TaxTMI 
TaxTMI 
2021 (6) TMI 899
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....ated 21 December 2010 by the Asst Commissioner of income tax, Circle - 10 (1), New Delhi (the learned AO) p partly allowing that appeal. However the learned CIT - A confirmed the addition of Rs. 99,512,500, upheld the disallowance of depreciation of Rs. 89,311 and upheld the addition of Rs. 1,654,200 on account of interest income. Therefore assessee is aggrieved and has preferred this appeal raising following grounds of appeal:- "1. a) In upholding the addition of Rs. 99,512,500/- merely on the basis of presumptions and suspicions, treating the amount as revenue in nature, ignoring the various judicial pronouncements and material on record. b) in upholding that the amount of Rs. 99,512,500/- [US dollars 51,25,000/- remitted by Tabcorpon account of unconditional and irrevocable standby letter of credit issued by National Australian Bank and adjusted against loan received from GECSI, was revenue receipt and that the amount had been utilized for the repayment of loans and giving loans for the purpose of business and not for acquiring any capital asset. c) in upholding that amount of Rs. 99,512,500/- on account of waiver/ remission of loan in terms of Deed of....
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....e Hon‟ble Supreme Court in case of Mahindra and Mahindra Ltd and therefore the matter may be set aside to the file of the ld AO to decide the issue in accordance with that decision. 5. The ld DR vehemently supported the orders of the lower authorities and submitted that the whole of the amount received on account of waiver of loan is revenue receipt in nature. 6. We have carefully considered the rival contentions and peruse the orders of the lower authorities. Coming to the Ground No. 1 the ld AO noted that in the tax audit report in form 3CD the assessee has disclosed that sum of Rs. 9,95,12,500/- as capital receipt which is not credited in the profit and loss account. The facts relating to the above sum shows that MS Apollo International Ltd was a company engaged in the business of export etc. Encorp e services was a division of Apollo International Ltd engaged in the lottery business. In terms of the various resolution passed a subsidiary company of Apollo International formed in the name of Encorp E Services company engaged in the business of internet services etc. on 20/05/2013 Apollo International Ltd entered into business agreement with M/s Jupiter Internation....
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....ia as retail outlets of AIL. Encorp E-Services commenced its business operations w.e.f 01.12.2003. During the course of business operations it came to the notice of the appellant company that the Lottery terminals installed by M/s Jupiter International Pvt.ltd have failed due to one hardware and software fault or the other. The problem of failure of the terminals was discussed in detail at the meeting held between M/s Jupiter International and Encorp at Sydney on 29.04.2004 and 30.04.2004 at Melbourne. Both the parties agreed to take actions to rectify the situations. As per Para-2 of Minutes of dated 30.4.2004 it was agreed by M/s Jupiter International Pvt.ltd that under the current circumstances, Apollo can source other compatible terminals from other manufacturers in consultation with M/s Jupiter International Pvt.ltd. In return for this, Jupiter International Pvt.ltd will charge fee as per terminals which will compensate Jupiter International Pvt.ltd. for its investment in the terminal software and hardware and loss of profit on sale of the extra 4000 J 6000 Terminals. Apollo suggested that Jupiter International Pvt.ltd quote minimum fee in the interest of business in ....
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....s been credited to the capital reserve account. The appellant claims that loan was taken from GECSI for capital purposes i.e. installation of additional POS terminals and repayment of existing debts. The loan from GECSI was not connected with the running of business of the appellant. It is not a trading transaction. Any surplus arising out of capital transactions would necessarily be capital in nature. Therefore, such receipts have been treated as capital receipts. The submission of the appellant as well as the copy of the loan agreement entered into with G.E. Capital Services India Ltd. has been gone through, it is seen that loan was raised to re-finance the existing debt and to make payment of license fee and installation of additional POS. It was also mentioned in the purpose that borrower shall apply all amounts raised by it hereunder in or towards satisfaction of such obligations and for no other purposes. The loan raised by the appellant was credited to the overdraft account of the appellant in ICICI Bank and which was utilized for repayment of overdraft of Rs. 1215 lacs. The loan was also utilized for repayment of loan of Bank of Rajasthan....
