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2010 (9) TMI 1202 - ITAT AHMEDABAD

2010 (9) TMI 1202 - ITAT AHMEDABAD - TMI - ITA No.2817/Ahd/2008 - Dated:- 30-9-2010 - S/Shri Mahavir Singh, JM and D.C.Agrawal, AM Appellant by :- Shri Anil Kumar, CIT DR Respondent by:- Shri Mehul K. Patel & Shri Gopal Krishnan Iyer, ARs O R D E R Per D.C. Agrawal, Accountant Member. This is an appeal filed by the Revenue raising following grounds :- (1) On the facts and circumstances of the case and in law the ld. CIT(A) has erred in deleting the addition of ₹ 6,76,780/- made on acco .....

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receipt on the ground that the principal amount of loan was waived by the GSFC and after that character and nature of such loan was changed and it became the money of assessee. (2.1) The ld. CIT(A) has erred in holding the receipt as capital receipt when it is a case of cession of liability and it is clearly taxable under section 41(1) of the Act. (3) On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition on account gross profit difference of  .....

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g MG Kraft Paper. While finalizing the assessment following additions were made:- Bad debts Rs.06,76,780/- Amount waived by GSFC Rs.29,12,304/- Gross Profit difference Rs.29,81,671/- Rs.65,70,755/- 3. In respect of bad debt of ₹ 6,76,780/- the AO observed that assessee has claimed deduction of bad debts in respect of debts recoverable from M/s Packwell. The AO found that ledger extract of M/s Packwell in the books of the assessee company showed a balance of ₹ 13,61,185/- receivable b .....

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#8377; 13,61,185/- from the account of M/s Punch & Pack to the account of M/s Packwell. It received a sum of ₹ 6,86,405/- as final settlement and accordingly written off the balance sum of ₹ 6,76,780/- by transferring the same to the profit and loss account. The ld. AO disallowed the claim on the ground that the amount was not receivable from M/s Packwell after 31.3.2004 as it was the sole responsibility of M/s Punch & Pack to collect the amount to which it was transferred by .....

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cover the amount was put on M/s Punch & Pack it did not mean that amount was not due from Packwell. Even if M/s Punch & Pack would have taken the responsibility to recover the amount due from M/s Packwell, but it cannot be said that it was due from M/s Puch & Pack. Notwithstanding even if amount is stated to be due from M/s Punch & Pack, and if assessee writes them off in the books of account the claim has to be allowed in view of the decision of the Hon ble Supreme Court in the .....

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ad debt account is debited and the customer s account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentione .....

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rse of assessment proceedings the AO found that assessee has credited ₹ 29,12,384/- as capital reserve being principal amount of term loan waived by Gujarat State Finance Corporation (GSFC in short). The assessee company had taken loan from GSFC in the course of business but part of the amount was waived this year. The AO held that this amount has become assessee s own money, therefore, it should be treated as income of the assessee. The moment amount was waived it changed the nature and c .....

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d. 254 ITR 434 (SC) The question is whether the circumstances contemplated by section 41(1) exist so as to enable the Revenue to take back what has been allowed earlier as business expenditure and to include such amount in the income of the relevant assessment year, i.e. 198586. fn order to apply section 41(1) in the context of the facts obtaining in the present case, the following points are to be kept in view : (1] In the course of assessment for an earlier year, allowance or deduction has bee .....

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ein such benefit was obtained. The learned senior counsel appearing for the Income-tax Department has contended that the assessee itself took steps to write off the liability on account of purchase tax by making necessary adjustments in the books, which itself is indicative of the fact that the liability ceased for all practical purposes and therefore, the addition of the amount of ₹ 3,20,758 deeming the same as income of the year 1985-86 under section 41(1) is well justified of the Act. B .....

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to the period anterior to the introduction of Explanation 1 to section 41(1). The decision of this court in CIT v. T. V. Sundaram Iyengar and Sons Ltd. (1996) 222 ITR 344 has been cited by ld. Counsel for the appellant. We find no relevance of this decision to the determination of the question involved in the present case. The factual matrix and the provision of law considered therein is entirely different. (ii) CIT v. Chetan Chemicals Pvt. Ltd. [2004] 267 ITR 0770-[Guj] On a reading of section .....

