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2015 (7) TMI 836 - ITAT DELHI

2015 (7) TMI 836 - ITAT DELHI - TMI - Addition u/s 41(1) - assessee submitted that there was a family settlement between the group members and the assets and liabilities were reallocated - CIT(A) deleted the addition - Held that:- After going through the provisions of section 41(1) of the income tax act, we find that the same are not applicable to the facts of the assessee case. We also find that the AO has made the addition of ₹ 5.64 crore by invoking provision of sec. 41(1) of the income .....

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unt and the loan is waived off, the same cannot be brought to tax net either in terms of sec-41 (1) or 28(iv) of the Act. See CIT vs. Tosha lnternational Ltd. [2008 (9) TMI 31 - HIGH COURT DELHI] & CIT vs. Phool Chand Jiwan Ram (1980 (4) TMI 29 - DELHI High Court)

We further note that it is well settled law that where no deduction/allowance has been made in respect of loss, exp/liability in the assessment year or in any earlier years, cessation of such liability cannot be taxed under .....

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ER H.S. SIDHU : JM This appeal by the Revenue is directed against the Order of the Ld. Commissioner of Income Tax (Appeals)-XIX, New Delhi dated 02.4.2012 pertaining to assessment year 2009-10. 2. The grounds of appeal raised by the Revenue read as under:- 1. "Ld. CIT(A) erred in law and on the facts of the case in deleting the addition made by the AO amounting to ₹ 5,64,85,956/- by holding that section 41(1) of the I.T. Act, 1961 was not applicable to this case. 2. Ld. CIT(A) erred i .....

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The amount of ₹ 4.56 crores ( i.e. ₹ 5.64 crores - ₹ 82.65 lakh - ₹ 25.40 lakh ) has been transferred to the reserve account without paying tax on it which is definitely a benefit arising from the business of the assessee which is taxable under section 28(iv) of the I.T. Act 1961. 4. "The appellant craves to add, alter, amend and withdraw any ground of appeal before or during the course of hearing of the appeal." 3. The brief facts of the case are that the e-Re .....

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vity except receipt of interest and some hire charges etc. As against gross receipts of ₹ 6,54,900/- the assessee company has claimed expenditure of ₹ 10,83,949/- working out on loss of ₹ 4,29,049/-. During the assessment proceedings the AO observed that the amount of secured and unsecured loans appearing at ₹ 5,64,85,956/- as on 31.03.2008 was reduced to NIL as on 31.03.2009. The assessee was asked to explain the change. The assessee submitted that there was a family set .....

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he difference of these figures i.e. 5.64 crores - 82.65 lakh - 25.40 lakh = ₹ 4.56 crores was credited to the reserve account of the assessee. The assessee further submitted that there was no trading transaction involved in these transactions and therefore the provisions of section 41(1) of the I.T. Act were not attracted. The AO invoked the provisions of section 41(1) of the I.T. Act and made addition of ₹ 5,64,85,956/- to the income of the assessee and completed the assessment u/s. .....

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al. 7. On the contrary, ld. Counsel of the assessee relied upon the order of the Ld. CIT(A). 8. We have heard both the parties and perused the relevant records, orders of the revenue authorities and written synopsis filed by the assessee through Paper Book wherein assessee has stated that provisions of section 41(1) of the Act are not applicable to the facts of the present case, hence, the impugned order of the Ld. CIT(A) may be upheld. 8.1 We find that Ld. CIT(A) has adjudicated the issue in di .....

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ith the appellant company i.e. Tinna Finex Limited (for short TFL). Besides this 91,10,170 equity shares of ₹ 1 0/- each fully paid up in Tinna Finex Limited were allotted to existing share holders of Tinna Oils & Chemicals Limited, in the ratio of 1: 1 as per the scheme (Notes on accounts no.3b to the Audited balance sheet as on 31/3/1998) (PB-164). The total amount due to the Banks as per Sch-C of secured loan and note no. 2 of notes on accounts to the audited balance sheet as on 31. .....

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signed by all the family members on 27.03.2009. Subsequently, Scheme of arrangement dated 17.05.2009 was filed before the Hon'ble CLB and the same was approved by the Hon'ble CLB vide its order dated 9th June, 2009 (PB ... 8- 73). Before the Family Settlement on 05.01.2009 the appellant company was a subsidiary company of Tinna Overseas Limited. M/s Tinna Overseas Limited (for short TOL) was a corporate Guarantor for these loans. The appellant company paid off part of the Bank's lia .....

