TaxTMI 
TaxTMI 
2018 (5) TMI 1590
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....u/s 148, the assessee filed return on 25/10/2011. In responses to the notices u/s 143(2) and 142(1) of the Act, assessee's AR furnished the information called for. 2.2 From the information provided, the AO noticed that the loan of Rs. 1,21,15,341/- and Rs. 7,67,14,826/- was outstanding towards packing credit and working capital respectively. The assessee during the FY relevant to AY under consideration, negotiated one time settlement with Catholic Syrian Bank as per which assessee agreed to pay Rs. 4,10,00,000 in full settlement of loans. This amount constitutes Rs. 1,41,84,263 towards principal and Rs. 2,68,15,737/- towards interest. The AO observed that as per assessee's books the outstanding payable to Catholic Syrian Bank is Rs. 8,88,30,167/- and on account of one time settlement for Rs. 4,10,00,000/- the assessee company closed the balance amount of Rs. 4,78,30,167/- by transferring the same to capital reserve. The assessee argued that the loans obtained and outstanding were on capital account and do not represent any trading receipt. 2.3 The AO rejected the submission of the assessee on the ground that one time settlement with the bank brought about cessation of liability a....
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....ssessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then only the assessee will be liable to pay tax under Section 41 of the IT Act. Further, he submitted that the objective behind this Section is to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. He also submitted that it is an undisputed fact and important to note that the said interest amount had not been debited to the profit or loss account in any of the assessment years as there is difference between 'trading liability' and 'other liability'. However Section 41(1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Referring to the above submissions, the AR submitted that the assessee would not fall u/s 41(1) of the Act. 7.1 Referring to the grounds of appeal filed by the revenue wherein it was mentioned that waiver of princ....
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.... 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." 8.2 In the case of CIT Vs Santogen Silk Mills Ltd [2015]57 taxmann.com 208 (Bombay), the Hon'ble Bombay High Court has held as under: "11. It is this order of the First Appellate Authority which was challenged by the revenue in appeal before the tribunal. The argument of both sides have been referred in details in paragraph 6 of the tribunal's order and it has held that on perusal of the loan agreement insofar as loan from ADCB Bank is concerned (subject matter and part of this appeal) that was for purchasing machinery and availed by the assessee. As far as loan from ADCB is concerned, it was conceded that the same was against hypothecation of stock and not a term loan. We are not concerned with that part of the order of the tribunal, however, it is material to note that the tribunal disallowed the claim made by the assessee and held that as far as ADCB is concerned, the waiver of the principal am....
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....efore the tribunal. The argument of both sides have been referred in details in paragraph 6 of the tribunal's order and it has held that on perusal of the loan agreement insofar as loan from ICICI Bank is concerned (subject matter and part of this appeal) that was for purchasing machinery and availed by the assessee. As far as loan from ADCB is concerned, it was conceded that the same was against hypothecation of stock and not a term loan. Weare not concerned with that part of the order of the tribunal, however, it is material to note that the tribunal disallowed the claim made by the assessee and held that as far as ADCB is concerned, the waiver of the principal amount would have to be construed as taxable income. However, as far as ICICI bank is concerned, it waived the principal amount of Rs. 3.06 crores that was not for carrying on any business activity but to acquire the capital assets. This Court has consistently taken a view that the loan amount written off would not come within the purview of section 28(iv) of the Income Tax Act. The view taken by this Court in the case of Mahindra & Mahindra Ltd. v. CIT [2003] 261 ITR 5011128 Taxman 394 and Solid Containers Ltd. v. Dy.....