Officer has erred in assessing cessation of liability towards unsecured loans availed from financial institutions in terms of order of the BIFR u/s.41(1) of the Income Tax Act, 1961. Hence, we direct the Assessing Officer to delete additions made towards remission/ cessation of liability u/s.41(1) Liability pertains to advance from customers and loan from others - liabilities mentioned in Table 2 of the assessment order, except fixed deposits are capital advances. However, facts with regard to nature of advances and purpose of taking such advances are not clear from details filed by the assessee, Although, the assessee has filed MoU with M/s. Pioneer Embroideries Ltd., but based on said MoU alone, it cannot be decided that liabilities are in the nature of capital liability, which is outside scope of section 41(1) -Therefore, we are of the considered view that remission of liability to the extent of advance received from customers and loan from others needs verification from the Assessing Officer. Therefore, we set aside this aspect to the file of the Assessing Officer and direct the Assessing Officer to re-examine the issue in light of various details filed by the assessee and also obtain confirmation from parties regarding nature of liability. In case, parties confirm fact that advances are for sale of assets, then the Assessing Officer is directed to delete additions made towards remission/cessation of liability - Appeal filed by the assessee is treated as allowed for statistical purposes.
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