2016 (2) TMI 526

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....ed by the revenue against the order of the Commissioner of Income Tax (Appeals) who had deleted the addition of Rs. 5,64,85,956/- made by the Assessing Officer under Section 41(1) of the Income-tax Act, 1961. 2. The respondent company is engaged in the business of finance and export. In the year in question there was no business activity except for the receipt of interest and some hire charges. Against the gross receipts of Rs. 6,54,900/- the respondent company claimed an expenditure of Rs. 10,83,949/- resulting in a loss of Rs. 4,29,049/-. 3. During the assessment proceedings the Assessing Officer noted that an amount of Rs. 5,64,85,956/- shown as secured and unsecured loans as on 31.03.2008 in the balance sheet of the respondent com....

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..... 5.64 crores by invoking provision of sec. 41(1) of the Income-tax without stating how the provision are applicable to the assessee's case. Mere cessation of liability does not result into fit case of sec. 41(1) of the I.T Act. Assessee has submitted that assessee was not incurred any loss/expenditure/trading liability which is subsequently recovered by him is taxable as income in the year of recovery. We find that the assessee is squarely covered by the following judgments wherein it has been held that whenever, an amount is borrowed towards capital account and the loan is waived off, the same cannot be brought to tax net either in terms of sec-41(1) or 28(iv) of the Act. The same observation was mentioned by the Ld. CIT(A) in his impugne....

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....onger required to be paid in view of the settlement. Similarly the assessee had foregone the investment in the shares and loan totalling to Rs. 1,08,41,345/- as per the terms of the settlement. The net gain to the assessee is Rs. 4,56,44,611/-. The assessee has clearly established that the adjustments are on capital side and there is no case for invoking provisions of sec 41(1) since the liability waived by the creditor was never claimed as revenue expenditure. 8.6 Keeping in view of the facts and circumstances and the precedents, as explained aforesaid, we find considerable cogency in the finding of the ld. CIT(A) that the addition made by the AO cannot be sustained. Therefore, we do not see any reason to interfere with the findin....