TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 945
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....ion of Sec 28 and Sec 41(1)of the Income Tax Act 1961. 4. The Ld. AO had construed that all the cessation of liability claimed by the appellant company into the trading receipts without applying the provision of taxation of book profits of the Income tax Act 1961. 5. The Learned AO had interpreted the provision of Sec 28 and Sec 41(1) Income Tax act 1961 without applying the test of trading activities as envisaged by the statute governing the taxation of revenue receipts. 6. The learned Assessing Officer grossly erred in ignoring several reasonable, plausible objections which had material bearing on the impugned case, ignoring the same is unjustified, bad in law, is in utter violation of principles of natural justice and ought to have been considered. 7. For that the Ld. Assessing Officer has failed to appreciate the fact that the amount of loan has been settled under the scheme of reconstruction of sick industry as per the order of the BIFR and therefore, it cannot be treated as a deemed income u/s. 41 of the Income tax Act 1961. 8. For that in view of the facts and in the circumstances of the case the AO is wholly unjustified in charging interest u/s 234B for which your....
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....t 10% of the principal amount, over a period of five years on interest free basis. All the penal interest, damages, penalties charged or chargeable on the same and balance of the principal amount shall be waived." From the order of the BIFR, it is noticed that the assessee company was given relief from payment of 90% of principal component owing to loan and other creditors. Further, the BIFR has also directed the income-tax department to exempt the assessee company from application of provisions of section 41(1) of the Income Tax Act, 1961. The Assessing Officer, however, was not convinced with the explanation furnished by the assessee according to him, although, BIFR had granted relief of 90% with respect to secured and unsecured creditors and also granted relief as per section 41(1) of the Income Tax Act, 1961, but the Directorate of Income Tax (Recovery) had passed an order and rejected and not approved any relief to the assessee in terms of scheme sanctioned by the BIFR. Therefore, the Assessing Officer invoked provisions of section 41(1) of the Act, and assessed remission of liability under the provisions of section 41(1) of the Income Tax Act, 1961. The Assessing Officer, wh....
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.... any details as requested, it is not possible to verify the claim of the appellant. The order of the BIFR court is not explicit on the above and the communication from the DIT (Recovery) indicates that the same has not been accepted. Even otherwise, in order to apply the directions, if any, of the BIFR court, one has to look into its applicability by examining the transactions/ liability. For doing that, the appellant was asked to submit details and the same were not provided, independent inquiries carried out by the AO also did not fetch any results to accept the claim of appellant. This was pointed out to the AR of the appellant during various hearings and no details were provided on the specific queries made during appeal proceedings. The case laws relied on by the appellant are not related the facts of the case. On the contrary, the decision of Supreme Court in the case of M/s. T V Sundaram lyengar & Sons, as cited by AO, is applicable to the given facts. 5.6 in the above facts and circumstances, I confirm the order of Assessing officer, who, on the basis of available records, rightly disallowed Rs.3,39,77,243/-." 5. The learned A.R for the assessee submitted that the learne....
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....s should be upheld. 7. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The assessee is a sick company under Sick Industrial Companies (Special Provisions) Act. The BIFR vide its order dated 04.05.1999 declared the company as sick industry. Further, the BIFR has allowed certain reliefs and concessions vide its order dated 17.05.2012, as per which, the Board has granted 90% relief with respect to secured and unsecured to creditors and also granted relief under the provisions of Income Tax Act, 1961. Therefore, from the order of the BIFR, it is very clear that reliefs and concessions allowed towards repayment of liability cannot be brought to tax u/s.41(1) of the Income Tax Act, 1961. Further, as per the provisions of section 32 of Sick Industrial Companies Act, 1985, order of the BIFR is binding on the Assessing Officer, because once there is direction, it overrides all other provisions, including provisions of Income Tax Act, 1961. In this case, there is a specific direction from the BIFR to the income-tax department to allow immunity from the provisions of section 41(1) and other relevant provisions of the Inco....
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....fits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1.-For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first-mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. Explanation 2.-For the purposes of this sub-section, "successor in business" means,- (i) where there has been an amalgamation of a company with another company, the amalgamated company; (ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person; (iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm;" A plain reading of section 41(1) of the Income Tax Act, 1961, it is very clear that in order to bring any sum u/s.41(1), the first condition should be deduction has been allowed towards any expenditure or trading liability....
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....bility and thus, remission of such liability cannot be brought to tax u/s.41(1) of the Income Tax Act, 1961. This legal principle is supported by the decision of the Hon'ble Supreme Court in the case of CIT Vs Mahindra & Mahindra Ltd (2018) 404 ITR 1 (SC), where it has been considered an identical issue and held that waiver of loan for acquiring capital assets cannot be treated as remission of trading liability and brought to tax u/s.41(1) of the Income Tax Act, 1961 or u/s.28(iv) of the Income Tax Act, 1961. Therefore, we are of the considered view that the Assessing Officer has erred in assessing cessation of liability towards unsecured loans availed from financial institutions in terms of order of the BIFR u/s.41(1) of the Income Tax Act, 1961. Hence, we direct the Assessing Officer to delete additions made towards remission/ cessation of liability u/s.41(1) of the Act to the extent of Rs.2,55,53,342/-. 10. Now, coming to liability pertains to advance from customers and loan from others. The assessee had availed advance from customers and loans from others to the tune of Rs.92,52,501/-. The BIFR in their order has given relief to the extent of 90% which comes to Rs.84,23,90....