ITO, New Delhi V. M/s Fortune Oceanic Products Ltd., New Delhi

ITA 2414/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65833 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-10-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 11-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUDHA KUMARI
• Assessee Lawyers: L N MALIK S
• Keywords: Capital asset; Business income; Depreciation; Question of law; Capital receipt
• Section: 143(3); 115JB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMEBR AND SHRI C.M. GARG, JUDICIAL MEMBER ITA NO.2414/DEL./2011 (ASSESSMENT YEAR : 2005-06) ITO, WARD 11 (3), VS. M/S. FORTUNE OCEANIC PRODU CTS LTD., NEW DELHI. A 7, 2 ND FLOOR, COMMUNITY CENTRE, NARAINA VIHAR, NEW DELHI 110 028. (PAN : AAACF1776F) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI SATISH KHOSLA & L.N. MALIK, A DVOCATES REVENUE BY : MS. SUDHA KUMARI, CIT DR O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE REVENUE EMANATES FROM THE ORDER OF THE CIT (APPEALS)-XIII, NEW DELHI DATED 09.03.2011. 2. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE O N 31.06.2005 DECLARING A LOSS OF RS.2,380/-. ASSESSMENT U/S 143(3) WAS FINALIZED AT A LOSS OF RS.6,32,21,855/- AFTER MAKING THE ADJUSTMENT FOR ADDITION OF RS.10,49,29,589/-. THE ASSESSEE COMPANY WAS INCORPORATED ON 15.03.1993 AND THE AIMS AND OBJECTS OF THE COMPANY WERE TO CARRY ON THE BUSINESS OF DEEP SEA ITA NO.2414/DEL/2011 2 FISHERS, FISHERS, FISH-CURERS, FISH SALESMAN, COLD STORAGE KEEPERS, WAREHOUSEMEN, SHIP BROKERS, SHIP AGENTS, SALVORS, WRECK REMOVERS, ETC. ETC. AND TO CARRY ON THE BUSINESS OF OWNING, CHARTERING, RUNNING AND MANAGING FISHING TRAWLERS, SHIPS AND OT HER VESSELS. THE ASSESSEE COMPANY WAS A JOINT VENTURE BETWEEN M/S. FORTUNE OCEANIC PRODUCTS LTD., REGISTERED IN INDIA AND M/S. OOKEAN LTD., A GOVERNMENT OWNED TRADING ORGANIZATION OF ES TONIA (RUSSIA). THE COMPANY WAS NOT DOING ACTIVITIES FOR THE LAST SIX YEARS DUE TO HEAV Y LOSSES INCURRED IN THE PAST YEARS. THE AO MADE THE ADDITIONS, ONE ON ACCOUNT OF LOAN CONVERTE D INTO SHARES OF RS.4,39,03,750/-; SECOND IS SHARE APPLICATION MONEY OF RS.5,42,50,000/- AND THI RD IS RS.67,75,839/- BEING LIABILITIES CONVERTED INTO SHARE CAPITAL AND PREMIUM. THUS, TH E INCOME WAS CALCULATED AT RS.10,49,27,209/- WHICH WAS ADJUSTED AGAINST THE BROUGHT FORWARD LOSS ES AND THE NET LOSS TO BE CARRIED FORWARD AT RS.6,32,21,855/-. THE ISSUE HAS BEEN DEALT WITH BY THE AO IN PARA 2 & 3 OF HIS ORDER AS UNDER :- 2. TO CARRY ON THE BUSINESS OF OWNING, CHARTERING, RUNNING AND MANAGING FISHING TRAWLERS, SHIPS AND OTHER VESSELS. FROM THE PERUSAL OF THE BALANCE SHEET, IT IS TRANS PIRED THAT DURING THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. A.Y. 200 4-05, THE ASSESSEE COMPANY HAD A SHARE CAPITAL MONEY OF RS.6,33,00,700 /-. AN AMOUNT OF RS.5,42,50,000/- WAS ALSO PENDING FOR ALLOTMENT. A NOTHER AMOUNT OF RS.4,39,03,750/- WAS LYING UNDER THE HEAD OTHER LO ANS. DURING THE YEAR UNDER CONSIDERATION BOTH THE AMOUNTS VANISHED DURING THE YEAR AND SHARE CAPITAL INCREASED BY RS.66,99,300/-(I.E. AT RS.7,00,00,000/ -). FURTHER, IN THE PROFIT AND LOSS ACCOUNT A BROUGHT FORWARD LOSS OF RS.16,81,51, 444/- HAS BEEN SET OFF BY SHARE PREMIUM OF RS.9,81,51,444/- AND BALANCE LOSS OF RS. 7,00,00,000/- HAS BEEN TRANSFERRED TO BALANCE SHEET (ASSET SIDE). THE ASSE SSEE WAS ASKED TO EXPLAIN AS TO WHY THIS AMOUNT HAS BEEN SET OFF AGAINST THE BROUGH T FORWARD LOSSES. A LIABILITY OF RS.67,75,839/- HAS ALSO BEEN DISPOSED OFF BY WAY OF ALLOTTING SHARES