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.... produced any evidence to show that an amount of Rs. 5,05,00,000/- was used for repayment of term loan of Bank of Rajasthan. Accordingly, the whole of the amount of Rs. 9,95,12,500/-received on account of waiver of loan is treated as revenue receipt in the hands of the appellant which was on account of loan taken for business purposes. It is also seen that remission of loan was in-connection with the business agreement entered with the Tabcorp and the discharge was related to the non functioning of the lottery business properly. Therefore, the surplus received on account of remission was intriguingly connected with the business of the appellant and such receipts are revenue receipts in the hands of the appellant. Therefore, the Assessing Officer was justified in treating the remission of loan to the extent of Rs. 9.95.12.500/-as revenue receipts and taxed the same in the hands of the appellant. In the result, this ground of appeal is dismissed. In this regard, reliance is placed on following judicial pronouncemems;- Express Newspapers Pvt. Ltd. v. Commissioner of Income-tax 119971 227 ITR 0325-BUSINESS INCOME OR INCOME FROM OTHE....
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.... relate to the business. When the income was not earned in the course of the business, it could not be assessed under the head "Business income". It could not also be said that the assessee was doing any business and exploiting the assets in the said business. Therefore the printing machinery and the motor vehicles could not be considered to be commercial assets. The income derived by letting the machinery and the motor vehicles was income from other sources. In the course of the assessee's business as a dealer in shares, the assessee borrowed moneys from various sharebrokers. The interest provided for in the accounts in respect of such borrowals was claimed as a deduction and was allowed as such in computing the income of the assessee in the earlier years. Subsequently, at the time of settlement of accounts with the sharebrokers, the amount due to them on account of interest was settled at a figure lower than the figure provided in the accounts. As a result, the amounts thus given up were written back in the accounts as income. These sums were brought to tax under section 41(1) of the Income-tax Act, 1961. This was confirmed by the Tribunal. On a reference: Held:....
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....r the supply of air conditioning facility. In the common rental receipt, the charges for supplying air-conditioning facility were shown separately. The air-conditioning facility was supplied along with other amenities, like electricity, lifts, water, etc. When premises are let, the various amenities provided by the owner of the premises cannot be considered to be under a separate business venture. The supply of airconditioning facility alone could not be separated from other amenities provided by the assessee to the tenants and considered as a business venture done by the assessee. The charges received for supplying the air-conditioning facility had to be assessed under the head "Other sources", instead of under the head "Business income". Logitronics P. Ltd. v. Commissioner of Income-tax 120111333ITR 0386- INCOME-BUSINESS INCOME-WAIVER OF LOAN TAKEN BY ASSESSEE FOR BUSINESS ACTIVITY-ASSESSABLE AS BUSINESS INCOME-INCOME-TAX ACT, 1961, SS. 2(24), 28(IV), 41(1). INCOME-BUSINESS INCOME-INVESTMENT COMPANY TAKING LOAN AND INVESTING FOR LONG-TERM IN SHARES-NO COMMUNICATION AND NO CLAIM FOR MANY YEARS BY LENDER AND UNSECURED LOAN WRITTEN BACK-REMISSION ....
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....ies. The Assessing Officer made an addition of Rs. 25 lakhs on account of unsecured loan written back relating to the assessment year 2004- OS. The Commissioner (Appeals) confirmed this. The Tribunal deleted the addition on the ground that since the assessee had not claimed any deduction in respect of the loan, section 41(1) would not be attracted. On appeal : Held:- dismissing the appeal, that in pursuance of the business of financing, the assessee advanced loans at interest. Such loans were advanced out of interest free own funds available with the assessee in the form of share capital and reserves or out of borrowed funds in the form of loans. The loans borrowed were to augment the funds available with the assessee to be advanced on interest. Such loans borrowed were a source of funds. It could not be said that the assessee was in the business of borrowing and advancing loans. The money borrowed was only a source of funds. The Tribunal found as a fact that the amount of loan was not used in financing business. Thus, the addition of Rs. 25 lakhs made by the Assessing Officer on account of unsecured loan written back was rightly deleted by the Tribunal. Deputy Co....