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he amount obtained by the assessee or the value of the benefit accruing to the assessee can be deemed to be the profits and gains of business or profession and can be brought to tax as income of the previous year in which such amount or benefit is obtained. The assessee, a private limited company, was incorporated in the year 1974-75. Since 1976, the company carried on commercial production of various inorganic chemicals. The company maintained its accounts as per the mercantile system of accoun .....

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time, interest which had accrued in favour of the creditors amounting to ₹ 2,96,171 was also remitted. Such remitted interest was declared by the assessee for the assessment year 1982-83 as income liable to tax under section 41(1) of the Income-tax Act while filing its return of income, but the remission of loans amounting to ₹ 1,77,052 was not returned as income liable to tax. The Income-tax Officer treated the aforesaid remission of loans as a benefit accruing to the company durin .....

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years and, hence, there was no question of applying the provision as such. Section 28 of the Act deals with profits and gains of business or profession and clause (iv) thereof says that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable as income under the head Profits and gains of business or profession . In the facts of the present case, it could not be said that the assessee-company was carry .....

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received some amount as a liability, which was not claimed as deduction or expenses in any of the years, and the same was written off as compensation/damages for relinquishment of right to sue in court of law, the provisions of section 41(1) or section 68 would not apply to the writing off that liability. (iv) CIT vs. Goyal M.G. Gases Ltd. (2010) 321 ITR 437 (Del) Held,_ dismissing the appeal, that the assessee did not claim nor was allowed any deduction or benefit of allowance by way of allowa .....

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during the course of assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year, the assessee must obtain, whether in cash or in any other manner whatsoever any amount in respect of such trading liability by way of remission or cessation of such liability. Unless and until the liability which has ceased or been remitted during the assessment year, has been debited and claimed to the profit and loss account and a .....

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by the sister concern of the assessee) as income in the hands of the assessee and taxed it under section 41(1) of the Income-tax Act, 1961. On appeal the assessee contended that there was no finding that there was deduction of allowance made in the assessment of the assessee for any year and hence the provisions of section 41(1) had no application. Held -that section 41(1) creates a legal fiction and hence has to be strictly complied with if any addition to the income is sought to be made by the .....

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(P) Ltd. (2009) 313 ITR (A.T.) 96 (ITAT-Mum) Held, that the amount credited to the capital reserve account could not be taxed either under section 28(iv) or section 41(1) of the Act as waiver of loan was neither covered under section 28(iv) or section 41(1) of the Act. The provisions of section 10(3) could not be invoked for charging any income to tax as section 10 deals with only such incomes, which are not to be included in the total income of the assessee. The Assessing Officer would not inc .....

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d. vs. CIT CIT vs. Mahindra and Mahindra Ltd. (2003) 261 ITR 501 (Bom) (ii) That in order to apply section 41(1), an assessee should have obtained a deduction in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. The assessee had not obtained such allowance or deduction in respect of expenditure or trading liability. The assessee had paid interest at 6 per cent. over a period of ten years on ₹ 57,74,064. In respect of that interest, t .....

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nce the above amount of loan never passed through profit and loss account, it cannot be taxed as income under section 41(1). Accordingly this ground of Revenue is also rejected. 8. The next ground is regarding addition of ₹ 29,81,671/- on account of Gross Profit. During the course of assessment proceedings the AO found that details of Indian waste are not maintained properly. He found following defects:- a) The register maintained by the assessee company is primary record and cannot be ign .....

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ssessee company. iv) in some cases the quantity was issued for production but the effect of the same was not given to arrive at closing balance. v) in some of the cases, the figures are overwritten without any basis and supporting evidence. c) It is also observed in some cases that after considering the material issued for production, stock balance turns negative, which is not possible and correct under any circumstances. The partial details of such instances of the facts mentioned above are as .....

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03/05 16730 17575 24305 32800 6405 29/03/05 8840 0 8840 6000 6240 30/03/05 0 210000 0 86865 114235 Quantity details of Raw Material of Imported Waste Paper Date Opening Balance Qty.Received Total Qty.issued Closing balance 30/03/05 304845 - 304845 37490 395675 It was explained to the AO that it was a clerical mistake and oversight but the assessee failed to give correct closing stock. The AO, therefore, held that once primary records are not correct then book results deserve to be rejected. A su .....

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