AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (11) TMI 715
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..../- on account of waiver of loan from State Bank of Patiala and Kotak Mahindra Bank Ltd under one time settlement scheme. (ii) That the above said addition has been made despite the fact that the assessee has been granted exemption under a scheme for rehabilitation framed by BIFR. (iii) On the facts and circumstances of the case, the learned Assessing Officer has erred in both facts and in law in holding that the above said amount is a benefit derived from business and hence covered under Section 28(iv) of the Act. (iv) On the facts and circumstances of the case, the learned Assessing Officer has erred in both on facts and in law in evaluating the fact that the assessee has also availed term loan from Bank of Patiala and Kotak Mahindra Bank Ltd. To whom assessee has made one time settlement for waiver of loan as per the directors of BIFR. 3. On the facts and circumstances of the case, the learned Assessing Officer has erred both on facts and in law in not allowing the set off of unabsorbed depreciation and losses of the earlier years. 4. Ground 5: That the appellant craves leave to add, amend or alter any of the grounds o....
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....banks as one-time settlement (OTS), which the promoter brought in over a period of time to pay the said OTS amount. According to the ld AR the AO has wrongly relied upon the following judgment:- Solid Containers Ltd. Vs. DCIT 308 ITR 417 (Bom); CIT Vs. Sundraram Itenger & Songs Ltd. 222 ITR 344 (SC); and CIT Vs. Aries Advertising Pvt. Ltd, in order to fasten the impugned addition on assessee. According to the ld AR, the judgments cited by the AO has no relevance to the facts of the case and is clearly distinguishable and thus the AO has seriously erred in relying upon wrong case laws to make the impugned addition. The ld AR submitted that in the case of Solid Containers Ltd. Vs. DCIT Hon.ble Bombay High Court has held that waiver of loan taken by the assessee for trading activity is taxable under Section 28(IV) of the Act, if the amount is retained in the business. However, in the instant case, i.e. in assessee's case, the amount of loan waived by the banks as OTS has already eroded the net worth of the assessee and in fact the assessee has suffered huge losses. And the ld AR pointed out that in the instant case, no amount which was waived has been retained in the business, rat....
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....d the amount as a liability and more particularly a continuing liability. On the other hand, the assessee has transferred this amount to the general reserve. It is trite law that any amount transferred to the general reserve would be out of the profits along. Once the assessee transferred this amount to the general reserve, it treated the same as the profit. The amount represents the various credits and deposits during the trading with a firm. They remained for a long time to be recovered. (even before the limitation period) and thus remained unclaimed. The amounts were then transferred by the assessee company to the general reserve obviously treating them to be the profits. In that view the amount has to be treated as income of assessee chargeable to income tax." 12. According to the ld AR, in the aforesaid case the assessee company had various credits and deposits which remained unclaimed for long time, even though such amounts were continuing liability, the said amount was transferred by the assessee to general reserves thus treating it to be profits. In the said facts the Hon'ble High Court held that the said amount has to be treated as income chargeable to tax. However in....
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....t not be added in its hands as income. 15. We take note that the issue whether a waiver of loan could be chargeable to tax is no longer res-integra. The Hon'ble Delhi High Court in Logitronics P. Ltd. Vs. CIT and Ant. (2011) 240 CTR (Del) 20 (2011) 52 DTR (Del) 58-ED) has held that:- "In the context of waiver of loan amount, what follows from the reading of the aforesaid judgment is that the answer would depend upon the purpose for which the said loan was taken. If the loan was taken for acquiring the capital asset, waiver thereof would not amount to any income exigible to tax. On the other hand, if this loan was for trading purpose and was treated as such from the very beginning in the books of account, as T.V. Sundaram Iyengar & Songs Ltd. (supra), the waiver thereof may result in the income more so when it was transferred to P&L A/c. 16. In CIT Vs. Tosha International 176 Taxman 187 (Del) the facts are that the assessee was engaged in manufacturing of black and white picture tubes. It ran into huge losses and ultimately became a sick company and was so registered with the BIFR. Under one time settlement Scheme, the banks and financial ....