TMI Blog2015 (7) TMI 836X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 section 41(1) of the Income Tax Act. The assessee has clearly established 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. - Decided in favour of assessee. - I.T.A. No. 3584/Del/2012 - - - Dated:- 26-6-2015 - Shri N.K. Saini and Shri H.S. Sidhu, JJ. For the Petitioner : Sh. J.P. CHANDREKAR, Sr. DR For the Respondent : Sh. VED JAIN, FCA SH. ASISH GOEL, CA ORDER PER 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferred its investment in Tinna Overseas Ltd. costing ₹ 82.65 Iakh and investment in Pratham Road Technologies Ltd. costing ₹ 25.40 lakh in favour of BKS Group and in turn, liability of secured and unsecured loan ofRs.5.64 crores was discharged by Tinna Overseas Ltd. The assessee submitted that the 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. 143(3) of the Act vide order dated 28.12.2011. 4. Against the above assessment order the assessee appealed before the Ld. CIT(A) who deleted the addition made by the AO by holding that as there was a family settlement and the addition was not covered under section 41(1) of the Act vide impugned Order dated 02.4.2011. 5. Against the above order the Revenue is in appeal before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 liabilities mentioned above out of its own sources and the balance amount of ₹ 5.64 crores was paid by way of taking secured/unsecured loans from the erstwhile holding company Tinna Overseas Ltd. The amount of ₹ 5.64 crores was paid directly by TOL to the banks during the period 12.09.2002 to 31.05.2003. The total amount paid by TOL and debited to TFL as a loan was ₹ 7.35 crores. Out of this total amount, an amount of ₹ 1. 71 crores was paid back by TFL to TOL and the balance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;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 was held that when money borrowed was not utilized in its business, the borrowed amount cannot be taken as part of circulating capital and to be treated as a trading receipt. Whenever an amount is borrowed and utilized for paying off its liabilities and the borrowed amount was waived; the same cannot be brought into tax net either in terms of S.41(1) or 28(iv) of the IT Act. This proposition was laid down in the following cases 'which are referred to by the AR in the submissions: ⦁ Govindbhai 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come 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 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 borrowed towards capital account 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. The same observation was mentioned by the Ld. CIT(A) in his impugned order at page no. 11 and Ld. CIT(A) also placed reliance the following cases on this issue: ii) CIT vs. Toshalnternational Ltd. (176 Taxaman 187) (Del.) iii) Govind Bhai C Patel Vs DCIT (ITA No. 1675/Ahd/2009) dated 30.10.2009 (ITAT Ahmedabad) iv) CIT vs. Phool Chand Jiwan Ram (131 ITR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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