2007 (7) TMI 346

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....sation of liabilities as the assessee has gained from the waiver of principal amount." 2. Rival contentions have been heard and record perused. Facts in brief are that the assessee was engaged in manufacturing of black and while picture tube. Due to depression in the market and colour picture tube taking over the black and white picture tube demand was considerably reduced. Accordingly, the assessee company was running in huge losses and was also having accumulated losses exceeding its capital and reserve. It has become a sick company and was registered with BIFR. The assessee after it being declared a sick unit sorted out its repayments position with the financial institution and the bank. Under one time settlement scheme the financial ....

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....ee when bought assets consisting of plant and machinery, buildings other assets, it derived a benefit on the head of depreciation. It clearly indicates that the assessee has been deriving benefit on the basis of either depreciation or utilizing the working capital, which would have been a part of the earlier year's income, and returns filed, accordingly. Now these loans have ceased to exist and assessee has credited the receipts of these monies to the capital reserve account. It means that when the assessee will sell the stocks for which he had borrowed these monies, he would be gaining indirectly. On the other hand also, the assessee when sells any of the assets, they would be on the book value and he would have enjoyed complete deprec....

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....egard to waiver of interest, however, he has treated the waiver of principal amount as income of the assessee, after discussing the provisions of s. 4l(1)/28(iv)/2(24) of the IT Act, 1961. As per our considered view, for attracting the provisions of s. 41(1), the first requisite condition to be satisfied is that the assessee should have got deduction or benefit of allowance in respect of loss, expenditure or trading liability incurred by it and subsequently during any previous year, the assessee should have received any amount in respect of such loss, expenditure or trading liability by way of remission or cessation thereof. The remission would become income only if the assessee has claimed deduction in respect of expenditure or trading lia....