TMI Blog2017 (8) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... The loan agreement, in its entirety, was not obliterated in the present case as well. Therefore, we are of the opinion that in the present case Section 28(iv) was not attracted.overlooking the aspect of payment of interest which has not been waived and in regard to which no relief was claimed. The loan agreement, in its entirety, was not obliterated in the present case as well. Therefore, we are of the opinion that in the present case Section 28(iv) was not attracted. As far as Section 41(1) is concerned, the act of remission was attributable to the creditor and it could not be unilaterally attributed to the debtor himself declaring that he would not pay. There was no material which suggested any act or omission on the part of the creditor which resulted in extinguishment of the liability of the assessee on its account. Writing off such liability in the books of account by the debtor only conveyed the intention of the assessee not to pay. The Revenue relied on the circumstances stated by the Income Tax Officer that claims had not been filed before the Board by Creditors. However, as rightly observed by the Division Bench of the Rajasthan High Court that, there is no provision i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal provisions and which he says are attracted, the facts, as noted by the Assessing Officer, are that the respondent/assessee filed its e return of income for the Assessment Year 2006- 07 on 29 -11 -2006 declaring total loss of ₹ 1,22,04,360/ . This return was revised on 31 -10 -2007 declaring Nil income. The case was selected for scrutiny and notice under Section 143(2) of the Income Tax Act, 1961 (for short, the I.T. Act ) was issued on 29 -11- 2007 and served on the assessee on the next day, i.e. 30 -11 -2007. Further notice under Section 142(1), dated 11- 1- 2008, was issued along with a detailed questionnaire and served on the assessee. Then, a fresh notice had been issued and in response to which the assessee attended. The assessee pointed out that in the past it has been engaged in the manufacture and sale of cold rolled steels. There have been huge losses incurred by the assessee during the past several years, and during the year under assessment no business activities have been carried out by it. After the receipts credited in the accounts and the other income are noted, the Assessing Officer proceeded to note the non business receipts. Pertinently, there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bursed under the one time settlement scheme. Therefore, the cost of the assets and plant and machinery was reduced from the opening written down value which will give the value of actual cost of assets to the assessee. The assessee's claim for depreciation was disallowed and added to the total income of the assessee and the closing written down value of depreciable asset is determined at Nil. 8. Then, the argument is that the Assessing Officer while assessing the revised return of income filed on 31 -10- 2007, computed the net profit at ₹ 29,08,56,591/ from which adjustments on account of depreciation and on account of Sections 28 to 44 have been made setting it off against loss and reducing the total income to Nil. In that regard, it is stated that this claim for additional deduction which has been made and to the extent of ₹ 19,43,73,928/ is by not filing a revised return but only in the form of a letter. That cannot be entertained. 9. Finally, the argument before the Assessing Officer was that the company, based on a BIFR order, may have arrived at one time settlement of loan with Banks and financial institutions, but out of the credit which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of cessation of liability. Thus, writing off of loans payable by the assessee due to one time settlement with the Bank and financial institution amounts to benefit obtained by the assessee arising out of business and therefore such benefit becomes the income of the assessee by virtue of the definition of profit and gain of the business as per the provisions of section 28(iv) and also in view of section 41(1) of the IT Act, 1961. These liabilities were shown in the books of accounts payable to banks. However, these loan were written off by the banks as a result of one time settlement which undoubtedly amounts to benefit derived by the assessee as a result of extinguishments of liability to repay the loan and this benefit has certainly arisen out of business and not from any where else. Further, in accordance with agreement of one time settlement with the Banks/Financial corporations in whose hand the debts would have written off by debiting the equal amount of principal and the interest to its profit and loss accounts. Consequently the benefit received by the assessee becomes taxable under the provisions of section 28(iv) and also in view of section 41(1) of the I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Tribunal for the amount thereunder is ₹ 1,31,999/ . 