TO THE SUNDRY CREDITORS. THE ASSESSEE VIDE ITS SUBMISSION DATED 9TH JULY 200 7 HAS STATED THAT THE ASSESSEE COMPANY WAS JOINT VENTURE BETWEEN FORTUNE OCEANIC PRODUCTS LIMITED & M/S OOKEAN LTD., A GOVT. OWNED TRADING ORGANIZATI ON OF ESTONIA (RUSSIA). VIDE THE ABOVE SAID LETTER, IT HAS FURTHER BEEN SUBMITTE D BY THE ASSESSEE THAT THE ASSESSEE COMPANY HAD RECEIVED 'OUTSTANDING SHARE AP PLICATION MONEY AND OTHER LOANS DURING FINANCIAL YEAR 1995-96 FROM FOREIGN CO LLABORATOR.' IT HAS FURTHER BEEN SUBMITTED AS UNDER:- ITA NO.2414/DEL/2011 3 'THERE WAS NO BUSINESS ACTIVITIES OF THE COMPANY FO R THE LAST 6 YEARS DUE TO HEAVY LOSSES OF MORE THAN RS. 20 CRORES SUFFERED IN THE PAST YEARS AND ALL THE CAPITAL & RESERVES WERE WIPED OUT AND EVEN THERE WAS NO FUNDS TO PAY SALARIES AND CREDITORS. UNDER ABOVE CIRCUMSTANC ES PROMOTERS AGREED TO CONVERT SHARE APPLICATION MONEY AND OTHER LOANS OUT STANDING IN THE BOOKS OF ACCOUNT FOR ENHANCEMENT OF SHARE CAPITAL TO THE EXTENT OF AUTHORIZED CAPITAL AVAILABLE AND BALANCE AS SHARE PREMIUM ACCO UNT ENABLING THE COMPANY TO GET IT CLOSED UNDER SIMPLIFIED EXIT SCHE ME AS THE COMPANY HAD ALREADY DISPOSED OFF ITS TRAWLERS IN THE PREVIO US YEARS.' THE ASSESSEE COMPANY WAS FURTHER ASKED TO SHOW CAUS E AS TO WHY BOTH THE SAID AMOUNTS BE NOT TREATED AS BUSINESS INCOME U/S 41(1) OF THE INCOME TAX ACT, 1961 AS CEASED LIABILITY OF THE ASSESSEE COMPA NY AS THE SHARE PREMIUM AMOUNT, AS PER ACCOUNTING PRINCIPLES, SHOULD GO TO RESERVES AND SURPLUS WHICH NORMALLY CONTAINS INCOMES OF THE ASSESSEE AND TAX U /S 115JB MAY NOT BE CHARGED. SECONDLY, THE ASSESSEE HIMSELF HAS SET OFF THE CEAS ED LIABILITY AMOUNTS WITH BROUGHT FORWARD LOSSES AND LOSSES BEING NEGATIVE IN COME, CAN ONLY BE SET OFF BY INCOMES. HENCE, THE ASSESSEE HAS HIMSELF INDIRECTLY TREATED THE CEASED LIABILITIES AS INCOME. HOWEVER, THE ASSESSEE HAS SET OFF THE BR OUGHT FORWARD LOSSES BELOW THE LINE OF PROFIT AND LOSS ACCOUNT WHICH IS NOT ACCEPT ABLE BECAUSE IN THIS WAY THE ASSESSEE HAS TRIED TO ESCAPE THE PAYMENT OF MAT U/S 115J B OF THE INCOME TAX ACT. IN ITS REPLY DATED 27.09.2007 THE ASSESSEE SUBMITTE D AS UNDER:- 'AS REGARDS YOUR QUERY REGARDING APPLICABILITY OF S ECTION 41(1), IT IS SUBMITTED THAT THESE PROVISIONS ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE COMPANY. THIS SECTION PROVIDES THAT WHERE AN ALLOWANCE OR DEDUCTION IS GRANTED TO THE ASSESSEE IN ANY PREVIOU S YEAR IN RESPECT OF ANY LOSS, EXPENDITURE OR TRADING LIABILITY AND SUBSEQUE NTLY, THE ASSESSEE RECEIVES ANY AMOUNT IN RESPECT OF SUCH EXPENDITURE, THE AMOUNT OF LIABILITY IS EXTINGUISHED, THEN THE AMOUNT SO RECEIVED OR EXT INGUISHED SHALL BE CHARGED TO TAX IN THE PREVIOUS YEAR IN WHICH THE AM OUNT IS RECEIVED OR THE LIABILITY IS EXTINGUISHED, NO SUCH CONDITIONS ARE A PPLICABLE IN THIS CASE. THE AMOUNT OF SHARE PREMIUM ACCOUNT CREDITED TO THE SHA RE PREMIUM ACCOUNT HAS NEVER BEEN CLAIMED AS AN EXPENDITURE. AS SUCH T HIS SECTION IS IN- APPLICABLE. FURTHER, IT MAY BE POINTED OUT THAT SEC TION 115-JB PROVIDES FOR THE PREPARATION OF THE ACCOUNTS OF THE COMPANY, AS PER THE SCHEDULE-VI- PART I AND PART-II U/S 211 OF THE COMPANIES ACT. TH IS ITSELF PROVIDES THAT RESERVE IS TO BE CREATED ON ACCOUNT OF SHARE PREMIU M ACCOUNT BUT NO CORRESPONDING DEDUCTION IS CLAIMED IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE COMPANY HAS NOT CLAIMED ANY DEDUCTION OUT OF THE CURRENT INCOME IN THE PROFIT & LOSS ACCOUNT AND NO FURTHER ADJUSTMENT IS REQUIRED.' FURTHER THE ASSESSEE VIDE NOTE SHEET ENTRY DATED 12 .11.2007 WAS ASKED TO EXPLAIN AS TO WHETHER SHARE APPLICATION MONEY CONVE RTED INTO SHARE PREMIUM ITA NO.2414/DEL/2011 4 DURING THE YEAR IS COVERED U/S 28(IV) OF THE INCOME TAX ACT, 1961. THE ASSESSEE VIDE ITS REPLY DATED 29.11.2007 SUBMITTED AS UNDER: - 'REGARDING YOUR QUERY OF APPLICABILITY OF PROVISION S OF SEC. 28(IV) OF THE INCOME-TAX ACT, 1961 TO THE SHARE PREMIUM ACCOUNT, IT IS SUBMITTED THAT NO REASONS HAVE BEEN FURNISHED BY YOUR HONOUR AS TO WH Y THIS AMOUNT IS SOUGHT TO BE TREATED AS FALLING WITHIN THE PROVISIONS OF THIS SUB-SECTION. IT IS NEITHER ANY BENEFIT NOR ANY PERQUISITE ARISING FROM THE EXERCIS E OF BUSINESS. THE SHARE PREMIUM IS ON ACCOUNT OF THE CAPITAL AND WHAT IS TH E CHARGEABLE TO TAX IS ONLY THE RECEIPT WHICH ARE OF REVENUE IN NATURE. AS SUCH, TH ESE PROVISIONS ARE NOT APPLICABLE.' THE SUBMISSIONS OF THE ASSESSEE COMPANY HAVE BEEN C ONSIDERED. HOWEVER, THE SAME ARE NOT ACCEPTABLE FOR THE FOLLOW ING REASONS:- 1. THE LOAN AMOUNT WHICH HAS BEEN CONVERTED BY THE ASSESSEE INTO SHARE CAPITAL AND SHARE PREMIUM WAS OUTSTANDING FOR ABOUT A DECADE. MOREOVER, DESPITE REPEATED REQUESTS NO LETT ER OF CONSENT FROM M/S OKEAN LTD HAS BEEN FILED BY THE ASSESSEE F ROM WHOM LOAN WAS TAKEN, AND IT IS NOT ACCEPTABLE THAT A LOA N AMOUNT OF RS.54 LACS OUTSTANDING TO BE PAID HAS BEEN WAIVED OFF BY A COMPANY WITHOUT ANY CONSIDERATION. IT IS PERTINENT TO MENTI ON HERE THAT THE LOAN AMOUNT IN QUESTION WAS NOT ADVANCED IN NORMAL COURSE OF BUSINESS, IT WAS GIVEN AGAINST A TRAWLER AND THE SA ME WAS A TRADING LIABILITY AT A POINT OF TIME. 2. EVEN IN THE CASE OF SHARE APPLICATION MONEY WHIC H WAS PENDING FOR ALLOTMENT FOR ABOUT A DECADE, IT CANNOT BE SAID THAT THE SAME IS MARINATING ITS CAPITAL NATURE. IN A SUPREME COURT D ECISION IN THE CASE OF CIT VS TV. SUNDARAM IYENGAR & SONS 1996 (22 2 ITR 344) IT WAS HELD BY THE HON'BLE SUPREME COURT THAT THE A DVANCE (PART OF BALANCE SHEET) BECOMES TAXABLE WHEN THE CUSTOMERS D O NOT COME BACK EITHER FOR REFUND OF THE ADVANCE OR FOR ADJUST MENT OF THE SAME. THE RATIO OF THIS JUDGMENT SHOW THAT THE NAT URE OF EVEN A CAPITAL RECEIPT MAY CHANGE ITS CHARACTER TO REVENUE WITH THE PASSAGE OFF TIME IT MAY SAFELY BE SAID THAT THE SHA RE APPLICATION MONEY GOT CHANGED INTO REVENUE RECEIPT. MOREOVER TH IS IS NOTHING BUT AN INCOME IN THE FORM OF BENEFIT TO THE ASSESSE E WHICH HAS ARISEN FROM THE BUSINESS OF THE ASSESSEE BECAUSE TH E ASSESSEE HAD NOT TO RETURN THIS MONEY AND WAS SUBSEQUENTLY USED FOR THE PURPOSE OF ITS BUSINESS BY SETTING OFF BROUGHT FORWARD LOSS ES. THE ASSESSEE WAS CATEGORICALLY CONVEYED THAT THIS INCOME IS A BE NEFIT TO THE ASSESSEE AND HAS ARISEN FROM THE BUSINESS OF THE AS SESSEE. WITHOUT THE BUSINESS OF THE ASSESSEE THIS INCOME IN THE FOR M OF BENEFIT WAS IMPOSSIBLE TO THE ASSESSEE, HENCE SECTION 28(IV) AP PLIES TO THIS INCOME. ITA NO.2414/DEL/2011 5 3. SUCH BENEFITS ARE SQUARELY COVERED U/S 28(IV) OF THE INCOME TAX ACT WHICH INCLUDES INCOME CHARGEABLE TO TAX 'THE VA LUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MON EY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSI ON'. AS DISCUSSED AT POINT 2 ABOVE, THE BENEFIT HAS SURELY BECOME INC OME OF THE ASSESSEE AND AS PER THE PROVISIONS OF SECTION 28(IV ) IT HAS ARISEN FROM THE BUSINESS. AS STATED BY THE ASSESSEE IN ITS REPLY THAT THIS INCOME IS NOT FROM THE 'EXERCISE' OF BUSINESS, THE ASSESSEE MAY TAKE PLEA THAT SUCH BENEFITS SHOULD ARISE FROM SOME BUSI NESS ACTIVITY. IT IS, THEREFORE, PERTINENT MENTION HERE THAT THE WORD 'EXERCISE' IS NOT