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2013 (11) TMI 834 - AT - Income TaxApplication of section 41(1) of the Income tax act - Assessee has incurred losses and has obtained waiver of principle as well as interest - Assessee company received financial assistance of Rs. 598 lakhs under venture capital fund scheme comprising convertible rupee term loan of Rs. 480 lakhs and subscription of 100 lakhs to the equity share capital and 17.5% redeemable convertible accumulative preferential shares of 98 lakhs - Further received financial assistance of 104 million under project finance scheme for the expansion cum up- gradation project for the manufacture of smart cards by way of term loan from IDBI - Since Assessee ended up in losses, it has entered into one time settlement for the dues Held that:- Loan sanctioned is not received in the course of trading transaction, this being a capital receipt for purpose of purchase of assets/ business. All amounts received during the course of business cannot be considered as amount received in the course of trading transaction - Relied upon Hon'ble Supreme Court decision in the case of CIT Vs. Tosha International [2009 (7) TMI 1149 - SUPREME COURT], on similar issue, held that Assessee had not got any deduction on account of acquisition of capital assets as it has been reflected in the balance sheet and not in the P&L A/c and the remission of principle amount of loan obtained from bank and financial institution had not been claimed as expenditure or trading liability in any of the earlier year, hence, section 41(1) was not applicable. Relying upon the judgment of Honble Supreme Court in the case of Nector Beverages (P) Ltd. [2009 (7) TMI 5 - SUPREME COURT], it has been held that if Assessee has not got any deduction as a trading liability in any of the earlier years, provisions of section 41(1) does not apply - Unless principle amount pertains to any amount received during the course of trading activity, the same cannot be brought to tax as income of Assessee particularly only in those situations as stated by the Hon'ble Supreme Court in the case of TVS Sundaram Iyyengar & Sons [1996 (9) TMI 1 - SUPREME Court] Decided in favor of Assessee. Jurisdiction u/s 263 of the Income tax Act CIT directed u/s 263 to treat entire amount of Capital receipt as Income Held that:- Direction of CIT to treat the entire capital amount as income is not correct on the facts of the case and also on the principles of law - Once a decision was taken by AO on the said facts, the CIT cannot review the same under the provisions of section 263. When there are two views possible, one of the plausible opinion taken by the AO cannot be dissented by CIT under section 263. Therefore, CIT lacks jurisdiction and so the direction of CIT is cancelled Reliance has been placed on the judgment in the case of Malabar industrial Co. Ltd. Vs. CIT, [2000 (2) TMI 10 - SUPREME Court] Decided in favor of Assessee.
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