13. Then, as far as depreciation on account of goodwill is concerned, the orders of the authorities were perused, including the Tribunal's order in the assessee's own case for the previous Assessment Years 2004 -05 and 2005 -06 wherein the Tribunal has allowed the claim of depreciation holding that the assets said to have been put to use as the claim of depreciation allowed in the earlier years and the facts are no different in the order under consideration. Thus, when the Tribunal allowed the claim of depreciation holding that the assets said to have been put to use were identical, the depreciation on assets was directed to be allowed. 14. As far as goodwill is concerned, a specific observation is made in para 25 by relying on the Judgment of the Hon'ble Supreme Court in the case of Smifs Securities Limited, which Judgment was relied upon by the assessee. That Judgment of the Hon'ble Supreme Court is reported in (2012) 348 ITR 302 (SC) [Commissioner of Income Tax Vs. Smifs Securities Ltd.]. The ground No.2, therefore, of the assessee's appeal pertaining to this claim was allowed. The good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law. At least on that count the appeal should be admitted. 19. On the other hand, Mr. Mistri, learned Senior Counsel appearing for the assessee would submit that on the undisputed facts the Tribunal was right in refusing to apply both Sections 28(iv) and 41(1) of the I.T. Act. He would submit that the only three questions which survive in this appeal are the ones pertaining to the benefit that was allegedly accruing in terms of Sections 28(iv) and 41(1). Mr. Mistri would submit that the first two questions are properly covered by the Orders and Judgments of the Hon'ble Supreme Court. There is no need to entertain this appeal. 20. Even on the above surviving questions, the Tribunal has rightly concluded that there was a waiver of the principal amount of loan of ₹ 8,36,99,463/ . Mr. Mistri heavily relied on the Judgment of the Rajasthan High Court which held that treatment of such waiver by the assessee in his books of account does not alter the effect of the order of the BIFR. No remission or cessation of liability results as far as interest nor the assessee became entitled to waiver of interest and, therefore, Section 41(1) was not attracted, is the only view whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be deemed to be profits and gains of business or profession and accordingly chargeable to income tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; 23. A bare perusal of the same would indicate that where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year if the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income- tax as the income of that previous year. 24. On the own showing of the Revenue, in this case, the liability towards payment of interest and on which the assessee derived no benefit, has rightly been brought to tax. It is only waiver of the principal amount of loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilised during the conduct of business, interest on the funds so borrowed were also paid and debited to the profit and loss account in the earlier years, the assessee has derived a benefit as a result of extinguishment of the liability. This benefit is undoubtedly arising out of the conduct of business. 29. The Division Bench in Mahindra and Mahindra held that the assessee has not received any benefit or perquisite in kind which could be valued and in any event such benefit should be in the nature of income. The Division Bench noted that the loan was advanced to the assessee Mahindra and Mahindra, the assessee paid interest at 6% per annum for ten years being the period of contract, and it never got deductions for payment of interest under Section 36(1)(iii) or under Section 37 of the Act. The Division Bench held that there was a waiver of the principal amount and not the interest. In that case also the Assessing Officer held that when there was a waiver of the loan, the credits became part of business income and that prior to such waiver, they represented liability. Here also these are the findings and overlooking the aspect of payment of interest which has not been waived and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Suit for recovery and the assessee filed counter claim. The matter was settled out Court whereby the assessee- company was not to pay any amount. The assessee -company credited to the profit and loss account the interest amount and offered the same for taxation. With regard to the addition of ₹ 6,86,071/ , the assessee-company directly credited the amount to the reserves account considering the same as capital receipt. The Division Bench found that the Tribunal should have relied on the Judgment of the Hon'ble Supreme Court in the case of the Commissioner of Income Tax Vs. T.V. Sundaram Iyengar and Sons Ltd. {(1996) 222 ITR 344}. The Division Bench found that the Judgment in Mahindra and Mahindra was distinguishable. The amount which initially did not fall within the scope of the provision rendering it liable to tax, subsequently becomes the assessee's income, being part of trading of the assessee. This was a clearly distinguishing factor and which prevailed upon the Division Bench in Solid Containers to dismiss the assessee's appeal. Before us, the Tribunal relied on the Division Bench Judgment of the Rajasthan High Court in Shree Pipes Limited . There, on ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