SUFFIXED WITH 'BUSINESS', IT IS ONLY SUFFIXED WITH 'PROFESSION' IN THE LANGUAGE OF THE SECTION, WHICH SHOWS THAT 'ARISING FROM BUSINESS' IS MUCH WIDER IN SENSE AND COVERS ALL TYPES OF BENEFIT S OF BUSINESSES. IN VIEW OF ABOVE, THE SHARE APPLICATION MONEY WHICH BECAME ASSESSEE'S OWN MONEY/INCOME IS ADDED TO THE INCOME OF THE ASSESSEE. IN VIEW OF ABOVE AND ON THE SAME PRINCIPLE, THE LOA N AMOUNT: OF RS.4,39,03,750/- IS ALSO COVERED U/S 28(IV) OF THE INCOME-TAX ACT AS BENEFIT TO THE ASSESSEE AND THE SAME IS ALSO ADDED TO THE INCOME O F THE ASSESSEE. THE ASSESSEE VIDE NOTESHEET ENTRY DATED 19.10.2007 WAS ALSO ASKED TO FILE RECONCILIATION OF SUNDRY CREDITORS AND EXPENSES PAY ABLE AND SHARE APPLICATION MONEY WHICH HAVE BEEN SHOWN TO HAVE PAID DURING THE YEAR. THE ASSESSEE COULD NOT SUBMIT ANY SATISFACTORY REPLY IN THIS REGARD, H OWEVER IT WAS CLARIFIED THAT THE LIABILITIES OF SUNDRY CREDITORS AND EXPENSES PAYABL E HAVE ALSO BEEN CONVERTED INTO SHARE CAPITAL AND SHARE PREMIUM WHICH HAVE BEEN SET OFF AGAINST THE BROUGHT FORWARD LOSSES. IT IS CLEAR THAT NO LIABILITIES HAV E BEEN PAID BY THE ASSESSEE AND THESE ARE OBVIOUSLY CEASED LIABILITIES OF THE ASSE SSEE, HENCE THE AMOUNT OF SUNDRY CREDITORS AND EXPENSES PAYABLE WHICH ARE TRADING LI ABILITIES ARE TREATED AS CEASED LIABILITY U/S 41 (1) AND ADDED TO THE INCOME OF THE ASSESSEE. 3. THE CIT (A) GRANTED THE RELIEF TO THE ASSESSEE B Y HOLDING AS UNDER :- 8. FINDING ON GROUND NOS. 1, 2 & 3: - I HAVE CONSIDERED THE ORDER OF ASSESSMENT, SUBMISSI ONS MADE BY THE APPELLANT AND, MATERIAL PLACED ON RECORD. THE FACTS, LEADING TO THE MAKING OF THE THREE ADDITIONS ARE THAT, AT THE CLOSE OF THE PRECEDING Y EAR, THE FOLLOWING TWO SUMS AGGREGATING TO RS.9,81,53,750/- WERE REFLECTED ON T HE LIABILITIES SIDE OF THE BALANCE-SHEET: A) SHARE APPLICATION PENDING FOR ALLOTMENT OF RS.5, 42,50,000/-; AND B) OTHER LOANS OF RS.4,39,03,750/-. ITA NO.2414/DEL/2011 6 THE SHARE APPLICATION MONEY PENDING FOR ALLOTMENT W AS RECEIVED M/S OAKEAN LTD, A JOINT VENTURER AND AN EXISTING SHAREHOLDER OF THE APPELLANT COMPANY. FURTHER, APPELLANT COMPANY HAD PURCHASED A TRAWLER FROM M/S OAKEAN LTD FOR A SUM OF RS.4,26,25,000/-. THIS WAS FINANCED BY M/S OAKEAN L IMITED UNDER A LOAN AGREEMENT WHICH CARRIED INTEREST AT THE RATE OF 6% PER ANNUM. THE INTEREST ACCRUED UPTO 31 ST MARCH, 1995 WAS RS.12,78,750/- AND THE TOTAL AMOUN T OUTSTANDING AND PAYABLE TO M/S OAKEAN LIMITED AS ON 31.03.1995 AND CONTINUED TO BE UNCHANGED TILL 31.03.2004 WAS RS.4,39,03,750/ -. IN THE INSTANT ASSESSMENT YEAR, M/S OAKEAN LTD WAS ALLOTTED SHARES OF FACE VA LUE OF RS.10/- AT THE PREMIUM OF RS.146.51/- PER SHARE AGAINST TOTAL OUTSTANDING SUM OF RS. RS.9,81,53,750/-. IN OTHER WORDS, 6,27,140 SHARES WERE ALLOTTED TO M/S O AKEAN LIMITED AND AS SUCH, SHARE CAPITAL INCREASE BY RS.62,71,400/- AND, SHARE PREMIUM BY RS.9,18,82,281/-. LIKE-WISE SHARES WERE ALSO ALLOTTED TO FOLLOWING OU TSTANDING SUNDRY CREDITORS HAVING AN OUTSTANDING LIABILITY OF RS.67,75,835/- A T A PREMIUM OF RS.146.51 PER SHARES:- I) M/S FORTUNE INTERNATIONAL LIMITED 41,911 SHARE S 65,59,490.61 II) M/S RAM DAYAL ASSOCIATES LIMITED 494 SHA RES 77,315.94 III) M/S PREMIER NEEDLE CRAFTS (P) LTD. 221 SHARES 34,588.71 IV) M/S FORTUNE EXPORTS (P) LTD. 164 SHARES 25,667.64 42790 SHARES 66,97,062.90 THEREFORE, IN AGGREGATE TOTAL SHARES OF RS.6,69,930 /- SHARES WERE ALLOTTED AT RS.156.51 PER SHARE AND AS SUCH SHARE CAPITAL INCRE ASED BY RS.66,99,300/- TO RS. 7 CRORES AND, SHARE PREMIUM BY RS.9,81,51,444/-. THIS SHARE PREMIUM HAS BEEN SET- OFF AGAINST THE BROUGHT FORWARD BUSINESS LOSS OF RS .16,81,51,444/- AND, BALANCE LOSS OF RS.7 CRORES HAS BEEN DISCLOSED IN THE BALAN CE-SHEET. 