TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 2052
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.... in the business of manufacturing of and trading in petrochemicals, polyester fiber intermediaries, textiles, generation and distribution of power, operation of jetties, investment activities etc. The assessment of the year under consideration was completed originally u/s 143(3) of the Act on 28.03.2005. Thereafter, the AO reopened the assessment by issuing notice dated 20-03-2006 u/s 148 of the Act. The assessee asked for the reasons of re-opening and thereafter filed its objections also. It is pertinent to note that the assessment has been re-opened within four years from the end of the assessment year under consideration. The assessing officer rejected the objections by following case law:- (a) Dr. Amin‟s Pathology Laboratory (252 ITR 673) (b) Praful Chunilal Patel / Vasant Chunilal Patel (236 ITR 832) (c) Rakesh Aggarwal (225 ITR 496) Thereafter the assessing officer completed the assessment by making various additions. In the appeal filed by the assessee, the Ld CIT(A) upheld the reopening of assessment and granted relief only in respect of some of the additions. Hence the assessee has filed this appeal on the issues cited above, which were decided against it. The re....
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.... irrelevant for interpreting the above said provision. The very same issue came for consideration before the Hon‟ble Bombay High Court in the case of Echaj Forging Pvt Ltd (supra) and the revenue conceded before the Hon‟ble High Court that the wealth tax could not be added to the Net profit u/s 115J of the Act. The relevant observations made by the Hon‟ble jurisdictional High Court are extracted below:- "(I) ADDITION OF WEALTH TAX PAID BY THE ASSESSEE TO THE NET PROFIT : 6. Mr. Desai, learned Senior Counsel for the Department, fairly concedes that the net profit, an shown in the profit and loss account, will not be increased by the amount of wealth tax paid because under clause (a) of the Explanation to section 115J(1A), what is contemplated is the amount of income tax paid. Under the said clause, payment of wealth tax is not contemplated. Therefore, the net profit shall not be increased by the amount of wealth tax paid by the assessee." The expression used in sec. 115JB is para materia with the expression used in sec. 115J of the Act and hence, we are of the view that the assessee can take support of the above said decision. Accordingly, we set aside the order....
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....ount obtained by such person or the value of benefit accruing to him shall be deemed to be profis and gains of business or profession and accordingly chargeable to income tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or.........." A careful perusal of the above said provisions would show that the first and foremost condition for invoking the provisions of sec. 41(1) is that an allowance or deduction of loss, expenditure or trading liability incurred by the assessee should have been made in the assessment for any year. Conversely, if deduction of loss, expenditure or trading liability incurred by the assessee was not made in the assessment for any year, the provisions of sec. 41(1) shall not apply. In respect of liability incurred by the assessee, these provisions shall apply only in respect of "trading liability". 10. In this case, the assessee had raised funds by issuing bonds/debentures, i.e., the assessee has received the money and hence the same would not fall in the category of "Loss or expenditure", since both the terms connote outflow of money. He....
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....market, it was enough if Rs. 70/- was paid. Hence the assessee, as a prudent businessman, chose to purchase the debentures at Rs. 70/- and extinguish them. In this process the assessee made a gain of Rs. 30/- per debenture. The question is whether the provisions of sec. 41(1) shall apply to the gain of Rs. 30/- made by the assessee on repurchase and extinguishment of its own debentures. We have noticed the principles/conditions governing the provisions of sec. 41(1) of the Act. The foremost condition is that the assessee should have been allowed deduction in respect of the "gain" realized by the assessee. In this case, this condition was not satisfied and hence there is no question of invoking the provisions of sec. 41(1) of the Act. 14. The assessing officer has placed reliance on the decisions rendered by Hon‟ble Supreme Court in the case of CIT Vs. Karamchand Thaper & Others (222 ITR 112) and T.V. Sundaram Iyengar & sons (222 ITR 344) in support of his view. We notice that these two decisions have not been rendered in the context of provisions of sec. 41(1) of the Act. In these cases, the assessees therein received some money, which was in the nature of capital receipt in....
