TMI Blog2021 (3) TMI 1067X X X X Extracts X X X X X X X X Extracts X X X X ..... nature, the amount remained with the assessee for a long period unclaimed by the third parties, i.e., ILC Industries Limited and become definite trade surplus and to be treated as taxable income. If an amount received in the course of trading transaction, even though it is not taxable in the year of receipt as being the revenue character, the amount changes its character when the amount becomes assessee s own money because of written of by ILC Industry Limited in its books of account and there was no contractual obligation on the part of the assessee to perform its obligation and it should be treated as income of the assessee. Being so, we are of the opinion that the lower authorities are justified in treating the amount as income of the assessee u/s 41 of the I.T.Act. Where the assessee s business profit was enhanced on account of addition by invoking the provisions of section 41(1), the assessee is entitled to deduction u/s 10B on the enhanced profit - In the case of Yahoo Software Development (P.) Ltd. [ 2020 ( 5) TMI 53 - ITAT BANGALORE] disallowance u/s. 40(a)(ia) was made and business income was enhanced, on this count exemption u/s. 10A was granted on the enhanced in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e another and the Appellant craves leave to add or delete or modify or revise any ground at the time of hearing before the Hon'ble ITAT. For these and other grounds that may be urged at the time of hearing, it is prayed that the Hon'ble /TAT may be pleased to allow the appeal in the interest of the equity and justice. 3. At the time of hearing, the ld. counsel for the assessee has not pressed grounds No.2.1 2.2. Accordingly, these grounds are dismissed as not pressed. 4. The facts of the issue are that assessment proceedings for AY 2011-12 was completed u/s. 143(3) of the Income-tax Act, 1961 [the Act]. Original return was processed u/s. 143(1) of the Act and later original assessment was completed u/s. 143(3) on 30.3.2014 and assessee filed appeal against the original assessment order before the CIT(Appeals). The first appellate authority gave certain relief to the assessee and while giving effect to the first appellate order, the AO was in the process of conducting scrutiny proceedings in the case of this assessee for AY 2013-14. The AO; while going through the details of transaction pertaining to the assessee firm, M/s. Hothur Traders, in the books of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled before the AO. 7. Apart from the above, the assessee had supplied iron ore to the said party vide Invoice No.23, through Mehboob Transport Company on 22.3..2010 for a sum of ₹ 22,28,605/-, which, obviously does not represent any purchase cost or expenditure to be charged to profits. It is submitted that only an expenditure representing purchase goods or providing of services would constitute an expenditure for the purpose of section 41(1), subject to the condition that the amount is charged to profits and the credit balance is written off by either party. On a plain reading of the ledger account of the assessee in the books of account of M/s. ILC Industries Ltd, (coming into the possession of the AO), it would be clear that there was no supply of goods or services and the credit balance outstanding (the subject matter of purported write off by the other party) did not represent any expenditure in the hands of the assessee. 8. As per the observations of the AO himself, the reassessment proceedings were initiated on the basis of the purported ledger account of the assessee in the books of account of M/s. ILC Industries Limited, alleging corresponding debit balance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore (C-Ore) from them by the assessee. This is evident from the letter dated 12.2.2016 filed by the assessee before the CIT(Appeals). Contrary to this, the contention of ld. AR is that it is not a trading liability so as to bring it under the purview of section 41(1) of the Act. When the money/loan was received by the assessee in the course of carrying on of business, even if it was treated as a loan at the time of receipt, it was in the nature of revenue, on the waiver it had become the assessee s own money, though it was not taken into Profit Loss account. The benefit was in the revenue field as the money had been received in the course of day to day affairs of assessee. There was no purchase of any capital asset. Thus, the loans received by the assessee from M/s. ILC Industries Ltd. were for circulating capital and not for fixed capital. We are only concerned with waiver of advance/loan in the course of carrying on of day to day affairs of assessee company and units on its waiver, which is to be treated as income in the revenue field. At this stage, it is appropriate to discuss certain case laws on this issue:- (1) Logitronics Pvt. Ltd. v. CIT [2011] 333 ITR 386 (Del) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Sons