TaxTMI 
TaxTMI 
2022 (4) TMI 583
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.... 3. Whether on the facts and circumstances of the case, the Ld. CIT(A) ought to have appreciated that the assessee has taken loan for the purpose of business activity of the company which remained with him for a longer period of time and after waiver it made the loan acquire the nature of income to the above extent and hence ought to have been taxed as income u/s 28(iv) of the IT Act?. 4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of CIT(A) is so far as it relates to the above grounds may be reversed and that of Assessing officer may be restored. 5. The appellant craves the right to add, alter, amend and / .or delete any of the grounds that may be urged." 2. The facts are that the assessee is a private limited company in the business of manufacturing of DBR equipments for railways. It filed its return of income during the year declaring a nil income on 23.09.2014. Same has been revised on 19.05.2015 declaring loss of Rs. 15,23,278/-. The case was selected under CASS under "Limited Scrutiny" category and notice was served u/s 143(2) of Income tax Act. The assessment was completed u/s 143(3) of Income tax Ac....
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..... However, in the assessee's case the loan is interest free unsecured loans. The remission would become income u/s. 41(1) only if assessee claimed deduction in respect of expenditure in its P&L account. The assessee has not claimed any deduction u/s. 36(1)(vii) of the Act in respect of payment of interest in any previous year and the remission would not become income u/s. 41(1). Thus the CIT(A) held that remission cannot be treated as income u/s. 41(1) in the assessee's case. 6. As regards whether loan is a trading liability or working capital requirement for taxability u/s. 28(iv) of the Act, the AO relied on T.V. Sundaram Iyengar [1996] 222 ITR 344. According to the CIT(A), as per this decision, it is to be ascertained whether loan is a trading liability or working capital requirement. In that case, the issue pertained to unclaimed security deposit directly taken from customer and not waiver of working capital loan. The Supreme Court held that the security deposit directly taken from customer is directly connected to trading activity whereas in the assessee's case it is in the nature of working capital loan. According to the CIT(A), the unsecured loan in the nature of borrowin....
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.... the parties and perused the material on record. In this case, the assessee borrowed loan as long term unsecured loan at Rs. 2,55,35,871/ This amount has been waived in the assessment year under consideration. The assessee has taken this amount as income in the Profit & Loss account. However, while computing income of the assessee, it was deducted from the total income. Accordingly taxable income of the business has been computed. 11. The contention of the ld. AR is that this long term unsecured loan is used for the purpose of day to day business of the assessee and the condition laid down in section 28(iv) is not complied with. As per section 28(iv) of the Act, the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession is chargeable to income tax as part of income from business/profession and it is deemed to be income u/s. 2(24) of the Act. The clause does not apply to receipt in cash. To apply this provision, the assessee should have appropriated the sum in question to its Profit & Loss account. According to the ld. DR, in the present case the assessee appropriated the sum to Profit & Loss account and it....
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....f loan also does not come under the definition of income as contained under section 2(24) of the Act. The definition of income as contained under section 2(24) speaks as to what are the items to be included under the definition of income. It includes profit and gains, dividend, voluntary contribution received by a trust, value of any perquisite or profit in lieu of salary, special allowance or benefit granted to the assessee to meet his personal expenses, benefit or perquisite of directors, any such chargeable under clauses (iiia), (iiib), (iiic), (iv) and (v) of section 28, capital gains under section 45, profit and gains of business in accordance with section 44, winning from lotteries, races, etc., and any sum received by the assessee from his employee as contribution to any provident fund so set up. Waiver of principal amount of tax by no stretch of imagination can be treated as income within the meaning of section 2(24) of the Act. However, in that case, the court has not considered the Supreme Court judgment in the case of T.V. Sundaram Iyengar (supra). 14. In the case of Tosha International Ltd. (176 Taxman 187)(Del), the assessee has not got any deduction on account of a....
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....en overlooked by the Assessing Officer. One of such important fact referred to by the High Court was that the purchase consideration was related to capital asset. The tooling were in the nature of dies. The assessee was manufacturer of heavy vehicles and jeeps. It required these dies for expansions. Therefore, the import was that of plant and machinery. The consideration paid was for such import of plant and machinery, i.e., capital assets. In these circumstances, it was held that section 28(iv) was not attracted. The Hon'ble High Court further found that the principal amount of loan had been foregone as a part of take over arrangement, to which the assessee was not a party, and the waiver of principal amount was unexpected, and in the circumstances, such waiver would not constitute business income. The Hon'ble High Court further held that in order to apply section 41(1), the assessee should have obtained a deduction in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. The assessee had not obtained such allowance or deduction in respect of expenditure or trading liability. In the circumstances, it was held that sectio....
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....see, relying upon the judgment of Hon'ble Bombay High Court in the case of Mahindra & Mahindra Ltd. (supra) contended that in relation to the transaction in question, section 28(iv) was not attracted and even provisions of section 41(1) of the Act could not be applied to treat the same as business income of the assessee liable to tax. 18. On an appeal, CIT(A) upheld the Assessing Officer's action. On further appeal before the Tribunal, the Tribunal sustained the view taken by the Commissioner relying upon the judgment of the Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra). The Tribunal observed that Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra) held that if the amount is received in the course of trading transactions, even though it is not taxable in the year of receipt, as being of capital character, the amount changes its character when the amount becomes assessee's own money because of limitation or by any other statutory or contractual right. Where the assessee received deposits in the course of trading transactions, the amount of such credit balances, which were barred by limitation and whic....
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.... period unclaimed by the trade parties. By lapse of time, the claim of deposit became time barred and the amount attained a totally different quality. It became a definite trade surplus, Atkinson, J. pointed out that in Morley's case ( supra) no trading assert was created. Mere change of method of book-keeping had taken place, but, where a new asset came into being automatically by operation of law, common sense demanded that the amount should be entered in the profit and loss account for the year and be treated as taxable income. In other words, the principle appears to be that if an amount is received in course of a trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes if assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, common sense demands that the amount should be treated as income of the assessee. 23. In the present case, the money was received by the assessee in course of carrying on his business. Although it was treated as deposit and was of capital nature, at such point of time, it w....
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....ying on business. Although it was treated as unsecured loan from related parties under the head 'long term borrowings', and on its waiver the parties have not claimed the same. The assessee itself as treated it as its own money and taken to Profit & Loss account. There is no explanation as to why the assessee has taken it to Profit & Loss account even it was somebody else's money. At this stage, it is appropriate to refer to the decision of Aries Advertising (P.) Ltd. (supra) and Solid Containers Ltd. v. DCIT, 308 ITR 417 (Bom). 21. In the case of Aries Advertising (P.) Ltd. (supra) an amount of Rs. 1,77,886, being the balance due to Printers; Block Makers and Souvenir publishers by the erstwhile firm of an outstanding more than three years had been transferred to general reserve since these amounts had remained unclaimed for a long period of time. It was held by the Hon'ble High Court that in the case of unclaimed balance written back, if a common sense view of the matter is taken, the assessee, because of the trading operation, becomes richer by the amount, which it has transferred to its general reserve account. The money had arisen out of ordinary trading transactions. A....