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....acted in accordance with the law and not contrary to law. The assessee collected the amounts of under charges in advance even before any claim was lodged. He realized the amounts from the colliery company not because any demand was made against him, but possibly, in order to protect himself from the eventuality of any demand being made against him as the del credere agent of the seller........ In the instant case, money in question arose from trading operations. The surplus had arisen out of trading transactions and taken to profit and loss account. It had a definite quality of trading receipt...." It can be noticed that the dispute in the case of Karamchand thapar & others (supra) was about the nature of receipt, i.e., whether it was capital receipt or trading receipt. 16. In the case of T.V. Sundaram Iyengar & sons (supra) also, the question before the Hon‟ble Supreme Court was about the nature of receipts only. The said assessee collected certain deposits from its customers in the course of carrying on his business, which were originally treated as capital receipts. Since they were not claimed by some of the customers, it transferred the same to its profit and loss acco....
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....e facts of present case and accordingly, in our view, the AO could not have placed reliance on these decisions. 18. On the contrary, the assessee has placed reliance on the decision rendered by Hon‟ble jurisdictional Bombay High Court in the case of Mahindra and Mahindra Ltd Vs. CIT (261 ITR 501). The fact available in this case was that the assessee purchased tools (dies) from a company named KJC. Subsequently, the KJC gave loan to the assessee to purchase the tools (dies) and the said loan agreement was approved by RBI. Later, the company KJC was taken over by another company named AMC and the principal amount of loan was waived by AMC as a part of takeover arrangement with KJC to which the assessee was not a party. The waiver of the principal amount was unexpected. In the circumstances, it was held that such waiver would not constitute business income. The Hon‟ble Bombay High Court further held that the provisions of sec. 41(1) were not applicable with the following reasoning:- "So far as applicability of section 41(1) is concerned, one of the requirements is that the assessee should have obtained a deduction in the assessment for any year in respect of loss, expen....
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.... has also placed reliance on the decision rendered by Hon‟ble Karnataka High Court in the case of CIT Vs. Industrial Credit and Development Syndicate Ltd (in short „ICDS‟). The Hon‟ble Karnataka High Court explained the nature of debentures as under:- "A debenture is a certificate of loan or bond evidencing the fact that the company is liable to pay a specific amount with interest and although the money raised by the debentures becomes a part of the company‟s capital structure, it does not become a share capital. A debenture imports an obligation or a convenant to pay. Discharging the liability to the debenture holder who has sold his debentures in effect amounts to repayment of the loan." The assessee, ICDS, issued debentures in the year 1973 at a face value of Rs. 10/- each at par. The debentures were redeemable during the accounting years corresponding to the assessment years 1984-85, 1985-86 and 1986-87 at the rate of 30%, 30% and 40% respectively. During the period of redemption, the assessee company purchased some of these debentures through a nominee at a price less than the face value thereof and credited the difference between the face value....
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....actually receive any income, we are unable to accede to the submission of Sri Seshachala that it constitutes income under section 2(24) of the Act. Having regard to the reality of the situation, as the assessee has not derived any income, he is entitled not to treat it as an income. Therefore, the Tribunal was fully justified in its conclusion that the said surplus amount reflected in the balance sheet (sic. profit and loss account) cannot be treated as income of the assessee. We do not find any error in the said conclusion reached by the Tribunal." In our view, the facts prevailing in the above said case are almost identical and the ratio of the decision rendered by Hon‟ble Karnataka High Court is fully applicable to the instant case. 20. In view of the foregoing discussions, we are of the view that the Ld CIT(A) was right in law in holding that the provisions of section 41(1) cannot be applied as the amount of surplus is not on account of trading liability and accordingly he was justified in deleting the addition made by the assessing officer. Further, as per the ratio laid down in the case of ICDS (supra) by Hon‟ble Karnataka High Court, the gain realized by the as....
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....at the assessee would have paid commission/surcharge during the year under consideration and estimated the same at Rs. 8,89,36,380/-. Accordingly he added the same to the total income of the assessee. 24. The Ld CIT(A), however, deleted the same with the following observations:- "3.6. I have considered the facts of the case, order of the AO and the submissions made by the appellant and I do not find enough reasons or justification for the addition made by the AO. Whereas the mention as a non-contractual beneficiary in the Volcker Committee Report is the only reason for the addition, following important aspects related to the issue in question supports appellant's case:- (i). The observation in Volcker Committee Report is the only material or evidence for making the addition in the assessment order to the effect that assessee is a non-contractual beneficiary and paid part of the purchase consideration as surcharge to Iraqi Government in violation of UN Resolution. There is no other material/evidence/ reason mentioned by the AO for addition. Such general observation by an outside agency, how much respectable it may be, cannot in itself be sole reason for disallowance/additio....