TaxTMI 
TaxTMI 
2018 (5) TMI 1250
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....k of Bikaner and Jaipur has been confirmed by him in same order in the case of very same assessee. (iii) Whether in the erred in the facts and in the circumstances of the case the Ld. CIT(A) erred in deleting the addition of Rs. 5,00,000/- made on account of stores & spare parts, as the assessee has not maintained proper record of this expense not established co-relation with production." 2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter called referred as the 'Act') was framed vide order dated 27th December, 2011. Thereby the Assessing Officer made addition by making provision u/s 41(1) on account of waiver of principal & interest by the Financial Institution of Rs. 20,46,52,522/- and also made other disallowance namely lease rent and maintenance charges of Rs. 9,77,988/-, disallowance of total revenue expenses of Rs. 6,20,113/-, disallowance of capital work in progress of Rs. 3,50,282/-, disallowance of membership fee of Rs. 2,10,974/-, disallowance out of Miscellaneous expenses of Rs. 1,00,000/-, disallowance of out of depreciation on electric installa....
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....ent dated 01.11.1995 is annexed (page 1 to 19 of P.B). As per details of disbursement Term loans, it was disbursed by IFCI during Assessment years 1997-98 and 1998-99. At the commencement of the year, principal amount of term loan due was Rs. 37.39 crores besides overdue interest of over Rs. 56.36 crores. One Time Settlement Scheme(OTS) was approved and the liability of principal amount of term loan was settled by IFCI at Rs. 20 crores, besides waiver of interest in full. It was claimed that waiver of term loan was capital receipt not liable to tax and provisions of section 41(1) of the Act cannot be invoked because the requisite condition i.e. no deduction or benefit of allowance in respect of loss, expenditure or trading liability incurred by the assessee was allowed in any of the previous year towards term loan availed in foreign currency or Rupee loan, of which remission or cessation has been allowed during the year. The remission of the principal amount of term loan obtained from the Financial Institution or the Bank had never been claimed as loss or expenditure in any of the earlier years by the appellant nor it was used for acquiring working capita....
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....sed to tax and claim of the appellant that such amount is capital receipt not liable to tax was rejected by the AO by misinterpreting the nature of loan. She relied upon the judgment in the case of MIs. Rollatainers Ltd Vs. CIT (2011) 339 ITR 54 (Delhi) wherein it was held "That the Tribunal was justified in holding that waiver of working capital loan (cash credit) was chargeable to tax u/s 41(1) even if provision of section 28(iv) was not applicable". In that case loan was taken by the assessee on cash credit account as working capital and it was not in the nature of term loan for purchase of capital asset. Therefore, aforesaid judgment was distinguishable on facts yet applied by the AO. It is submitted that waiver of principal amount of term loan availed for acquiring fixed assets i.e. plant and machinery, building etc., which was settled under OTS scheme for Rs. 20 crores, was capital receipt in the hands of company which cannot be subjected to tax. Following judgments were relied upon before CIT(A) who had deleted the addition made by AO in respect of waiver of term loan only:- i) Polyflex (India) Pvt Ltd vs. CIT (2002) 257 ITR 343 (SC) Their Lordship....
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....it and loss account". v) CIT vs. Tosha International Ltd. (2011) 331 ITR 440 (Delhi) In this case under a one time settlement scheme, the financial institutions and banks waived the principal amount of Rs. 10,47,93,857/- which was credited by the assessee to its capital reserve account. The Tribunal held that the assessee had not got any deduction on account of acquisition of capital assets as the same had been reflected in the Balance sheet and not in the profit and loss account, and also the remission of the principal amount of loan so obtained from the bank and financial institutions had not been claimed as expenditure or trading liability in any of the earlier previous years hence such waiver was not taxable. On appeal the High Court, dismissed the appeal and held that the amount ofRs.10.47 crores was not assessable. vi) Mahindra &Mahindra Ltd Vs. CIT (2003) 261 ITR 501 (Born.) &CIT vs. V.S. Dempo & Co. Ltd (2015) 66(1) ITCL 337 (Born.) - Held that no disallowance or deduction having been allowed in respect of loan taken by the assessee for purchase of capital assets, section 41(1) was not attracted to remission of principal amount of loan. ....