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2010 (9) TMI 1202

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....n was waived by the GSFC and after that character and nature of such loan was changed and it became the money of assessee. (2.1) The ld. CIT(A) has erred in holding the receipt as capital receipt when it is a case of cession of liability and it is clearly taxable under section 41(1) of the Act. (3) On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition on account gross profit difference of ₹ 29,81,671/- without considering the fact that assessee had inflated certain expenditure in the post survey period to nullify the effect of disclosure of additional income made. (3.1) The ld. CIT(A) has erred in accepting the facts/explanations which were not produced before the AO and without giving an opportunity to rebut the same. This is an infringement of Rule 46A of the Income-tax Rules, 1962. 2. The facts of the case are that assessee company is engaged in the business of manufacturing MG Kraft Paper. While finalizing the assessment following additions were made:- Bad debts Rs.06,76,780/- Amount waived by GSFC Rs.29,12,304/- Gross Profit difference Rs.29,81,671/- Rs.65,70,755/- 3. In respect of bad debt of ₹ 6,76....

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....ssee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off." Thus once the amount is recoverable from the assessee or even if from M/s Punch & Pack and it was claimed in the profit and loss account in an earlier year, and now it is written off in the books of current year, then it is sufficient for allowing the claim. As a result this ground of revenue is re....

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.... is indicative of the fact that the liability ceased for all practical purposes and therefore, the addition of the amount of ₹ 3,20,758 deeming the same as income of the year 1985-86 under section 41(1) is well justified of the Act. But, what the assessee has done is not conclusive. As observed by the Tribunal, a unilateral action on the part of the assessee byway of writing-off the liability in its accounts does not necessarily mean that the liability ceased in the eye of law. In fact, this is the view taken by this court in CIT v. Sugauli Sugar Works (P.) Ltd. (1999) 236 ITR 518, We, therefore, find no substance in the contention advanced on behalf of the appellant. Incidentally, we may mention that the controversy relates to the period anterior to the introduction of Explanation 1 to section 41(1). The decision of this court in CIT v. T. V. Sundaram Iyengar and Sons Ltd. (1996) 222 ITR 344 has been cited by ld. Counsel for the appellant. We find no relevance of this decision to the determination of the question involved in the present case. The factual matrix and the provision of law considered therein is entirely different. (ii) CIT v. Chetan Chemicals Pvt. Ltd. [20....

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....d with section 41(1). On a reference : Held,_ that it was an admitted position that there had been no allowance or deduction in any of the preceding years and, hence, there was no question of applying the provision as such. Section 28 of the Act deals with profits and gains of business or profession and clause (iv) thereof says that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable as income under the head "Profits and gains of business or profession". In the facts of the present case, it could not be said that the assessee-company was carrying on business of obtaining loans and that the remission of such loans by the creditors of the company was a benefit arising from such business. The Tribunal was right in holding that the amount of ₹ 1,77,052 arising as a result of remission of unsecured loans was not taxable in the hands of the assessee. (iii) Govindbhai C. Patel vs. DCIT, ITA No.1675/Ahd/2009 October 30, 2009. Section 41(1) of IT Act, 1961 concerns a trading liability and not other types of liability. Where the assessee received some amount as a liability, which ....

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.... complied with if any addition to the income is sought to be made by the Revenue. Unless an allowance or deduction had been made in an earlier year in respect of loss, expenditure or trading liability there can be no addition under section 41(1). There was no finding of the Tribunal that any deduction or allowance was made in the assessment of the assessee in an earlier year. Therefore, the order of the Tribunal was set aside and the matter was remitted to the Tribunal for fresh consideration in accordance with law. (viii) Smartalk (P) Ltd. vs. ITO ACIT vs. Smartalk (P) Ltd. (2009) 313 ITR (A.T.) 96 (ITAT-Mum) Held, that the amount credited to the capital reserve account could not be taxed either under section 28(iv) or section 41(1) of the Act as waiver of loan was neither covered under section 28(iv) or section 41(1) of the Act. The provisions of section 10(3) could not be invoked for charging any income to tax as section 10 deals with only such incomes, which are not to be included in the total income of the assessee. The Assessing Officer would not include the sum of ₹ 2.45 crores as income of the assessee since it was utilised to repay the amount due to the Bank of A....

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....company. iv) in some cases the quantity was issued for production but the effect of the same was not given to arrive at closing balance. v) in some of the cases, the figures are overwritten without any basis and supporting evidence. c) It is also observed in some cases that after considering the material issued for production, stock balance turns negative, which is not possible and correct under any circumstances. The partial details of such instances of the facts mentioned above are as under :- Date Opening balance Qty.received Total Qty.issued Closing balance 31/10/04 530245 17545 607790 71200 536590 28/11/04 1070045 54250 0 67300 565695 14/03/05 226645 20430 226975 56610 170365 15/03/05 170365 20600 170365 44790 125579 18/03/05 20235 20320 20235 37500 20235 20/03/05 26995 0 26995 22200 26995 21/03/05 26995 0 26995 20920 26995 22/03/05 26995 0 26995 36600 26995 23/03/05 26995 0 26995 21700 26995 24/03/05 26995 45510 31005 29800 31005 25/03/05 31005 45075 65670 45340 16730 26/03/05 16730 17575 24305 32800 6405 29/03/05 8840 0 8840 6000 6240 30/03/05 0 210000 0 86865 114235 Quant....