TMI Blog2013 (9) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... licable to waiver of principal amount - We direct the AO to examine the issue with regard to the actual quantum of principal waived and the quantum of interest that was waived by the bank and restrict the addition to be made under section 41(1) of the Act to the extent that the waiver relates to the interest liability of the assessee which had been claimed as deduction by the assessee while computing its income in the past. Depreciation on Electrical Fittings – 15% or 25% - Held that:- 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 depreciation on the written down value of the electrical installation by carving out its WDV from the block of assets, plant and machinery - We, therefore, agree with the submissions of the assessee and direct the AO to allow depreciation as claimed by the assessee. - Decided in favor of assessee. Expenses related to discontinued business or not - Held that:- Follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 001 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 bank: 1. Interest on Fixed Deposits 3,37,155 2. Sale proceeds on shares invoked 8,14,68,605 8,18,05,760 (F.Y.2002-03) Balance 15,32,93,419 Less: Amount paid on one time settlement 87,45,000 Amount credited to Capital Reserve 14,45,48,419 The Assessee claimed that the amount credited to the capital reserve viz., Rs 14,45,48,419 is on account of waiver allowed by the bank on principal amount and hence credited to capital reserve. The Assessee submitted that since the extinguishment is of liability of principal amount, the same is not liable to be taxed under the Act being on capital receipt not chargeable to tax. 5. The AO did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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) of the Act. Without prejudice, it was submitted that following debits by the bank have not been claimed by the Assessee while computing its income in the past while computing its total income for the purpose of the Act and hence not allowed by the Assessing Officer in those years and therefore to that extent the addition made u/s.41(1) of the Act should be deleted as the main condition for invoking Sec.41(1) of the Act viz., the allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assesse. The details furnished by the Assessee in this regard were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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. It has also to be verified as to what is the interest expenditure that was claimed by the Assessee as deduction in the past while computing its taxable income and what was the amount that was actually allowed as deduction in the past assessments. Neither the order of the AO nor the that of the CIT(A) is clear on this aspect. We, therefore, hold that in principle the provisions of section 41(1) of the Act will not be applicable to waiver of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue 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 depreciation on the written down value of the electrical installation by carving out its WDV from the block of assets, plant and machinery. We, therefore, agree with the submissions of the assessee and direct the AO to allow depreciation as claimed by the assessee. 16. Ground No.4 was not pressed and the same is dismissed as not pressed. 17. Ground No.5 raised by the assessee reads as follows: 5. The CIT(A) erred in enhancing the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee has raised ground No.5 before the Tribunal. 21. At the time of hearing before us it was agreed by the parties that similar issue arising under identical facts and circumstaces, was considered by the Tribunal in the case of NH Securities vs. ACIT, ITA No.6875/Mum/08 ( another group company of the Assessee) and this Tribunal held as follows: 2. Ground No. 1 raised by the assessee reads as under:- 1. The CIT(A) e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 is only a temporary order, therefore, it cannot be said that the assessee is not in the business activity. The learned counsel further submitted that similar issue has been considered by the Mumbai Bench of ITAT in the assessee s sister concern case, viz., KNP securities P. Ltd. in ITA Nos. 5008 5009/Mum/07 for AYs 2003-04 2004-05 vide order dated 29th May, 2009. The said decision was followed by the ITAT, Mumbai B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 should be continued. This action of the SEBI has been challenged by the assessee before the appropriate authorities. Copy of the petition filed before the Securities Appellate Tribunal is placed at page 94 of the paper book. In view of these facts and circumstances, the assessee was not allowed to do its business activity in share on the stock exchange floor. 5.1 Not doing business activity was not on account of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 claimed were also not very substantial. The Tribunal had taken a broad view of the matter and had held in favour of the assessee. There was no ground to differ 6.1 The facts before the Hon ble High Court were that the assessee was a private electric company. Its undertaking vested with the State Government by reason of the enactment of the Tamil Nadu Electricity Supply Undertakings (Acquisition) Act, 1973. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose 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 its business and were deductible u/s 10(2)(xv). It was further held that; the question of admissibility u/s 10(2)(xv) had to be decided not on what was found or observed by the High Court in appeal from the order in the proceedings u/s 45 of the Specific Relief Act or by the Privy Council but upon the findings of fact recorded by the Tribunal. Expenditure incurred to resist in a civil proceedings the enf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. 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 the admissibility/genuineness of these expenses, the mater is sent to the file of the AO. The assessee has contended that depreciation and interest have been allowed by the Tribunal as allowable while passing order for AY 2000-01. The AO will take into consider the order of the Tribunal and if it is found that facts are similar then of course, in view of the decision of the Tribunal, the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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