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2016 (2) TMI 750 - ITAT JAIPUR

2016 (2) TMI 750 - ITAT JAIPUR - TMI - Income on account of remission of principal amount of loan - CIT(A) confirmed addition as income of the assessee - Held that:- The assessee company is manufacturing of woolen yarn and other wool items and taken loan from bank and financial institutions. The assessee company had become sick company and before BIFR the banks/financial institutions had settled its outstanding loan whereby the principal loan amount of ₹ 29,40,94,000/- was written back. Th .....

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ed into money or not arising from business or the exercise of the profession can be taxed. Even the Hon'ble Supreme Court in the case of Nectar Beverages Pvt. Ltd. Vs. DCIT (2009 (7) TMI 5 - SUPREME COURT ) has held that depreciation is neither a loss nor an expenditure nor a trading liability, therefore, settlement of principal amount by the bank/financial institution cannot be assessed U/s 41(1) of the Act. The other case laws referred by the AR particularly the decision in the case of Mahindr .....

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the warehouse, therefore, no adjustment U/s 145A on account of excise duty is required to be made as per law.- Decided in favour of assessee - ITA No. 622/JP/2014, ITA No. 671/JP/2014 - Dated:- 22-1-2016 - Shri R. P. Tolani, JM And Shri T. R. Meena, AM For the Petitioner : Shri Ved Jain & Shri Himanshu Goyal ( C. A. ) For the Respondent : M. S. Meena (CIT) ORDER Per T. R. Meena, A. M. These are cross appeals, one by the assessee and another by the revenue arise against the order dated 09/07 .....

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e and in law the ld CIT(A) has erred in deleting the addition of ₹ 16,41,000/- made U/s 145A on account of excise duty leviable on closing stock. 2. First we take the assessee s appeal. The sole ground of the assessee s appeal is against confirming the action of the Assessing Officer in treating a sum of ₹ 29,40,94,000/- as income of the assessee on account of remission of principal amount of loan. The assessee company filed its return of income on 25/09/2009 declaring NIL income. Th .....

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were given by the Assessing Officer on page No. 2 of the Assessing Officer, which is reproduced hereunder:- Amount in lacs Exceptional Items as per P&L account 13322.33 Less: A. Remission in Principal amount by Bank and FI 2940.94 will not be included in income as per following case laws a) Mahindra & Mahindra Ltd. Vs. CIT 182 CTR 34 (Bom) b) CIT Vs Chetan Chemicals P Ltd. 267 ITR 770 (Guj) B. Remission in interest by FI already in our income in preceding years hence not included in thi .....

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essment proceedings, the Assessing Officer gave reasonable opportunity of being heard on this issue for treating this amount as income arising due to remission of liability. The assessee filed its reply, which has been reproduced on page 2 and 3 of the assessment order. After considering the assessee s reply, the ld Assessing Officer held that the ld AR had placed reliance on the decision of Hon ble Gujarat High Court in the case of CIT Vs. Chetan Chemicals (P) Ltd. wherein it was held that Sect .....

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ce does not readily follow, as such waiver, whether of the principal amount or interest would still be a windfall, which can be treated as income only, if it could be deemed as income U/s 41(1) of the Act. As the language of section 41(1) does not make an exception for the money lending business, so it should make no difference whether the assessee was in money lending business or not. Further, in the case of CIT Vs. Sundaram Iyengar (T.V.) and Sons Ltd. 222 ITR 344 (SC), it was observed that th .....

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were originally treated as capital receipts. Some of the deposits were neither claimed by nor returned to depositors. There is no dispute that the deposits were received in course of the carrying on of the business of the assessee. Although it was treated as deposit and was of capital nature at the point of time it was received, influx of time the money has become the assessee s own money. What remained after adjustment of the deposits has not been claimed by the customer. The claims of the cus .....

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has become richer because the banks and financial institutions have written off that amount in their books and the assessee has also written back the said amount in its books. In this regard, reliance was further placed on the decisions in the case of Solid Containers Ltd. Vs DY.CIT 308 ITR 417 and Rollatainers Ltd. Vs. CIT 339 ITR 54 (Del) wherein it has been held that when a borrowing is made for carrying on regular business activity, such borrowing is called as working capital borrowing. It f .....

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, who had confirmed the addition by observing as under:- 3.4 I have perused the facts of the case, the assessment order and the submissions of the appellant. In the case of Modern Syntex India Ltd. (for AY 2004-05 to AY 2006-07), a similar issue has been adjudicated by the ITAT, Jaipur (ITA No. 531,532,533/JP/2009, dated 18.12.2009) against the appellant and in favour of revenue. Relevant extract of the order of the ITAT is given below: Since on identical issue the decision has already been take .....

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preciation on such assets. By deducting the principal amount the assessee is getting double benefit i.e. on one hand depreciation and on the other hand, remission of principal amount. The assessee is getting benefit arising from business and therefore, remission is covered under section 28 (iv) of the act. Originally the amount received though was not of income in nature and amount remained with the assessee for a long period and by remission of the said amount, assessee became richer by said am .....