8.2 THE ISSUE THEREFORE FOR CONSIDERATION IS WHETH ER THE AFORESAID CONVERSION OF SHARE-APPLICATION MONEY OF RS.5,42,50,000/-, LOA N OF RS 4,39,03,750/-. AND, OUTSTANDING SUNDRY CREDITORS OF RS.67,75,835/- INTO SHARE-CAPITAL AND. SHARE PREMIUM CAN BE HELD TO BE INCOME EITHER U/S 41(1) O F THE ACT OR UNDER SECTION 28(IV) OF THE ACT. IN MY OPINION, THE ANSWER TO THE ISSUE HAS TO BE IN THE NEGATIVE. IT IS NOT A CASE OF EITHER WAIVER OF LOAN OR LIABILITY. THE LIABILITIES AS OUTSTANDING IN THE SHAPE OF LOAN OR SUNDRY CREDITOR HAVE BEEN-SETTLED BY ISSUING SHA RES AND SUCH SETTLEMENT DOES NOT CONSTITUTE INCOME UNDER THE ACT. AS REGARDS, SUM RECEIVED AS SHARE-APPLICATION MONEY , IN MY OPINION, MERE ALLOTMENT OF SHARES AGAINST SHARE-APPLICATION TO TH E SHAREHOLDER CAN BE NO BASIS TO TAX THE SUM AS INCOME. MERE FACT THAT, SHARE APPLIC ATION MONEY WAS PENDING FOR ALLOTMENT FOR A DECADE CANNOT BE A GROUND TO SUGGES T THAT, SUCH SHARE-APPLICATION MONEY REPRESENTS INCOME OF THE APPELLANT COMPANY ON ALLOTMENT OF SHARES. ITA NO.2414/DEL/2011 7 8.3 SO FAR AS WAIVER OF LOAN IS CONCERNED, IT IS W ELL SETTLED POSITION OF LAW THAT, EVEN A DEBT WAIVED OR FORGONE CANNOT PARTAKE THE CH ARACTER OF INCOME EITHER U/S 41 (1) OR SECTION 28 OF THE ACT, AS HAS BEEN HELD I N THE FOLLOWING JUDICIAL PRONOUNCEMENTS: A) 131 ITR 37 (DELHI) CIT VS. PHOOL CHAND JIWAN RAM B) 116 TTJ 941 (DEL) DCIT VS. TOSHA INTERNATIONAL A FFIRMED IN 176 TAXMAN 187 (DEL) CIT V TOSHA INTERNATIONAL LTD.' '2 THE ONLY OBJECTION RAISED BY THE ASSESSING OFFI CER IS WITH REGARD TO THE WAIVER OF THE PRINCIPAL AMOUNT TO THE EXTENT OF RS. 10,47,93,857/- WHICH THE ASSESSEE HAD DIRECTLY CREDITED TO THE CAPITAL RESER VE ACCOUNT. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAD DERIVED BENEFIT ON THE BASIS OF EITHER DEPRECIATION OR UTILIZING THE WORKING CAPITAL WHICH WOULD HAVE FORMED PART OF THE EARLIER YEAR'S INCOME. ACCORDING TO THE ASSESSING O FFICER SINCE THE LOANS CEASED TO EXIST, THIS AMOUNTED TO CESSATION OF LIABILITY AND, THEREFORE, IT HAS TO BE TREATED AS AN INCOME. CONSEQUENTLY, THE ASSESSING OFFICER ADDE D THE SAID SUM OF RS.10.47 CRORES IN THE INCOME OF THE ASSESSEE. THE COMMISSIO NER OF INCOME TAX (APPEALS) DELETED THE ADDITION BY OBSERVING THAT THE REMISSIO N OF THE PRINCIPAL AMOUNT OF LOAN DID NOT AMOUNT TO INCOME UNDER SECTION 41(1) N OR UNDER SECTION 28 (IV) NOR UNDER SECTION 2(24) OF THE INCOME TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE SAID ACT). 3. THE REVENUE WENT IN APPEAL BEFORE THE TRIBUNAL A GAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WITH REGARD TO THE DELETION OF THE SAID SUM OF RS.10.47 CRORES. WE NOTE THAT THE TRIBUNAL H AS EXAMINED THE CASE IN DETAIL AND PARTICULARLY FROM THE STANDPOINT OF THE PROVISI ONS OF SECTION 41 (1) OF THE SAID ACT. THE TRIBUNAL HAS OBSERVED AS UNDER :- 'AS PER OUR CONSIDERED VIEW, FOR ATTRACTING THE PRO VISIONS OF SECTION 41 (1), THE FIRST REQUISITE CONDITION TO BE SATISFIED IS THAT T HE ASSESSEE SHOULD HAVE GOT DEDUCTION OR BENEFIT OF ALLOWANCE IN RESPECT OF LOS S, EXPENDITURE OR TRADING LIABILITY INCURRED BY 'IT AND SUBSEQUENTLY DURING A NY PREVIOUS YEAR, THE ASSESSEE SHOULD HAVE RECEIVED ANY AMOUNT IN RESPECT OF SUCH LOSS, EXPENDITURE OR TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF THE REMISSION WOULD BECOME INCOME ONLY IF THE ASSESSEE HAS CLAIMED DEDUCTION