TMI Blog2011 (10) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... Dinesh and K. Malla Rao for the Respondent. JUDGMENT N. Kumar, J. The revenue has preferred this appeal challenging the order passed by the Income Tax Appellate Tribunal, Bangalore Bench-A, which has declined to interfere with the order passed by the Appellate Commissioner, who treated the waiver of the loan liability of the assessee as a capital receipt and not a revenue receipt, and consequently, there is no liability to pay tax under the Act. 2. The assessee-company is engaged in the business of manufacture and sale of halogen lamps. It filed its return of income declaring a loss of Rs. 1,72,71,763/- for the assessment year 2003-04. The case was taken up to scrutinize the assessment under Section 143(3) of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit by giving a notice along with the computation. In view of huge losses suffered by the company, operations of the company had been funded by way of unsecured loans from DRL from year to year and such loans accumulated to about Rs. 11,64,74,072/- during the years. In view of the mounting losses and doubtful viable operations, the assessee-company proposed, and DRL accepted a request to agree for conversion of the unsecured loan party into equity share capital and waive the balance as not recoverable. Accordingly, the assessee-company converted unsecured loan into equity to the extent of Rs. 9.00 crores and wrote back the balance amount of Rs. 2,64,74,072./- as not payable. However, the Assessing Authority was nor satisfied with the expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contends that Explanation 1 to Section 41 makes it clear that the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a), or the successor in business under clause (b) of that sub-section, by way of writing off such liability in his accounts. 4. In the instant case, the creditor has written off such liability, and therefore, the said amount in the case of the assessee constitutes revenue income and therefore, it is taxable under Section 41(1) of the Act. 5. Per contra, the learned Counsel for the assessee supported the impugned order. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by wav of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts." 7. For the application of this Act, the condition precedent is that there should be an allowance or deduction in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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