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order of AO. The CIT (A) is not justified in reversing the order of AO." 3.4.2 The appellant has stated that the judgment of the Delhi High Court in the case of Tosha International (supra) was delivered after the above order of the ITAT which would change the legal position in this regard. IU have perused the case of Tosha International. It relies on the judgment of the Bombay High Court in the case of Mahindra & Mahindra Vs CIT 261 ITR 501 which had been delivered before the order of t .....

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sh benefit can be taxed. He has drawn our attention on the decision of Hon ble Bombay High Court in the case of Mahindra & Mahindra Ltd. Vs. CIT (2003) 261 ITR 501 (Bom). Further this income cannot be taxed U/s 41(1). As per Section 41(1), three items i.e. loss, expenditure and trading liability can be taxed. The Hon'ble Supreme Court in the case of Nectar Beverages Pvt. Ltd. Vs. DCIT (2009) 314 ITR 314 (SC) has considered the issue of depreciation and held that it is neither a loss nor .....

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Jodh) wherein it has categorically held that the remission of liability on account of capital assets will not be taxable. The Hon ble Jodhpur ITAT has considered the Hon'ble Supreme Court decision cited by the ld CIT(A) i.e. CIT Vs. T.V. Sundaram Iyengar & Sons Ltd. (supra). This judgment of ITAT being the judgment of later date will be applicable. More so, when the judgment of the other Hon'ble High Courts and Hon'ble Supreme Court are squarely applicable to the present set of f .....

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e has argued that in the case before the Bombay High Court in Mahindra & Mahindra Ltd. Vs. CIT (supra) the issue was considered, the deduction claimed by the assessee by way of depreciation on the cost of machinery and toolings, was taxable U/s 41(1) of the Act. As the cost of machinery/toolings being forgone by Kaiser Jeep Corporation during the assessment year 1976-77. The Hon ble Court has decided this issue in favour of the assessee and against the department. Further in the case of CIT .....

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payment. The only objection raised by the Assessing Officer is with regard to waiver of principal amount to the extent of ₹ 10,47,93,857/-, which the assessee had directly credited to the capital reserve account. According to the Assessing Officer the assessee had derived benefit on the basis of either depreciation or utilizing the working capital which would have formed part of the earlier years income. According to the Assessing Officer since the loans ceased to exist, this amounted to .....

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further appeal before the Hon ble Supreme Court Their Lordships. dismissed the Department s special leave petition against the judgment dated 23-9-2008 of the Delhi High Court in ITA No. 1143 of 2008 whereby the High Court following Mahindra & Mahindra Ltd. s case (supra) upheld the order of the Tribunal holding that as the assessee had not got any deduction on account of acquisition of capital assets as it had been reflected in the balance-sheet and not in the profit and loss account and t .....

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lls Ltd. ITA No. 814 of 2013 dated 25th March, 2015 and confirmed the order of the ITAT. He further relied upon the decision in the case of CIT Vs. M/s Xylon Holdings Pvt. Ltd. ITA No. 3704 of 2010 dated 13th September, 2012 wherein similar issue has been considered by the Hon ble Bombay High Court and appeal of the revenue is dismissed. He further relied on the following case laws on this issue:- (i) Accelerated Freez & Drying Co. Ltd. Vs. DCIT (2010) 1 ITR 226. (ii) Coastal Corporation Lim .....

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resent issue in appeal. Therefore, he prayed to confirm the order of the ld CIT(A). 6. We have heard the rival contentions of both the parties and perused the material available on the record. The assessee company is manufacturing of woolen yarn and other wool items and taken loan from bank and financial institutions. The assessee company had become sick company and before BIFR the banks/financial institutions had settled its outstanding loan whereby the principal loan amount of ₹ 29,40,94 .....

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ny benefit or prerequisite whether converted into money or not arising from business or the exercise of the profession can be taxed. Even the Hon'ble Supreme Court in the case of Nectar Beverages Pvt. Ltd. Vs. DCIT (supra) has held that depreciation is neither a loss nor an expenditure nor a trading liability, therefore, settlement of principal amount by the bank/financial institution cannot be assessed U/s 41(1) of the Act. The other case laws referred by the AR particularly the decision in .....

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edule-10 of balance sheet, the closing stock has been shown amounting to ₹ 591.41 lacs in point No. 6 to the Annexure-C-1 of the audit report. It is stated that the assessee has claimed amount of excise duty on payment basis. The ld Assessing Officer gave reasonable opportunity of being heard to make adjustment U/s 145A of the Act. The assessee filed reply vide letter dated 28/11/2011, which has been reproduced by the Assessing Officer in assessment order. After considering the assessee s .....

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etc. incurred by the assessee means that these had become payable. It is clear that the moment goods are manufactured, excise duty becomes payable on them irrespective of the fact that they are lying un-cleared in the warehouse. Such duty is therefore, liable to be included in the value of the closing stock. The assessee has not included excise duty in closing stock, therefore, he made adjustment of ₹ 16.41 lacs in closing stock U/s 145A of the Act. 8. Being aggrieved by the order of the .....

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