I N RESPECT OF EXPENDITURE OR TRADING LIABILITY. IN MAHINDRA AND MAHINDRA LTD. VS . CIT, HON'BLE HIGH COURT OF BOMBAY 261 ITR 501, HELD THAT NO ALLOWANCE OR DEDUC TION HAVING BEEN ALLOWED IN RESPECT OF LOAN TAKEN BY ASSESSEE FOR PURCHASE O F CAPITAL ASSETS, SECTION 41 (1) WAS NOT ATTRACTED TO REMISSION OF PRINCIPAL AMOUNT OF LOAN. IN THE INSTANT CASE, THE ASSESSEE HAS NOT GOT ANY DEDUCTION ON ACCOUNT OF AC QUISITION OF CAPITAL ASSETS AS THE SAME HAS BEEN REFLECTED IN THE BALANCE SHEET AN D NOT IN THE P AND L ACCOUNT, AND ALSO THE REMISSION OF THE PRINCIPAL AMOUNT OF L OAN SO OBTAINED FROM THE BANK AND FINANCIAL INSTITUTION HAD NOT BEEN CLAIMED AS E XPENDITURE OR TRADING LIABILITY IN ANY OF THE EARLIER PREVIOUS YEAR. SO FAR AS WAIVER OF INTEREST IS CONCERNED, THE ASSESSEE COMPANY ITSELF HAS TREATED THE SAME EITHER AS INCOME OR HAS NOT CLAIMED ITA NO.2414/DEL/2011 8 THE SAME AS EXPENDITURE IN THE COMPUTATION OF INCOM E FILED BEFORE THE LOWER AUTHORITIES.' 4. WE SEE NO REASON TO INTERFERE WITH THE CONCLUSIO NS OF THE TRIBUNAL AS THE SAME HAVE BEEN RENDERED ON A CORRECT APPRECIATION O F LAW. THE PRINCIPLES ENUNCIATED IN MAHINDRA AND MAHINDRA LIMITED V. CIT: 261 ITR 501 (BOM) ARE FULLY APPLICABLE AND WE SEE NO REASON TO TAKE A DIF FERENT VIEW. 5. CONSEQUENTLY, NO SUBSTANTIAL QUESTION OF LAW ARI SES FOR OUR CONSIDERATION. THE APPEAL IS DISMISSED. ' [EMPHASIS SUPPLIED) C) 325 ITR 87 (DEL) CIT VS. JINDAL EQUIPMENTS LEASI NG AND CONSULTANCY SERVICES LTD. 8.4 ALSO, HON'BLE DELHI HIGH COURT IN THE CASE OF LOGITRONICS (P) LTD V CIT AFTER CONSIDERING THE JUDGEMENT OF APEX COURT IN TH E CASE OF TV SUNDRAM IYEGAR REPORTED IN 222 ITR 344 HAS HELD AS UNDER : '23. IN THE CONTEXT OF WAIVER OF LOAN AMOUNT, WHAT FOLLOWS FROM THE READING OF THE AFORESAID JUDGMENT IS THAT THE ANSWER WOULD DEP END UPON THE PURPOSE FOR WHICH THE SAID LOAN WAS TAKEN. IF THE LOAN WAS TAKE N FOR ACQUIRING THE CAPITAL ASSET, WAIVER THEREOF WOULD NOT AMOUNT TO ANY INCOM E EXIGIBLE TO TAX. ON THE OTHER HAND, IF THIS LOAN WAS FOR TRADING PURPOSE AN D WAS TREATED AS SUCH FROM THE VERY BEGINNING IN THE BOOKS OF ACCOUNT, AS PER SUND ARAM IYENGAR (T. V) AND SONGS LTD. (SUPRA), THE WAIVER THEREOF MAY RESULT I N THE INCOME MORE SO WHEN IT WAS TRANSFERRED TO PROFIT AND LOSS ACCOUNT. 24. THE TRIBUNAL IN THE IMPUGNED JUDGMENT HAS RIGHT LY APPRECIATED THIS RATIO/PRINCIPLE OF LAW FROM THE AFORESAID JUDGMENTS , AS IS CLEAR FROM THE READING OF PARA 21 OF THE IMPUGNED ORDER : '21. IN THE LIGHT OF THE ABOVE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA AND MAHINDRA LTD. (SUPRA), IT IS C LEAR THAT IN THE CASE WHERE CAPITAL ASSETS ARE ACQUIRED BY OBTAINING A LOAN, AN D SUBSEQUENTLY, THE LOAN AMOUNT IS WAIVED BY THE OTHER PARTY, THE PRINCIPAL AMOUNT OF LOAN WAIVED BY THE OTHER PARTY CANNOT BE BROUGHT TO TAX UNDER SECTION 28(IV) OF THE ACT OR UNDER SECTION 41 (1) OF THE ACT.' FROM THE AFORESAID, IT IS EVIDENT THAT, IT HAS BEEN HELD BY THEIR LORDSHIPS THAT, IF THE AMOUNT OF LOAN RAISED IS UTILIZED FOR PURCHASE OF C APITAL ASSETS THEN SUCH LOAN WAIVED IS NOT INCOME OF THE APPELLANT COMPANY. 