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....ng the payment of Rs. 1.85 crore against total outstanding principal amount of Rs. 4.76 crore. It was claimed by the assessee that this principal amount written off by the bank did not fall within the ambit of ‗cessation of liabilities' as contemplated under section 41 and, therefore, it was not chargeable to tax. The Assessing Officer held that since loan amount was related to the business of the assessee, the same would be assessable under the head ‗business '. He, therefore, brought the amount ofRs. 2.91 crore to tax as income includible in the assessee's total income. On appeal, the Commissioner (Appeals) decided this issue in favour of the assessee by holding that the provisions of section 28(i) or 28( iv) or section 41(1) were not applicable to the assessee's case. On revenue's appeal : HELD : In the instant case, it was not in dispute that the assessee had taken or obtained loan from the 'S' bank and later, as a result of compromise between the assessee and ‗S' Bank, the outstanding liability of Rs. 1.90 crores towards interest payable on loan amount was waived, and since the assessee had obtained a deduction on account of....
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....ect of the matter, whether the whole of the loan amount had been utilized either for the purpose of acquiring capital asset or for the purpose of business activity or trading activity, had neither been looked into nor examined by the authorities below nor the assessee had established that the loan amount was utilized only for the purpose of acquiring capital asset. In the aforesaid circumstances, the issue was to be restored to the file of the Assessing Officer for his fresh adjudication with a direction to the assessee to furnish all the details and particulars of loan, and the purpose for which the loan taken from bank was utilized. All these informations were within the control and specific knowledge of the assessee and, therefore, it would be the duty of the assessee to prove and establish that the amount of loan taken from the bank was utilized for the purpose of acquiring capital assets. If on enquiry and verification, it transpired that the assessee had utilized the loan for the purpose of its business activity or trading activity, the amount of loan to the extent it had been waived by the bank, would be deemed to be the assessee's income chargeable to tax.....
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....examine the claim of the assessee and decide the issue afresh. Accordingly, ground number 1 of the appeal is allowed with above direction. 8. The second ground of appeal is with respect to the depreciation on assets lying in the premises, which has been sealed by the government of India. The ld AR stated that identical issue arose in case of the assessee for assessment year 2007-08 wherein this claim was allowed on identical facts and circumstances of the case hence; this issue is squarely covered in favour of the assessee. The ld DR supported the orders of the lower authorities. We have carefully considered that the above issue is squarely covered in favour of the assessee by the decision of the coordinate bench in ITA number 4460&4461/del/2011 for assessment year 2006 - 07 and 2007 - 08 wherein in paragraph number 23 the coordinate bench has dealt with this issue and in paragraph number 30 - 31 allowed the claim of the assessee following the decision of the honourable jurisdictional High Court in CIT versus Oswal Agro Mills Ltd 341 ITR 467. Therefore respectfully following the decision of the coordinate bench in assessee‟s own case we also direct the learned assess....
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....ndard and accounting standard 9 which relates to revenue recognition which clearly says that where the ability to assess the collection with reasonable certainty is lacking at the time of receiving the claim, but the revenue recognition is required to be postponed to the extent of uncertainty involved. Therefore, as there is no certainty looking to the facts and circumstances of the case of the above income, it was not recognized and it is not taxable as no revenue accrued to the assessee. Per Contra, the ld DR submitted that assessee is following mercantile system of accounting, which is not permitted. According to mercantile system of accounting, the assessee is duty bound to recognize the income of interest. 11. We have carefully considered the rival contentions and peruse the orders of the lower authorities. The assessee has placed its audit and annual accounts at page number 66 onwards of the paper book. As per the report of the auditor the balance sheets, profit and loss account and the cash flow statement comply with the accounting standards referred to in subsection (3C) of Section 211 of the companies act, 1956. As per schedule - 12, significant accounting policies and ....
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....pulation of payment of interest on loan given to the maximum is private limited. There cannot be two meanings of the word accrual when interpreting for maintaining the books of accounts which is also amended of the law of the companies act u/s 209 of the companies act 1956, as well as for the purpose of taxation. 13. Assessee before us and stated that there is an uncertainty of recovery of the original amount of advances (ICD) and therefore in absence of any reasonable certainty of the recovery of the principal sum the interest cannot be said to be accrued to the assessee. The assessee has not produced any document/resolution/financial position of the companies to move the assessee has given ICD. Further paragraph number 8.2 of the accounting standard says that Interest accrues, in most circumstances, on the time basis determined by the amount outstanding and the rate applicable. Further in note number 12 of schedule 12 assessee itself has disclosed that company out of the total advance of Rs. 530 lakhs has received back Rs. 250 lakhs in financial year 2005 - 2006, Rs. 25 lakhs in the year 2006 - 2007 and Rs. 75 lakhs in the year 2007 - 2008. We are dealing with the case for the....