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TMI Blog2013 (12) TMI 1697X X X X Extracts X X X X X X X X Extracts X X X X ..... It is prayed that the order of the Id. CIT (A) be cancelled and that of assessing officer be restored. 3. 1 (i) After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee has shown income of ₹ 1,34,24,390/- under the head "loan written back". However, this amount was reduced from the net profit while determining the assessable income by giving following note: "2.1 (i) "During the year, Company has written back a sum of ₹ 1,34,24,319 being the amount of loan payable to M/S Barbour Campbell Textiles Ltd. (BC T L) as the same has been waived by BCTL. The company formerly known as Barbour Vardhman Threads Ltd. (BVTL) was a joint venture between BC TL and Mahavir Spinning Mills Ltd. (MSML). The company was regular supplier of its products to BCTL. In order to cater the additional requirement of BC T L, the Company at the instance of BCTL expanded its production capacity which was partly funded by BC TL through an interest free loan of Pounds Sterling 226500. However the said arrangement of supply to BCTL was discontinued as BCTL withdrew from the joint venture. On above disengagement, BCTL agreed to rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased by M/S MSML (75% of shares ) and the balance by M/S VSGML(a Group company of Sh. S.P. Oswal). Thus, as on IS t April, 2000, the entire Capital holding of M/S BC TL in M/S BVTL came in the hands of the promoter group of the assessee. v) The name of M/S BVTL was changed to M/S Vardhman Threads Limited (present assessee) w.e.f. 27.06.2000. Subsequently, the composition of the Board of Directors of the assessee company was also changed w.e.f. 24.08.2000. The Directors of M/S BC TL namely, Sh. Tudo Davis, Sh. Ceri Marc Jones and Sh. Alex Atkinson ceased to be a Directors of the assessee company w.e.f. this date. vi) In the meantime, vide letter dated 28.10.1998 (i.e. n the beginning of the join venture mentioned above) M/S BCTL expressed its readiness to part finance the proposed expansion of capacity of M/S BVTL, by making an interest free advances of Pounds 2, 26,500 which was meant for setting up additional production facility. It was also conveyed by M/S BC TL that the advance amount may be re-payed during the period of Six years in quarterly instalments of Pounds 9500 starting from 30.06.99. It was further mentioned that the total amount may be repaired not later than 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iving was in nature of capital receipt and the same cannot be subjected to tax. 6 The Id. CIT (A) found force in the same and observed that the transaction into which the assessee had entered falls squarely within the ambit of category of transactions in the nature of capital field and therefore, same were not taxable. 7 Before us the Id. DR for the revenue carried us through the facts as noted by the Assessing Officer and submitted that the assessee had got benefit of depreciation and therefore, this amount was taxable. In this regard he relied on the order of Hon'ble Delhi High Court in case of Logitronics P Ltd. Vs. CIT, 333 ITR 386 (Delhi) 8 On the other hand, the Id. counsel of the assessee strongly supported the impugned order and emphasized that when the loan was taken the receipt was of capital nature and therefore, same cannot be taxed now. In this regard he strongly relied on the decision of Hon'ble Bombay High Court in case of Mahindra and Mahindra Ltd. Vs. CIT, 261 ITR 501 (Bombay). He further submitted that the assessee has not received any cash therefore, same cannot be taxed even u/s 28(iv) as "benefit by perquisite arising from business" and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be repayed during the period of Six years in quarterly installments of Pounds 9500 starting from 30.06.99. It was further mentioned that the total amount may be repaired not later than 31.12.2005. vii) Based upon this letter, M/S B VT L carried out expansion of the project. Total plant and machinery to the tune of As. 1, 56, 12,645/- (Pound 2, 26,500 x 68.93) was purchased by M/S BVTL. This purchase of machinery was entirely financed by M/S BCTL. The due claim of depreciation has also been made by the assessee company on this machinery. At the same time, this amount has been shown as a non interest bearing loan raised from M/S BC T L, in the books of assessee company. viii) Subsequently , vide letter dated 1.03.01, M/S BC TL has stated that no payment of the loan which was repayable in 24 equal instalments w.e.f 30.06.1999 has been made. It has been further conveyed in this letter that keeping in mind the difficulties to maintain the further relationship and the fact that the assessee company will face difficulty in serving the loan, it has been decided that portion of the loan not due for repayment would be waived off. It has also been stated that M/S BCTL would agree to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a liability. Accordingly, the Assessing Officer held that the sum of ₹ 57, 74,064 wastaxable u/s 28 of the Income Tax Act, 1961. The Commissioner (Appeals) held that the sum of ₹ 57, 74,064 was taxable as income u/s 28(iv) of the Act as such benefit was obtained in the course of business and the monetary value of that benefit was income. Alternatively, the Commissioner (Appeals) took the view that the waiver of the loan amount of ₹ 57, 74,064 amounted to remission of trading liability and, consequently, the said amount was