TaxTMI 
TaxTMI 
2013 (11) TMI 834
X X X X Extracts X X X X
X X X X Extracts X X X X
....order of the AO was erroneous and prejudicial to the interests of Revenue. In the show cause notice, the CIT was of the opinion that the amount of Rs. 10,44,87,420/- received by Assessee company as waiver of interest and principle from M/s IDBI and BOI term loan is to be considered as income u/s 41(1) and this aspect was not applied by the AO. Further, the CIT also asked Assessee to show cause as to why provisions of section 115JB(2) should not be invoked as he was of the opinion that brought forward losses works out to Rs. 62,24,350/-, which should have been set off and balance profit should be worked out as book profit u/s 115JB. Assessee in its reply submitted that Assessee has received waiver of interest as well as principle and to the extent of interest of Rs. 6,61,29,562/- has already been credited to P&L A/c and the balance has been taken to reserves and provisions of section 41(1) to the extent applicable were already invoked. With reference to provisions of section 115JB, Assessee has filed details of carry forward losses and depreciation as per its annual reports and submitted that profit computed during the year is less than either of carry forward losses or depreciation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e aspects were examined by the AO and the AO gave a finding in the assessment order itself that there is no application of provisions of section 115JB. He relied on various principles to submit that CIT has no jurisdiction to invoke provisions of section 263 of the Act. 5. The learned DR, on the other hand, relied on the orders of CIT to submit that waiver of principle as well as interest should be considered as income u/s 42(1) and he relied on the principles laid down by the Hon'ble Supreme Court in the case of TVS Sundaram Iyengar and Sons Ltd., 222 ITR 344 and also in the case of Solid Containers Ltd. Vs. DCIT, 308 ITR 417(Bom) to submit that CIT was correct in directing the AO to bring to tax an amount of Rs. 10,44,87,460/-. With reference to 115JB, he submitted that the bifurcation as provided by CIT is on the basis of depreciation schedule enclosed to annual report and, therefore, the orders of CIT should be upheld. 6. We have considered the issue and examined the facts and documents placed on record. Before dealing with the issue of jurisdiction u/s 263, it is necessary to place the facts on record. Assessee has incurred losses and has obtained waiver of principle as well....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Ltd. (supra). The principle laid down by the Hon'ble Supreme Court in the above decision is that if the amount is received in the course of trading transaction, though it is not taxable in the year of receipt as being of revenue, that amount changes its character and the amount becomes Assessee's own money because of limitation or by any other statutory or contingent right. When such thing happens, common sense demands that the amount should be treated as income of Assessee. In this case, loan sanctioned is not received in the course of trading transaction, this being a capital receipt for purpose of purchase of assets/ business. All amounts received during the course of business cannot be considered as amount received in the course of trading transaction. Therefore, the principles laid down by the Hon'ble Supreme Court in the above said case does not apply at all. The other decision relied upon by the CIT is the judgment of the Hon'ble Bombay High Court in the case of Solid Containers Ltd. Vs. DCIT, 308 ITR 417 wherein the amount was transferred to P&L A/c and the waiver of the loan taken by Assessee was considered taxable. However, the Bombay High court has not followed this ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....same from carry forward losses reported up to the year so as to arrive at the amount of Rs. 62,24,350/-. In spite of furnishing the correct carry forward losses on the basis of annual reports of earlier 3 years in which Assessee suffered losses, the CIT went on a convoluted way to exclude depreciation claimed in the books of account on all the fixed assets from the inception of company to arrive at that amount. What CIT failed to consider was that losses were incurred by Assessee only in the last three years and what is to be examined under the provisions of Companies Act is amount of loss or depreciation in those years, which have been carried forward under Company law. Depreciation already allowed to Assessee on assets in earlier years has certainly no bearing on the issue. We are of the view that the order of CIT is erroneous rather than the order of AO. As seen from the statements furnished by Assessee before the CIT and also before the AO at the time of original assessment, carried forward losses or depreciation are more than the profit earned during the year, therefore, the AO finding that provisions of section 115JB are not attracted is correct and there is no error in the f....