8.5 ALSO, IN THE CASE OF HELIOS FOOD IMPROVERS (P) LTD. (80M) (SUPRA) WHERE 50% OF THE INTEREST FREE FOREIGN CURRENCY LOAN WAS WRITTEN OFF BY THE ASSESSEE BY CREDITING THE SUM TO THE CAPITAL RESERVE ACCOUNT DI RECTLY, IT WAS OBSERVED THAT, IN SUNDARAM IYENGAR'S CASE, THEIR LORDSHIPS WERE CONCE RNED REGARDING THE TREATMENT TO BE GIVEN TO THE AMOUNT RECEIVED DURING THE COURS E OF TRADING OPERATIONS, WHICH THE ASSESSEE CREDITED TO THE PROFIT & LOSS ACCOUNT AS THESE WERE BARRED BY LIMITATION. HOWEVER, ON FACTS, IT WAS HELD THAT THE RE HAS BEEN POSITIVE ACT OF ITA NO.2414/DEL/2011 9 REMISSION BY THE LENDER AND THE ASSESSEE HAS CONVER TED THE REMITTED PART OF THE LOAN INTO THE CAPITAL RESERVE DIRECTLY WITHOUT MAKI NG ANY ENTRIES IN THE PROFIT AND LOSS ACCOUNT. THE HON'BLE ITA T FURTHER HELD AS UNDER: 'IF THIS VIEW IS ACCEPTED THEN THERE CAN BE SOME OT HER CONSEQUENCES IN THE SENSE THAT CONCEPT OF CAPITAL RECEIPT VS. REVENUE RECEIPT OR CAPITAL LOSS VS. REVENUE LOSS WOULD BECOME MEANINGLESS AND ALSO THE SCHEME OF THE ACT TO TAX RECEIPTS OF REVENUE NATURE AS INCOME EXCEPT CAPITAL RECEIPT AS CAPITAL GAINS IN SPECIFIED CASE WOULD ALSO BECOME MEANINGLESS. FOR EXAMPLE, AT PRES ENT BUSINESS LOSSES OF REVENUE NATURE ARE ALLOWED IN COMPUTING THE BUSINES S, HOWEVER, BUSINESS LOSSES OF CAPITAL NATURE ARE NOT SO SET-OFF. IN CASE AN AS SESSEE GIVES AN ADVANCE FOR PURCHASE OF CAPITAL ASSET AND I.E. NOT RECEIVED BAC K BY THE ASSESSEE IN NOR ANY MACHINERY IS SUPPLIED BY THE OTHER PARTY, THEN THIS LOSS IS TREATED AS OF CAPITAL NATURE AND IS NOT ALLOWED AS DEDUCTION. BUT IF, THE RATIO OF THIS DECISION IS APPLIED IN THE MANNER AS IT HAS BEEN APPLIED BY THE LEARNED CIT(A), ON NON RECEIPT OF SUCH ADVANCE GIVEN FOR ANY PURCHASE OF SAID CAPITAL ASSE TS AND NO MACHINERIES BEING SUPPLIED, SUCH ADVANCE WOULD CHANGE ITS CHARACTER T O THE NATURE OF REVENUE LOSS AND WOULD BE ALLOWABLE FOR SET-OFF AGAINST THE BUSI NESS PROFITS. FURTHER THE CONCEPT OF INCOME UNDER THE PROVISIONS OF INCOME TA X ACT IS MORE LES SIMILAR TO THE COMMERCIAL CONCEPT OF THE INCOME AND EVEN ANY C OMMERCIAL TERMS WHERE AS A RESULT OF RESTRUCTURING REMISSION IN FULL OR IN PAR T BY LENDER, NO DOUBT, RESULTS INTO DISCHARGE OF LOAN LIABILITY IS NOT PERCEIVED AS INC OME AND GENERALLY SUCH REMISSION RESULTS INTO RE-STATEMENT ON THE VALUE OF ASSETS AN D ACCUMULATED LOSSES OR CREATION OF CAPITAL RESERVE. IN THE PRESENT CASE ALSO THE AS SESSEE HAS CREATED CAPITAL RESERVE WHICH ITSELF IS INDICATIVE OF NATURE OF THIS AMOUNT EVEN AT THE TIME OF SUCH A WRITE- OFF AS BEING OF CAPITAL NATURE.' IN THE INSTANT CASE, FIRSTLY THERE IS NO WAIVER OF LOAN BUT CONVERSION OF LOAN INTO CAPITAL WHICH CANNOT BE HELD TO BE INCOME OF THE AP PELLANT COMPANY. SECONDLY, LOAN HAD BEEN UTILIZED FOR PURCHASE OF CAPITAL ASSE TS, THEREFORE, IN VIEW OF THE BINDING PRECEDENT STATED ABOVE, THERE IS NO INCOME EARNED BY THE APPELLANT WHICH IS EXIGIBLE TO TAX. 8.6 LASTLY, AS REGARDS, SUNDRY CREDITORS, IT IS SEE N THAT, ESSENTIAL PRECONDITIONS FOR INVOKING SECTION 41(1) OF THE ACT ARE TWO FOLD, NAMELY: A) THAT IN ANY EARLIER YEAR ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF TRADING LIABILITY INCURRED BY THE ASSESSEE; B) SUBSEQUENTLY, BENEFIT IS OBTAINED IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION OF SUCH LIABILITY. IN THE INSTANT CASE, THERE IS NO CESSATION OF LIABI LITY BUT CONVERSION OF LIABILITY ALLOTMENT OF SHARES TO THE CREDITORS AND HENCE, THE RE IS NO TAXABLE INCOME OF THE APPELLANT COMPANY. ITA NO.2414/DEL/2011 10 RELIANCE HAS BEEN PLACED ON MC DOWELL AND CO. LTD R EPORTED IN 154 ITR 148, WHICH HAS BEEN RECENTLY CONSIDERED AGAIN BY THE APE X COURT IN THE CASE OF AZADI BACHAO ANDOLAN V UOI REPORTED IN 263 ITR 706, WHERE IN IT HAS BEEN HELD IN THE PENULTIMATE PARA AS UNDER:- 'IF THE COURT FINDS THAT NOTWITHSTANDING A SERIES O F LEGAL STEPS TAKEN BY AN ASSESSEE, THE INTENDED LEGAL RESULT HAS NOT BEEN ACHIEVED, TH E COURT MIGHT BE