TaxTMI 
TaxTMI 
2015 (10) TMI 2468
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....ncrease in the capital reserve was because of waiver of loans which the Assessee had obtained for the purpose of its business, by the creditors owing to financial crisis which the Assessee faced. The loan creditors agreed for waiver of part of the loans and accordingly, the amount of loans together with interest so waived has been treated as 'capital reserve' brought to the balance sheet. The assessee furnished the party-wise details of loans and the interest waived, which was as under : Name of the loan creditor Balance as on 01.04.2008 Amount waived Balance as on 31.03.2009 Deepak Vegpro P Ltd (secured loan) 45000,000 31500,000 13500,000 KN Ravindra Kumar (HUF) 1250,000 1000,000 250,000 Shree Hari Industries 1685,145 1348,117 337,028 Versa Trading Co. 896,439 717,151 179,288 Anita Agarwal 1250,000 1000,000 250,000 Deepak Vegpro P Ltd (unsecured loan) 28500,000 22800,000 5700,000 Total 78,581,584 58,365,268 20,216,316 Further, the perusal of the assessee's balance sheet showed that the following items of loans and their interests have been reduced from....
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....28(iv) of the Act for the reasons that the benefit was in terms of money and the provision of section 28(iv) of the Act will apply only when the benefit or perquisite is received in kind. 5. The following observations of the CIT(A) in this regard are as follows : "I have carefully considered the submission of the appellant along with the supporting evidences/details furnished & case laws relied upon, perused the facts of the case including the impugned assessment order, remand report and rejoinder to the remand report and other materials brought on record. I do not find any force in the argument put forward by the appellant. Therefore, these grounds of the appeal of the appellant regarding the addition of Rs. 7,48,65,268/- on account of waiver of unsecured loan and of Rs. 7,09,96,285/- on account of waiver of interest on secured loan are decided as under :- (i)It is not in dispute that the appellant has written off in books of accounts interest of Rs. 7,09,96,285/- As per the ld AR the appellant has not been allowed deduction of this interest in view of provision of section 43B of the Act. The AO in his report has submitted that this plea was not raised during the assessme....
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.... High Court has held as under :- "The answer to the question whether the waiver of a loan is taxable as income or not depends on the purpose for which the loan was taken. If the loan was taken for acquiring a capital asset, the waiver thereof would not amount to any income exigible to tax u/s 28(iv) or 41(1). On the other hand, if the loan was taken for a trading purpose and was treated as such from the very beginning in the books of account, its waiver would result in income more so when it was transferred to the P&L A/c in view of Sundaram Iyengar 222 ITR 344(SC). In view of above discussed legal and factual position I am of the view that the AO was justified in adding Rs. 7,48,65,268/- to the income. Accordingly the addition of Rs. 7,48,65,268 is confirmed." 6. Aggrieved by the relief granted by the CIT(A) the revenue in appeal before this Tribunal. Aggrieved by the order of CIT(A) upholding the addition on account of waiver of principal amount of the loan the assesee is in appeal before this Tribunal. 7. We have heard the submissions of the ld. DR and the learned counsel for the Assessee on the aforesaid issues. The ld. Counsel for the assessee placed reliance on th....
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....onsideration by this Court, to support their reasoning. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasoning." 9. Section 41(1) enacts a statutory fiction and the operation of such fiction should be limited to the language of the section. In Mahindra & Mahindra Ltd. vs. CIT 261 ITR 501 (Bom) followed in CIT vs. Tosha International Ltd. 331 ITR 440 (Del) it was held that amount of loan and interest due by assessee to banks and financial i....
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....rpose for which the loan has been availed by the assessee. It is only when the purpose of the loan is ascertained it can be decided as to whether the provision of section 41(1) of the Act will be attracted or not. We therefore set aside the order of the CIT(A) in so far as the addition of Rs. 7,48,65,268/- sustained by the CIT(A) and remand the issue to the AO for fresh consideration in the light of the observations made above. The assessee is at liberty to file the required documents to substantiate its case regarding non applicability of the provision of section 41(1) of the Act or section 28(iv) of the Act. 13. In so far as the appeal of the revenue is concerned it is quite clear that from the order of the CIT(A) that the interest which was waived was not claimed as an expenditure by the assessee in the past and therefore the addition of the said sum u/s 41(1) of the Act cannot be sustained. In so far as the applicability of the provision of section 28(iv) of the Act is concerned the benefit in question was not received in kind and therefore the addition on the above said provision cannot be sustained. The decision referred to by the CIT(A) in the impugned order on this issue....
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....ness of the transaction of the receipt of share application money of the assessee has been clearly established. In fact the additional evidence in the form of confirmation from the share applicant ought to have admitted by the CIT(A) as additional evidence and in the light of the enquiry carried out by the AO which clearly established the receipt of share application money as genuine, the addition ought to have been deleted. We therefore direct that the addition sustained by the CIT(A) in this regard should be deleted. Ground Nos.4 to 6 raised by the assessee are accordingly allowed. 18. Ground nos. 7 and 8 raised by the assessee read as follows :- "7. That the learned Commissioner of Income Tax (Appeals) has erred in law in confirming the disallowance of Rs. 76,07.212 on account of alleged excess consumption of Hexane in Solvent Extraction Plant made by the Assessing Officer despite the fact that the learned Assessing Officer neither rejected the books of accounts nor invoked the provisions of Section 145(3) of the Income Tax Act, 1961. 8. That without prejudice to Ground No.7 above, the learned Commissioner of Income tax (Appeals) has erred in confirming the disallowance....
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....oduced before me despite repeated reminders. Therefore, the excess losses/consumption of hexane is determined as under: Oil cake consumed during the FY 2008-09 : 48,149 MT Probably consumption/loss of hexane @ 1.5 lt/MT : 72,223.50 litres Total consumption/loss of hexane claimed by assessee: 3,46,753.00 litres Excess consumption/loss of the hexane : 2,74,529.50 litres In view of the above discussions, there is excess claim of consumption/loss of hexane in the solvent extraction of 2,74,529.50 liters and the corresponding cost of the said excess consumption of hexane is Rs. 76,07,212. Therefore Rs. 76,07,212 is disallowed and brought to tax, being excess claim of expenses. Since the assessee concealed income by inflating the expenses by showing excess losses/consumption of hexane, penalty proceedings u/s 271(1)(c) of the Income tax Act are separately initiated." 21. On appeal by the assessee the CIT(A) confirmed order of the AO. The CIT(A)'s observations are as follows :- "After carefully considering the Remand Report of the AO and the rejoinder of the appellant to such report of the AO and perusing the entire facts of the case, this ground of appeal of the appellant regarding....
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....r is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) [has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2),] the Assessing Officer may make an assessment in the manner provided in section 144." The AO did not reject the book results before resorting to an estimation of income. For rejecting the book results, the provisions of Sec.145(3) of the Act requires that the Assessing Officer should be not be satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided u/s.145(1) of the Act or accounting standards as notified under Section 145(2) of the Act have not been regularly followed by the Assessee. The AO has to compute income from business accounting to the books of accounts of the Assessee. It is only when the book results are rejected the question of estimation of income arises for consideration. The AO has to specifically point out the defects in the books or incomplete and incorrectness in the books of accounts and call upon t....