9911796707
TMI Blog2013 (9) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... be deleted." 4. The assessee is a company. It is engaged in the business of trading in shares and securities. In the course of assessment proceedings the AO noticed that in the balance sheet there was an increase in capital reserve by Rs. 14,45,48,419/-. The AO called upon the assessee to file details of the increase in capital reserve in the balance sheet. Thereupon the assessee furnished details. It was explained by the assessee that there was an outstanding loan payable to Centurion Bank Ltd. and a one-time settlement was arrived at between the Assessee, the details of which were as follows: Centurion Bank Limited: Loan amount payable as on 31.03.2001 13,83,22,640 (including int. of Rs.69,35,419/- for March, 2001 quarter) Add: Amount debited 1. Bank Interest F.Y. 2001-02 1,67,82,574 F.Y. 2001-02(provisions) 1,63,69,303 F.Y.2002-03(provision) 1,73,57,050 F.Y. 2003-04(Provision) 2,02,61,611 (Not claimed in income-tax) F.Y.2004-05(provision) 50,65,403 7,58,35,941 (Not claimed in income -tax) 2. Demat charges 528 3. Bank charges (2001-02) 1,000 4. TDS on FD Interest 3,26,811 5. Bank Guarantee invoked 2,06,12,258 9,67,76,538 23,50,99,178 Less: Amount credited by ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned person) and subsequently during any previous year,-- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not" The AO therefore held that liability to the extent of Rs.14,45,48,419 was a liability which had been claimed as deduction by the Assessee in the past and by virtue of the waiver by the Bank, the Assessee has derived benefit to that extent and the said sum has to be brought to tax as business income and accordingly added the said sum to the total income. 6. Before CIT(A), the Assessee submitted that the amount of waiver of Rs. 14,45,48,419/- allowed by the bank was on principal account and hence, not liable to be taxed under section 41(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal while upholding in principal the provisions of section 41(1) of the Act cannot apply where there is a waiver of principal amount due to the bank but can apply only in respect of the interest liability waived by the bank, remanded the issue back to the AO for identifying the interest waived and the principal amount waived and thereafter apply the provisions of section 41(1) of the Act in so far as it relates to interest waived alone. 10. On the other hand, ld. D.R submitted that in respect of waiver of interest the amount has to be taxed. 11. We have considered the rival submissions. While we agree in principal that on the waiver of the principal amount due to the bank and the benefit that accrues to assessee on waiver of such waiver provisions under section 41(1) cannot be applied, we are of the view that in the present case the orders of the revenue authorities are not clear as to how the amount of principal waived by the bank was arrived at a sum of Rs. 4,08,36,462/-. One has to look at the statement of the Bank to identify what is the principal amount waived and the interest amount waived and the terms of the loan in respect of which the liability in question arose. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an item of depreciable asset enters a particular block then they loose their identity and cannot be reclassified in another block of assets and, therefore, it is only in respect of electrical installation which enters the block of furniture and fittings purchased in A.Y 2003-04 and thereafter that the depreciation can be restricted to 15%. The assessee thus claimed that the depreciation it claimed at 25% should be allowed. On this issue the CIT(A) did not give any reason or deal with the aforesaid argument but confirmed the order of the AO observing that the assessee did not given any cogent explanation. 15. The same arguments that were advanced before CIT(A) were reiterated before us. The learned DR relied on the order of the AO. We have considered the rival submissions. In our view the submissions made on behalf of the assessee is acceptable. The electrical installation once they form part of the block of assets, plant and machinery prior to A.Y 2003-04, depreciation has to be allowed on the written down value of the block. We are of the view that once a particular depreciable asset enters the block it losses its identity and it is not possible to apply the new rates of depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. In exercise of his powers of enhancement he concluded that the AO ought not to have allowed carry forward of the loss for being set off in future. He held that there being no business activity in shares and securities from the year 2001 on account of cancellation of registration as share broker, loss arising from mere valuation of the opening stock of shares would not lead to the conclusion that the assessee was carrying on any such activity. He held that the Assessee has neither dealt with in shares etc nor done any other business. In such a situation, the loss in shares which has been disallowed by the Assessing Officer as per the computation of income, could not be in the same breath allowed to be carried forward as speculation business loss. To this extent he held that the action of the Assessing Officer was not correct. He held that as an appellate authority having co-terminus powers as of the Assessing Officer he had power to direct the AO to withdraw allowing carrying forward of the loss in question. Accordingly the AO was directed to withdraw carry forward of loss in question carry forward to subsequent assessment years. 