TaxTMI 
TaxTMI 
2017 (8) TMI 618
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....iny and notice under Section 143(2) of the Income Tax Act, 1961 (for short, "the I.T. Act") was issued on 29­-11-­2007 and served on the assessee on the next day, i.e. 30­-11­-2007. Further notice under Section 142(1), dated 11-­1-­2008, was issued along with a detailed questionnaire and served on the assessee. Then, a fresh notice had been issued and in response to which the assessee attended. The assessee pointed out that in the past it has been engaged in the manufacture and sale of cold rolled steels. There have been huge losses incurred by the assessee during the past several years, and during the year under assessment no business activities have been carried out by it. After the receipts credited in the accounts and the other income are noted, the Assessing Officer proceeded to note the non­business receipts. Pertinently, there was no production nor any sales, nor any business activity. The assessee was requested to explain the claim of allowability of Expenses and Depreciation. 4. By a written clarification dated 4-­11­-2008, the assessee contended that during the year, based on the Board for Industrial and Financial Reconstruction's ....
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....e assessee and the closing written down value of depreciable asset is determined at Nil. 8. Then, the argument is that the Assessing Officer while assessing the revised return of income filed on 31­-10-­2007, computed the net profit at Rs. 29,08,56,591/­ from which adjustments on account of depreciation and on account of Sections 28 to 44 have been made setting it off against loss and reducing the total income to Nil. In that regard, it is stated that this claim for additional deduction which has been made and to the extent of Rs. 19,43,73,928/­ is by not filing a revised return but only in the form of a letter. That cannot be entertained. 9. Finally, the argument before the Assessing Officer was that the company, based on a BIFR order, may have arrived at one time settlement of loan with Banks and financial institutions, but out of the credit which the assessee made in the same year of the principal and interest to the tune of Rs. 17,34,01,111/­ in the profit and loss account, and in the computation of income reduced the same. There is no dispute that interest amounting to Rs. 8,97,01,648/­ was disallowed. As regards this component of the principal amount....
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.... profit and gain of the business as per the provisions of section 28(iv) and also in view of section 41(1) of the IT Act, 1961. These liabilities were shown in the books of accounts payable to banks. However, these loan were written off by the banks as a result of one time settlement which undoubtedly amounts to benefit derived by the assessee as a result of extinguishments of liability to repay the loan and this benefit has certainly arisen out of business and not from any where else. Further, in accordance with agreement of one time settlement with the Banks/Financial corporations in whose hand the debts would have written off by debiting the equal amount of principal and the interest to its profit and loss accounts. Consequently the benefit received by the assessee becomes taxable under the provisions of section 28(iv) and also in view of section 41(1) of the I.T. Act, 1961. In view of the above discussion it is clear that the contention of the assessee that the benefit received by the assessee in the form of extinguishments of the liability by entering into agreement of one time settlement with the banks not covered by the provisions of section 28(iv) is totally devoid of mer....
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.... allowed the claim of depreciation holding that the assets said to have been put to use as the claim of depreciation allowed in the earlier years and the facts are no different in the order under consideration. Thus, when the Tribunal allowed the claim of depreciation holding that the assets said to have been put to use were identical, the depreciation on assets was directed to be allowed. 14. As far as goodwill is concerned, a specific observation is made in para 25 by relying on the Judgment of the Hon'ble Supreme Court in the case of Smifs Securities Limited, which Judgment was relied upon by the assessee. That Judgment of the Hon'ble Supreme Court is reported in (2012) 348 ITR 302 (SC) [Commissioner of Income­Tax Vs. Smifs Securities Ltd.]. The ground No.2, therefore, of the assessee's appeal pertaining to this claim was allowed. The goodwill was held to be an asset eligible for depreciation. 15. Then came the Assessing Officer's observation and finding that the claim of the assessee for additional deduction was made otherwise than by filing a revised return and, therefore, it cannot be entertained. That was set aside by theTribunal by relying on the Judgm....
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....this appeal are the ones pertaining to the benefit that was allegedly accruing in terms of Sections 28(iv) and 41(1). Mr. Mistri would submit that the first two questions are properly covered by the Orders and Judgments of the Hon'ble Supreme Court. There is no need to entertain this appeal. 20. Even on the above surviving questions, the Tribunal has rightly concluded that there was a waiver of the principal amount of loan of Rs. 8,36,99,463/­. Mr. Mistri heavily relied on the Judgment of the Rajasthan High Court which held that treatment of such waiver by the assessee in his books of account does not alter the effect of the order of the BIFR. No remission or cessation of liability results as far as interest nor the assessee became entitled to waiver of interest and, therefore, Section 41(1) was not attracted, is the only view which one can take. The Section 41(1) has been interpreted in that Judgment to mean that remission can only be by an act of creditor and cessation of liability can come by agreement or by law. The principal amount of loan in this case has been waived. The liability may have been reduced under the scheme of the BIFR. The assessee has not enjoyed any a....
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....stence in that year or not;" 23. A bare perusal of the same would indicate 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 and subsequently during any previous year if the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-­tax as the income of that previous year. 24. On the own showing of the Revenue, in this case, the liability towards payment of interest and on which the assessee derived no benefit, has rightly been brought to tax. It is only waiver of the principal amount of loan of Rs. 8,36,99,463/­ and increase in value of land hived off that the issue survived. 25. It is a common ground that before the Assessing Officer as well, the assessee had argued that these two provisions are not attracted. The Assessing Off....
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....doubtedly arising out of the conduct of business. 29. The Division Bench in Mahindra and Mahindra held that the assessee has not received any benefit or perquisite in kind which could be valued and in any event such benefit should be in the nature of income. The Division Bench noted that the loan was advanced to the assessee Mahindra and Mahindra, the assessee paid interest at 6% per annum for ten years being the period of contract, and it never got deductions for payment of interest under Section 36(1)(iii) or under Section 37 of the Act. The Division Bench held that there was a waiver of the principal amount and not the interest. In that case also the Assessing Officer held that when there was a waiver of the loan, the credits became part of business income and that prior to such waiver, they represented liability. Here also these are the findings and overlooking the aspect of payment of interest which has not been waived and in regard to which no relief was claimed. The loan agreement, in its entirety, was not obliterated in the present case as well. Therefore, we are of the opinion that in the present case Section 28(iv) was not attracted. 30. As far as Section 41(1) is conce....
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....ation. With regard to the addition of Rs. 6,86,071/­, the assessee-company directly credited the amount to the reserves account considering the same as capital receipt. The Division Bench found that the Tribunal should have relied on the Judgment of the Hon'ble Supreme Court in the case of the Commissioner of Income Tax Vs. T.V. Sundaram Iyengar and Sons Ltd. {(1996) 222 ITR 344}. The Division Bench found that the Judgment in Mahindra and Mahindra was distinguishable. The amount which initially did not fall within the scope of the provision rendering it liable to tax, subsequently becomes the assessee's income, being part of trading of the assessee. This was a clearly distinguishing factor and which prevailed upon the Division Bench in Solid Containers to dismiss the assessee's appeal. Before us, the Tribunal relied on the Division Bench Judgment of the Rajasthan High Court in Shree Pipes Limited. There, on identical facts, the assessee was a sick industrial company and proceedings were pending before the BIFR. Under the scheme of its rehabilitation, interest liability in respect of certain debts of the assessee due to Banks and financial institutions stood waived. ....