TaxTMI 
TaxTMI 
2010 (6) TMI 784
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....n law, the ld. CIT(A) has erred in directing to reduce the amount of ₹ 9,41,86,658/- and ₹ 4,07,65,542/- from taxable income accepting the assessee's version that it was wrongly credited to P & L account without calling for a report from A.O as required under rule 46A of the IT Rules, nor the CIT(A) has himself verified the claims of the assessee. As per details on page 20 of the CIT(A)'s order, total amount credited to the income on account of waiver is only ₹ 10,89,07,907/- where as the CIT(A) has allowed a relief of ₹ 13,22,52,000/-, which establishes that the CIT(A) has not properly verified the issue." 2. In regard to ground no. 1, the ld. DR draws our attention towards paragraph 3 of the assessment order, in which it is mentioned that the assessee wrote off certain amounts and also wrote back certain amounts to the profit and loss account, resulting into a net credit balance of ₹ 1,01,40,554/-. This amount along and another credit amount of ₹ 1.07 crore, representing security deposits, have been brought to tax. For the sake of ready reference, this paragraph is reproduced below:- "3. The assessee was requested to furnish the details of ba....
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....s in arriving at correct facts. The correct position is that - (i) the assessee has written off outstanding against sale of packing material, (ii) it received security deposits against machines given on lease, and (iii) advances were received against orders for sale of machines. In view thereof, it has been concluded that the AO wrongly added amounts representing advances received from customers and security deposits amounting to ₹ 69,45,064/- and ₹ 4,50,000/- respectively. Thereafter, he dealt with outstanding liability of security deposits amounting to ₹ 1.07 crore. After considering the assessment order and the arguments of the assessee, it is concluded that this amount is not taxable as the liability subsists even in this year. For the sake of ready reference, his findings are reproduced below:- "I have carefully considered the submissions of the appellant. No adverse finding has been recorded by the assessing officer in respect of transactions against amount of security deposits. On security of the major ledger accounts of the parties against whom security deposits had been received, it is observed that the assessee is continually in receipt of lease rent fr....
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....ed from carrying on the business. Consequently, we do not find any error in his order, which requires any interference from us. 3.1 Thus, this ground is dismissed. 4. Ground no. 2 is in regard to waiver of loan amount and interest thereon by the banks and financial institutions after the assessee was declared to be a sick company by the Board for Industrial & Financial Reconstruction ('BIFR' for short) leading to re-structuring of its debt by Corporate Debt Restructuring Cell ('CDRC' for short). The assessee had credited the amount of loan and interest waived to the profit and loss account. However, in the course of hearing the claim was raised by way of a letter dated 25.11.2008 that the assessee inadvertently claimed ₹ 5,46,95,291/- but omitted to claim the balance amount of ₹ 4,07,65,542/-, which may now be granted. This claim was denied on the ground that the assessee has not filed any valid revised return u/s 139(5) claiming this amount. 4.1 Before the ld. CIT(Appeals), it has been agitated that the assessee had made a claim which was sought to be revised in the course of assessment proceedings. Thus, it is a case of revision of claim and not one of raising a fr....
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....lternative, since these amounts have been written back to profit and loss account, these are taxable u/s 41(1). 4.4 In reply, the ld. counsel submits that the writing off of the principal amount is a benefit in the capital field and not in the revenue field. In so far as writing off of the interest is concerned, the amount had not been claimed in any previous year because of the provision contained in section 43B. Thus, the condition that "where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee" has not been satisfied. Therefore, it is argued the ld. CIT(Appeals) has rightly granted relief in this matter. 4.5 Coming to the waiver of principal amount of loan is concerned, reliance is placed on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Phool Chand Jiwan Ram (1981) 131 ITR 37. Reliance is also placed on the decision in the case of Velocient Technologies Ltd. Vs. ITO, (2009) 120 TTJ (Del) 659, CIT Vs. Tosha International Ltd. (2009) 176 Taxman 187 (Del), and CIT Vs. Jindal Equipments Leasing & Consultancy Services Ltd. in ITA No. 51 of 2009 and CM No. 15419 dated 2....
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....s Janki Dass Banarsi Dass reflects a credit of ₹ 1,80,000/- on account of this cash payment it should also be treated as a payment to M/s Janki Dass Banarsi Dass for the purchase of cloth from the Bombay firm and, therefore, is in effect representing a trading liability of the assessee-firm. We agree with the Tribunal that this construction of the transaction is farfetched. The purchase of cloth between November 12, 1947, and October 30, 1948, was effected by the assessee from the Bombay firm. The debt owed by the assessee to the Bombay firm was a trading debt and that was no doubt allowed for the purpose of income-tax. However, so far as the account of M/s Janki Dass Banarsi Dass is concerned, the liability of the assessee to this party arose because the above party had paid a sum of ₹ 1,80,000/- to the Bombay firm on the assessee's account. In other words, vis-à-vis the assessee and M/s Janki Dass Banarsi Dass, this was not a payment made for the purchase of stock-in-trade; it was a credit in respect of an amount borrowed by the assessee from M/s Janki Dass Banarsi Dass in order to discharge its liability to the Bombay firm. The sum of ₹ 1,80,000/- which ....