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e outstanding on the date of Family Settlement was ₹ 5.64 crore, which was written off by TOL as per Scheme of arrangement dated 17.05.2009, para 4.2.1 page 19, and was debited by TOL to its Reserve & Surplus Account as appearing in the audited final accounts of TOL for the F. Y. 2008-09 (Page No.8, Schedule F (e) and Schedule B (iii) total amount ₹ 25,48,25,973/-) (PB .. 132). The amount of loans taken from holding company Tinna Overseas Limited and outstanding as on 31/3/2008 w .....

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mount payable to Tinna Overseas Ltd. ₹ 36,095/- Net amount of loan from Tinna Overseas Ltd. W/back Rs. 4,56,44,611/- (Schedule 'A' to audited Balance sheet as on 31/3/2009) As such, as per family settlement, a sum of ₹ 4,56,44,611 / - has been credited to Reserve & Surplus by the appellant company and as per clause 4.9 of the scheme of arrangement, Tinna Overseas Limited reduced its Reserve & Surplus accordingly. Section 41(1) of the Income tax Act, 1961 says that any .....

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oved that there was recovery of any loss or expenditure or trading liability which was allowed as deduction while computing the income in earlier years. On merits as well as on legal grounds there is no scope for invoking provisions of S. 41(1) in the appellant's case. In the appellant's case the borrowed funds from its erstwhile holding company were utilized to pay off its Bank liabilities. In the case of CIT vs. Jubilant Securities Pvt. Ltd. ITA No. 503 of 2010 (Delhi High Court), it w .....

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indbhai C. Patel vs. DCIT (ITA No. 1675/ Ahd/2009, dated 30.10.2009) (ITAT, Ahmedabad) ⦁ CIT vs. Phool Chand Jiwan Ram (131 ITR 17) (Del.) ⦁ CIT vs. Compaq Electric Ltd. (ITA No. 172 of 2011 dated 18.10.2011) (Bangalore) ⦁ CIT vs. Chetan Chemicals Pvt. Ltd. (267 ITR 770) (Guj.) ⦁ CIT vs. Tosha International Ltd. (176 Taxman 187) (Del.) ⦁ Mahindra & Mahindra Ltd. vs. CIT (261 ITR 501) (Born.) ⦁ CIT-3 vs. M/s Cipla Investments Ltd. (ITA No. 6988 of 201 .....

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hed that the adjustments are on capital side and there is no case for invoking provisions of S.41(1) since the liability waived by the creditor was never claimed as revenue expenditure. In the light of the above facts and legal position brought on record, the addition made by the AO cannot be sustained. (Relief ₹ 5,64,85,956/-). 8.2 We find that the Assessee filed Return of Income claiming net loss of ₹ 4,29,049/- on 29.9.2009 and engaged in the business of Finance and Exports, howev .....

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. The assessee company was a subsidiary of Tinna Overseas Ltd (Tal). Tinna Overseas Ltd was a corporate guarantor for the bank loan. The company paid off part of the bank loan and since it was not able to pay part of the bank loan of ₹ 5.64 Crore, the Tinna Overseas Ltd being guarantor, paid off this loan during the year 2002-03. Accordingly the bank loan got substituted with the loan from Tinna Overseas Ltd and continued till 2009. In the year 2009, consequent to order passed by the compa .....

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ec. 41(1) of the income tax without stating how the provision are applicable to the assessee's case. Mere cessation of liability does not result into fit case of sec. 41 (1) of the I.T. Act. Assessee has submitted that assessee was not incurred any loss/expenditure/trading liability which is subsequently recovered by him is taxable as income in the year of recovery. We find that the assesse is squarely covered by the following judgments wherein it has been held that whenever, an amount is bo .....

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ITR 17) (Del.) v)CIT vs. Compaq Electric Ltd. (ITA No. 172 of 2011 dated 18.10.2011) (Karnatka HC) vi) CIT vs. Chetan Chemicals Pvt. Ltd. (267 ITR 770) (Guj.) vii) Mahindra & Mahindra Ltd. vs. CIT (261 ITR 501) (Bom.) viii)CIT-3 vs. M/s Cipla Investments Ltd. (ITA No. 6988 of 2012, dated 07.02.2012) (HC of Bombay) 8.4 We further note that it is well settled law that where no deduction/allowance has been made in respect of loss, exp/liability in the assessment year or in any earlier years, c .....

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