2011 (10) TMI 269

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....t, and consequently, there is no liability to pay tax under the Act. 2. The assessee-company is engaged in the business of manufacture and sale of halogen lamps. It filed its return of income declaring a loss of Rs. 1,72,71,763/- for the assessment year 2003-04. The case was taken up to scrutinize the assessment under Section 143(3) of the Income Tax Act (for short hereinafter referred to as the Act) for determining the loss at Rs. 1,72,71,763/-. Thereafter, an order came to be passed on 04.01.2008 for reopening the assessment Notice was issued under Section 148 of the Act. The reasons assigned for reopening was that the assessee had written back unsecured loan of Rs. 2,94,81,265/- which has not been offered as income for the relevant as....

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....ree for conversion of the unsecured loan party into equity share capital and waive the balance as not recoverable. Accordingly, the assessee-company converted unsecured loan into equity to the extent of Rs. 9.00 crores and wrote back the balance amount of Rs. 2,64,74,072./- as not payable. However, the Assessing Authority was nor satisfied with the explanation, and held that these loans were received during the course of assessee's business with DRL, and that the liability of the assessee is a trading liability and held that Section 41(1) of the Act is attracted and tax is leviable. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals), Relying on the judgment of the Apex Court In the case....

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....y of writing off such liability in his accounts. 4. In the instant case, the creditor has written off such liability, and therefore, the said amount in the case of the assessee constitutes revenue income and therefore, it is taxable under Section 41(1) of the Act. 5. Per contra, the learned Counsel for the assessee supported the impugned order. 6. Section 41 of the Act reads as under:- "41(1) 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 (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a)  the first-mentioned person has obtained, whether in cash or in any other m....