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.... by section 28(iv), could accrue in numerous ways. The income which can be taxed under section 28(iv) must not only be referable to a benefit or perquisite, but it must be arising from business. Secondly, section 28(iv) does not apply to benefit in cash or money (see CIT Vs. Alchemic Pvt. Ltd. [1981] 130 ITR 168 (Guj.)). Applying section 28(iv) to the facts of this case, one finds that on June 18,1964, the assessee entered into an agreement to purchase toolings from KJC. In 1964-65, India was facing foreign exchange crunch. In the circumstances, around June 7, 1965, the Government of India and the Reserve Bank of India, in this case, approved the arrangement under which KJC (supplier of toolings) was permitted to advance a loan of $ 6,50,000 to the assessee for ten years bearing interest at the rate of 6 per cent, free from income-tax. KJC was later on taken over by AMC and as a part of take-over, AMC agreed to waive the principal amount of the loan and not the interest. In the circumstances, as stated in the above three undisputed facts, the assessee paid interest at 6 per cent per annum for ten years, being the contractual period. According to the Assessing Officer, the loan aros....
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....ngar & Sons Ltd. would be applicable. Similar view was also taken by Hon'ble Madras High Court in the case of Aries Advertising Pvt. Ltd. (2002) 255 ITR 510, in which it was held that because of trading operations, the assessee became richer by the amount which had been transferred to profit & loss account. 5.5 Coming to the case of Velocient Technologies Ltd. (supra), the facts of the case are that the assessee forfeited a sum of ₹ 10.65 crore, claimed to be a loan from a company called SFT and credited the amount to the reserve and surplus account. That company entered into a joint venture agreement with the assessee under which equity and the aforesaid loan of ₹ 10.65 crore were contributed. The tenure of the loan was five years and no interest was payable for initial period of five years. Thereafter, interest @ 6% was payable. The Tribunal came to the conclusion that the amount was not received in the course of business operation but the same was received even before any business of software development had started. Therefore, it could not be said that the benefit accrued out of ordinary trading transactions. Thus, the matter was decided against the revenue. 5.6 C....
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....Bank TL 5,292,000.00 9 WCTL SBI 7,779,126.00 10 WCTL SBM 13,583,693.00 11 ICICI LOAN 7,425,000.00 12 Unit Trust of India 1,455,365.00 Total: 70,944,190.00 6.1 The loan by way of cash-credit limit, written off by the banks are as under:- "S.No. Name of Bank Amount(Rs.) Amount (Rs.) (i) State Bank of India 13,215,818.00 (ii) State Bank of Mysore 18,426,756.00 (iii) Canara Bank 28,893,320.00 Total: 60,535,894.00 Less: Waiver of interest debited during the year 20,457,235.00 Less: Waiver of interest pertaining to previous years 19,536,191.00 39,993,426.00 Waiver of Principal amount 20,542,468.00" 6.2 In so far as term-loans are concerned, it is clear that these were taken for purchase of capital assets from time to time. The facts of the case of Velocient Technologies Ltd. (supra) are somewhat different as in that case the assessee had received equity contribution and loan from a foreign collaborator for setting up joint venture agreement. The same was received even before the business was started. Therefore, the ratio of that case is not applicable to the facts of this case, as in this case loans have been received from time to time. The facts o....
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....n contained in the aforesaid section. However, the provision contained in section 28(iv) was not considered by the Tribunal. This provision was considered in the case of Mahindra & Mahindra Ltd. The relevant portion of the judgment in that case has already been reproduced by us. It has also been mentioned that that decision is couched in a cautious language and the facts are somewhat more complicated. Therefore, we will not like to base our decision on that judgment particularly because the Hon'ble Court itself mentioned that this judgment is confined to the facts of this case. Coming to the case of aforesaid Jindal Equipment, the facts are that the assessee reflected a loan of ₹ 6,80,31,189/- payable to JSPL. Out of this, JSPL wrote off a sum of ₹ 1,46,53,065/- in its books. The AO treated this amount as the income of the assessee on the premise that liability to this extent ceased to exist and the assessee stood to gain this amount. The amount was assessed u/s 41(1). The CIT(Appeals) also considered the provision of section 28(i) and upheld the addition. The Tribunal deleted the addition by stating that the amount was never claimed as deduction in the past and, theref....
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....nt was credited to profit and loss account as there was no explanation as to why somebody else's money was taken to profit and loss account. The Hon'ble Court noted that similar view was taken in the case of Aries Advertising Pvt. Ltd. by Hon'ble Madras High Court. Coming to the facts of this case, the assessee obtained cash credit limits from State Bank of India, State Bank of Mysore and Canara Bank for its business operations. These monies were used for daily operations. The principal amount to the extent of about ₹ 2.05 crore has now been written off to the credit of profit and loss account. If we apply the ratio of the decision of Hon'ble Bombay and Madras High Court, the character of receipts changes when the amounts are credited to profit and loss account. This benefit arises in the business operations of the assessee as the monies have been borrowed for day-to-day operations. However, the case of the ld. counsel is that the decision of Hon'ble Delhi High Court is different from the decision of Bombay & Madras High Courts in this matter. In this connection, the case of Phool Chand Jiwan Ram has been cited. In that case, the creditor had paid the liability of the assesse....