TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 992
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.... KPFL does not constitute 'transfer' within the meaning of section 2(47) of the Act. Ground 5 - The PCIT erred in holding that the claim of bad debt of Rs. 3,42,57,549/- is inadmissible u/s 36(1)(vii) of the Act as there is no evidence to establish that the debt has become wholly irrecoverable and thereby directed the AO to make an enquiry in the above issue and reassess the income. 2. Briefly stated, facts of the case are that the assessee is a partner in partnership firms M/s Chinmaya Estates and M/s Chinmaya Associates ( in short the 'Chinmaya'). The assessee was also having substantial shareholding in a company namely M/s Kamani Foods Private Limited (in short the 'Kamani'). The assessee filed his return of income electronically on 26.03.2021 declaring total income at Rs. 1,40,11,060/-. Besides, share of profit in partnership firm, the assessee shown income from house property, capital gain on sale of securities and interest income etc. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short 'the Act') were issued and complied with. The scrutiny assessment u/s 143(3....
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....olding of the assessee would be squarely covered within the ambit of the expression "sale, exchange or relinquishment of the asset" used in Section 2(47) the Income Tax Act, 1961". 1.4 Capital loss on waiver of right to receive the loan given to Kamani: The assessee had an amount of receivable for Rs. 42,06,30,032/-. The assessee signed a 'Deed of Settlement' on 28.02.2020 with Kamani whereby he agreed to waive or settle his loan of Rs. 30 Crores for an amount of Rs. 5 lakhs and claimed the loss of Rs. 29.95 Crores as short-term capital loss. This loss is also allowed as explained by the Hon'ble jurisdictional High Court in the cases of CIT vs Siemens Nixdorf Information Systeme GmbH [2020] 114 Taxmann.com 531 Bom and PCIT vs Reliance Natural Resource Ltd [2019] 111 Taxmann.com 413 Bom, wherein Hon'ble jurisdictional High Court has held that 'Loan given by assessee to its subsidiary company would be covered by meaning of 'capital asset' under section 2(14)' [headnote from taxmann.com]. SLP filed by department against above two decisions have been dismissed by the Hon'ble Apex Court in 453 ITR 741 and 286 Taxmann 435 respectively....
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....tract capital gains/loss. Consequently, the loss of Rs. 42,12,27,550/- claimed under Section 45 is inadmissible. Settlement of Loan to KMFL: Further, also set off was claimed to the extent of Rs. 29,95,00,000/- against his waiver of loan (foregoing the loan) which was given by him (earlier) to KMFL. For such a waiver to qualify as a "transfer" under Section 2(47), the loan must constitute a "capital asset" as per Section 2(14). Loans or receivables are excluded from the definition of "capital asset" unless held as stock-in-trade in a money-lending business. The assessee, being an individual not engaged in moneylending, cannot treat the waived loan as a capital asset. Thus, the loss of Rs. 29,95,00,000/- is not allowable under Section 45. 6.1 In light of the above, the assessee's claim of short-term capital loss arising from (i) capital reduction of KMFL shares and (ii) loan waiver to KMFL is unsustainable in law. For capital loss to be allowable under Section 45, there must be a 'transfer' of 'capital asset' as defined under Sections 2(14) and 2(47). The capital reduction involved mere extinguishment of shares without any transfer to a....
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....s. 3,42,57,549/-. The AO is directed to make an enquiry in this matter and re-assess the income after giving due opportunity of being heard to the assessee." 3. Before us, the Ld. counsel for the assessee filed a Paper Book containing pages 1 to 140. The Ld. counsel for the assessee referred to various pages of the Paper Book and submitted that the case of the assessee was selected for limited scrutiny vide notice dated 29.06.2021 issued u/s 143(2) of the Act (Paper Book page 2) for examination of issues of (i) capital gain/loss (ii) claim of any other amount allowable as deduction in Schedule as BP and (iii) business loss. 3.1 Further, the Ld. counsel for the assessee referred to Paper Book page 6 and submitted that notice u/s 142(1) of the Act dated 14.11.2021 was issued to the assessee to explain the deduction of any other amount claimed as well as deduction of capital loss claimed by him. The assessee referred to Paper Book pages 8 to 33 and submitted that assessee filed reply on 16.11.2021 explaining the deduction claimed on account of (i) bad debt written off of interest receivable (ii) loss of capital reduction and (iii) loss on waiver of loan receivable. Along with th....