Ltd. ( supra ). Against the orders of the Tribunal, appeal was preferred by the said assessee and the Hon ble Delhi High Court vide orders dated 18th February, 2011 affirmed the order of the Tribunal. (2) CIT v. Phool Chand Jiwan Ram, 131 ITR 37 (Del) and Tosha International Ltd., 331 ITR 440 (Del) : It was held that they are not applicable in the instant case. In the case of Phool Chand Jiwan Ram (supra) the relevant facts are that the assessee had purchased goods in an earlier year from M/s Narsinghdass Banarsidass, the payment in respect of which was made by M/s Janaki Dass Banarasi Dass. The amount was subsequently waived. The case of the revenue was that the amount so paid should be taken towards purchase of cloth and, therefore, it represents a trading liability. The High Court came to the conclusion that this conclusion was rather far-fetched. The cloth was purchased from M/s Narsinghdass Banarsidass and the debt represented a trading debt. However, so far as M/s Janaki Dass Banarsi Dass is concerned, the payment made by it was not for the purpose of purchase of stock-in-trade. Therefore, it was held that the liability was not a trading liability and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me as income of the assessee on the ground that the creditor had written of the said amount and, therefore, it was no more the liability of the assessee and to this extent it was the assessee's gain and added the same under Section 41(1) of the Act. The plea of the assessee in that case was that JSPL had done it unilaterally and without the knowledge of the assessee. The CIT(A) confirmed the addition made by the Assessing Officer in term of Section 41(1) read with Section 28(i) of the Act. The ITAT deleted the addition holding that Section 41(1) of the Act had no application. In the appeal preferred by the Revenue, it did not press the applicability of Section 41(1) Act or Section 28(i) of the of the Act but took a totally different stand namely the said waiver was to be treated as income under Section 28(iv) of the Act. No doubt, the Court held that the amount written of in the books of account by JSPL was in the nature of value of any benefit or perquisites, whether convertible into money or not and, therefore, could not be treated 'profits and gains from business'. However, no other aspects were looked into or discussed. The nature of loan taken by the said assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under head customer advances - During relevant assessment year, Assessing Officer held that there was cessation of liability and, therefore, added such sum to income of assessee - It was found that scheme was valid only for period of twelve months - There was no activity at hands of assessee in connection with scheme for past several years - Not a single customer had demanded money back nor assessee had made any attempt to repay same - In all invoices, signatures of member customers were missing - Their addresses were not sufficient - Over years, company had also invested such amount and earned interest and used such interest for its purpose - Whether on facts, there was cessation of trading liability, thus, Assessing Officer was justified in adding impugned amount to income of assessee - Held, yes [Paras 10 12] [In favour of revenue] 16. Further the Tribunal in Suresh Kumar Jain v. ITO, [2011] 128 ITD 74 (Bang) held as follows:- Section 68 , read with section 41(1) , of the Income-tax Act, 1961 - Cash credits - Assessment year 2005-06 - In course of assessment, Assessing Officer asked assessee to prove genuineness of sundry creditors shown in return of income - In rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ILC Industry Limited in its books of account and there was no contractual obligation on the part of the assessee to perform its obligation and it should be treated as income of the assessee. Being so, we are of the opinion that the lower authorities are justified in treating the amount of ₹ 4,17,71,395 as income of the assessee u/s 41 of the I.T.Act. 17. The alternative ground of the assessee is that where the assessee s business profit was enhanced on account of addition by invoking the provisions of section 41(1), the assessee is entitled to deduction u/s 10B on the enhanced profit. For this purpose, reliance was placed on the following judgments:- (i) Yahoo Software Development (P.) Ltd. v. DCIT, (2020) 116 taxmann.com 403 (Bang. Trib) (ii) Anthelio Business Technologies (P.) Ltd. v. ITO, 78 taxmann.com 203 (Mum Trib.) 18. We have carefully gone through the above judgments. In the case of Yahoo Software Development (P.) Ltd. (supra) disallowance u/s. 40(a)(ia) was made and business income was enhanced, on this count exemption u/s. 10A was granted on the enhanced income. In the case of Anthelio Business Technologies (P.) Ltd. (supra) , deduction u/s. 10B was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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