20. Aggrieved by the order of the CIT(A) the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes. The CIT(A) held that for the purpose of claiming deduction u/s 37 of the Act, the expenditure must be incurred for the purposes of business which was in existence during the year and the profit of which are under assessment and, if during the year no business was in existence either because it was discontinued or for some other reason, the question of computation of income does not arise at all. The learned CIT(A) relying on various case laws, directed the AO to withdraw such loss carried forward to subsequent assessment years. He, accordingly, held that there would be enhancement of income to the extent of Rs. 31,47,188/-, which has been wrongly allowed to be carried forward by the AO. Aggrieved by the order of the CIT(A) the assessee is in appeal before us. 4. Before us, the learned counsel for the assessee submitted that the assessee was in the business of share trading activity and the assessee was unable to carry forward the business activities because of the SEBI order and the same was challenged before the Hon'ble High Court and also before the Hon'ble Supreme Court. Stoppage of the business is only temporary and not permanent and even the order passed by the SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, the ld AO negatived the claim of the assessee for the reason that there is no business activity during the year under consideration as SEBI has imposed restriction vide order dated 11.4.2001. Copy of the order issued by SEBI is placed at pages 82 to 84 of the paper book. It is mentioned in this order that the assessee is barred from undertaking any fresh business as stock broker till further order as on account of indications of the prima facie involvement of Mr Ketan Parekh in manipulating certain scrips of various companies. It has been noticed that M/s V N Parekh Securities Ltd and M/s KNP Securities Ltd are also the entities controlled by and connected with Mr Ketan Parekh or Mr Kartik Parekh. Therefore, in view of the powers conferred under the provisions of sub section (3) of sec. 4 r.w.s 11 and 11B of the SEBI Act, 1902, the assessee was barred from undertaking any fresh business as stock brokers till further orders as stated above. Thereafter, SEBI passed another order on 21st June 2001 stating that in view of the order of SEBI dated 4.4.2001 and 10.4.2001 debarring them from undertaking any fresh business as a stock broker and merchant bankers till further orders sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from that year. However, for the earlier year, in our considered view, the expenses incurred by the assessee for the purpose of its business activity are allowable as the establishment was not scraped and the assessee was still hopeful to start its business activity. 6 In the case of CIT vs Vellore Electric Corporation Ltd reported in 243 ITR 529, the Hon'ble Madras High Court has held that: "it could not be said that there was a permanent closure, as the validity of the Act was yet to be finally settled by the Supreme Court. In the event of the Act being struck down, the assessee could resume business. The fact that it had continued to maintain an establishment was indication of its intention to resume business, if an opportunity for it arose by reason of the Supreme Court holding in its favour. The expenses incurred by it while awaiting the decision of the Supreme Court could not altogether be regarded as unconnected with the business that it had been carrying on by supply of electricity and that business was interrupted only by reason of the Act. The possible resumption of the business was dependent on the outcome of the appeals pending before the Supreme Court. The amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, the company continued to deliver yarn to weavers outside factory. The action of the Commissioner was challenged before the appellate authority and the same was rejected by the High Court as well as the Supreme Court. On appellate proceedings, the expenses incurred by the assessee were claimed as business expenditure and they were not allowed by the AO by observing that these expenses were not for the purpose of business and were not incurred during the year under consideration. Matter reached up to the stage of the Hon'ble Supreme Court who has allowed the expenditure incurred by the company as business expenditure by holding as under: "that the object of the petition was t secure a declaration that the order dated Feb 20th 1946, in so far as it sought to put restrictions upon the right of the company to carry on its business in the manner in which it was accustomed to do was unauthorised, and to prevent enforcement of that order. Thereby, the company was seeking to obtain an order from the court enabling the business to be carried on without interference. The amounts expended by the company on that behalf were expenditure laid out wholly and exclusively for the purpose of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the present case. 11. Similarly, the decision of the Hon'ble Gujarat High Court in the case of Nathalal Asharam in 194 ITR 110 is also not applicable on the facts of the present case as the company paid compensation to its employees under the provisions of sec. 25 FFF of Industrial Disputes Act 1947 on account of retrenchment which were held as not related to the business carried on by the assessee. 11.1 We have also taken into consideration various other case laws relied upon by the ld DR and found that they are distinguishable on facts. 12. In the present case, no such facts are involved as all the expenses incurred were in connection with the business activity only and for keeping the business alive, to maintain its business establishment and to meet that the obligation of interest on loan etc taken for its business activity; therefore, we hold that various expenses incurred by the assessee are allowable as deduction. However, admissibility of the expenditure was not examined by the AO for the reason that he has disallowed the expenditure on the ground that they are not allowable as the assessee has not done any business activity. Therefore, for the purpose of examining ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