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....the interest of the Revenue invoking Explanation 2 to Section 263 of the Act. In support thereof the Ld. counsel for the assessee relied on the decision of the Hon'ble Supreme Court in the case of PCIT v. V-Con Integrated Solutions Pvt. Ltd. 476 ITR 526 (SC) wherein the Hon'ble Supreme Court held that the assessee does not control over the pen of the Assessing Officer and once the Assessing Officer carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee. The Hon'ble Supreme Court further held that there may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify remit, albeit, the Commissioner of Income-tax must record abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice cause to the Revenue. The Ld. counsel for the assessee submitted that in the case, the Assessing Officer has issued a series of notices to inquire into the claim of the assessee and therefore, the case does not fall in the category of no inquiry made. The Ld. counsel for the assessee relied on the decision of the Hon'ble Kolkata High Court in....
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....recedents of the jurisdictional High Court relied upon by the assessee. Regarding the third issue of bad debt written off of interest, the Ld. counsel for the assessee submitted that when the said interest was already offered to tax by the assessee for tax, then there is no reason to disallow the bad debt written off as expenditure in the hands of the assessee. 4. The Ld. Departmental Representative (DR) relied on the order of Ld. PCIT. 5. We have heard rival submissions of the parties and perused the relevant materials on record. In the case, the Ld. PCIT has invoked provisions of section 263 of the Act on two grounds. Firstly, the assessment order is deemed to be erroneous in so far as prejudicial to the interest of the Revenue in view of clause(a) of Explanation 2 to section 263 of the Act as the Assessing Officer had not carried out the inquiry which ought to have been carried out in the facts and circumstances of the case. The second issue is on merit of the issues raised. The Explanation submitted by the assessee are not found in order by the PCIT and therefore, the he held the finding of the Assessing Officer as erroneous in so far as prejudicial to the interest of the....
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....se of PCIT vs. Jupiter Capital Pvt. Ltd. (supra), wherein the proportion in the share holding of the shareholder due to reduction of share capital of investee company held to be squarely covered within ambit of Explanation sale, or exchange, relinquishment of the word 'assets' used in section 2(14) of the Act. Thus, even if it is considered that Ld. PCIT is correct in holding that Assessing Officer should have followed the decision in the case of CIT v. Grace Collis (supra), the two opinions exists on the issue in dispute and the Assessing Officer has followed one of the opinion on law. The Assessing Officer cannot be held to be erroneous or prejudicial to the interest of the Revenue in view of decision of the Hon'ble Supreme Court in the case of CIT v. Max India Ltd. (supra), wherein the Hon'ble Supreme Court held that every loss or revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the Revenue, for example when the Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissi....
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.... under the Securities and Exchange Board of India Act, 1992 (15 of 1992); or (ii) an investment fund specified in clause (a) of Explanation 1 to section 115UB which has invested such securities in accordance with the provisions of the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or under the International Financial Services Centres Authority Act, 2019 (50 of 2019); ^55[(c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply ^55a[on account of the applicability of the fourth and fifth provisos thereof],] but does not include- (i) any stock-in-trade [other than the securities referred to in sub-clause (b)]], consumable stores or raw materials held for the purposes of his business or profession ; ^56[(ii) personal effects ^57, that is to say, movable property (including wearing apparel and furniture) held ^57 for personal use ^57 by the assessee or any member of his family dependent on him, but excludes- (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or ....
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....shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.] ^71[Explanation 2.-For the purposes of this clause- (a) the expression "Foreign Institutional Investor" shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD; (b) the expression "securities" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) ^72;]" 5.5 In view of plain language of section, it is clear that any kind of property whether it is connected with the business or profession it is held to be capital asset. The properties which have been excluded from the definition of capital asset are as stock-in-trade, personal effect etc. Thus the loans does not fall into the excluding definition. The assessee in support thereof relied on the decision of the Hon'ble Bombay High Court Nixdorf Information System GmbH (supra) and Reliance Natural Resources (supra) wherein it is squarely held that loan given by assessee to its subsidiary company would be covered by section 2(14) of the Act.....