taxable u/s 41 (1). According to the Tribunal, section 28(iv) was not applicable because benefit of waiver was not received by the assessee in kind. The Tribunal further took the view that even section 41 (1) of the Act was not applicable becaue there was no cessation of trading liability. In above facts it was held as under: "Held (i) that there were two important facts which had been overlooked by the Assessing Officer. Firstly, the assessee continued to pay interest at 6 per cent for a period of ten years on the loan amount. The agreement for purchase of tooling was entered into much prior to the approval of the loan arrangement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not justified in making the addition of As. 2,91,42,213 being the principal amount of loan waived. The Tribunal reversed the order of the Commissioner (Appeals). On above facts it was held as under: "Held - dismissing the appeal that the Tribunal had found that nothing was brought on record to show that the loan taken by the assessee from the bank was utilized for the purse of acquiring capital assets. On the contrary, the material on record indicated that the assessee had obtained the loan or credit facility by way of hypothecation of finished goods, semi finished goods, raw material, book debts, receivable claims, securities and rights by way of first charge which indicated that the assessee had obtained the loan facility for its business activity or trading operations. On the question whether the whole amount of the loan had been utilized either for the purpose of acquiring a capital asset or for the purpose of business activity or trading activity the Tribunal remitted the matter to the Assessing Officer for fresh adjudication. The judgments and had given an opportunity to the assessee to prove its case before the Assessing Officer. Therefore, there was no reason or occ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and confirm the same. 15 1(iii) After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee has issued 93.4 kg of industrial sewing threads as samples to various parties. Upon enquiries it was submitted that these samples were given to various customers to promote the product and the value of the same has been reduced from the closing stock. However, the Assessing Officer noted that perusal of closing stock details, both value wise and quantitatively, did not make clear that how this amount has been reduced, therefore, he made an addition of ₹ 32,290/-to the income 16 On appeal this addition was deleted by the Id. CIT (A). 17 Both the parties were heard. 18. After considering the rival submissions we find force in the submissions of the Id. counsel of the assessee when the assessee is manufacturing huge quantity of sewing thread, it is customary that some of the samples may be distributed for promotion of the product. Therefore, we find nothing wrong with the order of the Ld. CIT (A) and confirm the same. 19. I(iv) After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on customers. Hon'ble Gujarat High Court in case of Nirma Industries Ltd. Vs. DClT(supra) has clearly held that interest from customers would constitute income for the purpose of computing deduction u/s 801B and therefore, to this extent there is nothing wrong with the order of the Id. CIT (A). 24 As far as claims are concerned, there is force in the submissions of the Id. DR. Hon'ble Punjab & Haryana High Court in case of CIT Vs. Khemka Container (P) Ltd. (supra) has clearly observed that insurance receipt in respect of raw material destroyed in the fire cannot be treated as income for deduction u/s 801B. It was further observed that only profit part of the receipt has to be ignored for computing deduction. In case before us the assessee has received excess claim in respect of DG Set from the insurance which is of capital nature. Therefore, case of the assessee is much worse than the case of CIT Vs. Khemka Container (P) Ltd. (supra) whether claim was on account of revenue item. Therefore, receipt of claim from insurance company against DG Set cannot be taken as part of the profit for the purpose of computing deduction u/s 801B. No details have been filed in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity for proposition as to how provisions of section 801A(9) made applicable with effect from Assessment year 1999-2000 are to be applied and it does not impliedly overrule decision of Special Bench of Tribunal in case of Asstt CIT Vs. Rogini Garments (2007) 108 ITD 49 (Chennai) - Held, Yes - Whether restriction contained in section 801A or 801B not to allow repeated deduction is applicable to same profit -Held, yes - Whether if profits are derived from separate undertakings, restriction contained in above provision would not be applicable - Held, yes." Following the above we decide this issue against the assessee because there is mandatory provision of Section 801A(9) which makes it clear that deduction u/s 801A has to be reduced for computing deduction under other provisions of the Act. Recently this issue has been discussed by Hon'ble Punjab & Haryana High Court in case of M/S Broadway Overseas Limited, Suranussi vs. CIT, ITA No. 234 of 2009 (O&M) dated 22.11.2013 in detail. After detailed discussion and following the decision of Coordinate Bench it was observed that deduction u/s 80HHC is to be granted only after reducing the deduction to the extent already allowed u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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