TaxTMI 
TaxTMI 
2011 (3) TMI 1041
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....availing benefit under the scheme to repay the loan liability even before the stipulated repayment date. Pursuant to the Government offer, the assessee company opted to make repayment of loan liability of Rs. 106.47 Crores. During the previous year, relevant to the Asst. Year 2005-06, the assessee-company paid an amount of Rs. 72.12 Crores to the State Government in discharging of total liability of Rs. 106.47 Crores resulted in extinguishment of loan liability of Rs. 34.35 Crores being the excess of loan liability over the amount paid. The surplus arising out of payment of loan amounting to Rs. 34.35 Crores was credited to the profit and loss account. The Assessing Officer while completing the assessment, he has allowed the claim of the assessee as a capital receipt. According to the learned Commissioner, the action of the Assessing Officer in allowing the claim of the assessee is erroneous on the ground that it is a capital receipt. The amount of Rs. 34.35 Crores has already been claimed as a deduction in earlier year on account of sales tax liability. This amount of Rs. 34.35 Crores became taxable in the Asst. Year 2005-06 in view of the provis....
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....bility. The sales tax loan granted by the Government is now in the form of a loan liability and not a trading receipt. It has further been submitted that under the provisions of section 41(1) of the Income Tax Act, where an assessee is benefited by way of cessation or remission of liability, he is made chargeable to tax on the amount of such remission/cessation. However, this provision fastens the tax liability only on the assessee who had been granted deduction or an allowance in the past. In this case, the assessee was never allowed deduction or allowance of the loan granted by the Rajasthan Government by way of deemed payment of sales tax liability. Besides, the liability that is remitted should be in the nature of trading liability so as to attract the rigours of this provisions. In the assessee's case, sales tax loan cannot be said to be a trading liability." The learned Commissioner considering the explanation of the assessee, has observed that the issue under consideration is whether this surplus amounting to Rs. 34.35 Crores arising out of prepayment of sales tax loan and credited to the profit and loss account constitutes capital receipt or revenue rec....
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....t. In so far as the written submission made by the assessee against the invoking of section 263, the learned Commissioner observed that the A.O. has treated the remission of liability to the extent of Rs. 34.35 Crores wrongly treated as a capital receipt and the same is taxable u/s. 41(1) of the Act. Therefore the first condition that the order of the Assessing Officer should be erroneous is satisfied. Moreover, since this amount of Rs. 34.35 Crores has been held as taxable, the Assessing Officer failed to tax while passing the assessment order, the order of the Assessing Officer is prejudicial to the interest of revenue. Therefore, both the conditions are satisfied for invoking the provisions of section 263 of the Act and directed the Assessing Officer. The ld. CIT (A) directed the Assessing Officer to modify the assessment order by bringing to tax, the surplus amounting to Rs. 34.35 Crores. 3. On being aggrieved the assessee carried the matter in appeal before the Tribunal. 4. The learned counsel for the assessee submitted that all the details in respect of claim made by the assessee were submitted before the Assessing Officer and the Assessing Officer after ....
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....lated repayment date. Pursuant to the government offer, the assessee company opted to make repayment of loan liability of Rs. 106.47 Crores. During the previous year, relevant to the Asst. Year 2005-06, the assessee-company paid an amount of Rs. 72.12 Crores to the State Government in discharging of total liability of Rs. 106.47 Crores resulted in extinguishment of loan liability of Rs. 34.35 Crores being the excess of loan liability over the amount paid. The surplus arising out of payment of loan amounting to Rs. 34.35 Crores was credited to the profit and loss account and the assessee has filed all the details in respect of the above and credited the amount to the profit and loss account (Paper book pages 32, 35 to 37). The Assessing Officer has allowed the claim of the assessee on the ground that surplus on payment of sales tax loan being a capital receipt in nature. According to the Commissioner, the surplus amount of loan amounting to Rs. 34.35 Crores taxable u/s. 41(1) of the Act because the loan liability which is in the nature of sales tax liability is only a trading liability and not capital in nature, therefore, the remission on such liabilit....