JUSTIFIED IN OVERLOOKING THE INTERMEDIATE STEPS, BUT IT WOULD NO T BE PERMISSIBLE FOR THE COURT TO TREAT THE INTERVENING LEGAL STEPS AS NON EST BASED UPON SOME HYPOTHETICAL ASSESSMENT OF THE 'REAL MOTIVE' OF THE ASSESSEE. IN OUR VIEW, THE COURT MUST DEAL WITH WHAT IS TANGIBLE IN AN OBJECTIVE MANNER AND CA NNOT AFFORD TO CHASE A WILL-O'- THE-WISP. THE JUDGMENT OF THE PRIVY COUNCIL IN BANK OF CHETTI NAD'S CASE [1940} 8 ITR 522, WHOLEHEARTEDLY APPROVING THE DICTA IN THE PASSAGE F ROM THE OPINION OF LORD RUSSEL IN WESTMINSTER'S CASE [1936} AC 1 (HL); [193 5] 19 TC 490, WAS THE LAW IN THIS COUNTRY WHEN THE CONSTITUTION CAME INTO FOR CE. THIS WAS THE LAW IN FORCE THEN, WHICH CONTINUED BY REASON OF ARTICLE 372. UNL ESS ABROGATED BY AN ACT OF PARLIAMENT, OR BY A CLEAR PRONOUNCEMENT OF THIS COU RT, WE THINK THAT THIS LEGAL PRINCIPLE WOULD CONTINUE TO HOLD GOOD. HAVING ANXIO USLY SCANNED MCDOWELL'S CASE [1985} 154 ITR 148 (SC), WE FIND NO REFERENCE THEREIN TO HAVING DISSENTED FROM OR OVERRULED THE DECISION OF THE PRIVY COUNCIL IN BANK OF CHETTINAD'S CASE [1940} 8 ITR 522 (PC). IF ANY, THE PRINCIPLE APPEAR S TO HAVE BEEN REITERATED WITH APPROVED BY THE CONSTITUTIONAL BENCH OF THIS COURT IN MATHURAMS CASE [1999] 8 SCC 667 AT PAGE 12. WE ARE, THEREFORE, UNABLE TO ACCEPT THE CONTENTION OF THE RESPONDENTS THAT THERE HAS BEEN A VERY DRASTIC CHAN GE IN THE FISCAL JURISPRUDENCE, IN INDIA, AS WOULD ENTAIL A DEPARTURE. IN OUR JUDGM ENT, FROM WESTMINSTER'S CASE [1936] AC 1 (HL); 19 TC 490 TO BANK OF CHETTINAD'S CASE [1940} 8 ITR 522 (PC) TO MATHURAM'S CASE [1999] 8 SCC 667, DESPITE THE HI CCUPS OF MCDOWELL'S CASE [1985] 154ITR 148 (SC), THE LAW HAS REMAINED THE SA ME. WE ARE UNABLE TO AGREE WITH THE SUBMISSION THAT AN ACT WHICH IS OTHERWISE VALID IN LAW CAN BE TREATED AS NON EST MERELY ON THE BASIS O F SOME UNDERLYING MOTIVE SUPPOSEDLY RESULTING IN SOME ECONOMIC DETRIMENT OR PREJUDICE TO THE NATIONAL INTERESTS, AS PERCEIVED BY THE RESPONDENTS.' IN VIEW OF THE ABOVE DISCUSSION, ALL THE THREE ADDI TIONS AGGREGATING TO RS.10,49,29,589/- ARE DELETED AND, GROUNDS NO.1 TO 3 ARE ALLOWED. 4. AGAINST THIS ORDER OF CIT (A), THE REVENUE IS IN APPEAL BEFORE US BY TAKING THE FOLLOWING GROUNDS OF APPEAL :- ITA NO.2414/DEL/2011 11 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ORDER OF THE LD. CIT(A) IS WRONG, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE.' 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.4,39,03,750/- MADE ON ACCOUNT OF WAIVED LOAN U/S 28(IV) OF THE LT. ACT, 1961 IGNORING THAT : A) THE SAID LOAN AMOUNT WAS OUTSTANDING FOR ABOUT A DECADE & NO CONFIRMATION WAS FILED FOR THE SAME DESPITE REPEATE D REQUESTS. B) THE SAID LOAN AMOUNT WAS NOT ADVANCED IN NORMAL COURSE OF BUSINESS & WAS GIVEN AGAINST A TRAWLER & THE SAME W AS A TRADING LIABILITY AT ONE POINT OF TIME. C) THE SAID BENEFIT WAS SQUARELY COVERED UNDER PROV ISIONS OF SECTION 28(IV) OF THE I.T. ACT, 1961.' 3. 'ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS EARED IN DELETING ADDITION OF RS.5 42,50,000/- MADE ON AC COUNT OF SHARE APPLICATION MONEY U/S 28(IV) OF THE LT. ACT, 1961 IGNORING A) THE DECISION OF APEX COURT IN THE CASE OF CIT VS T.V SUNDARAM IYENGAR & SONS 1996(222 ITR 344). B) THAT THE SAID AMOUNT WAS OUTSTANDING FOR ALLOTME NT FOR ABOUT A DECADE & IT CANNOT BE SAID THAT THE SAME WAS MAINTA INING ITS CAPITAL NATURE. C) THE SAID BENEFIT WAS ARISEN TO THE ASSESSEE IN T HE COURSE OF BUSINESS & IS SQUARELY COVERED UNDER PROVISIONS OF SECTION 28(IV) OF THE I.T. ACT, 1961.' 4. 'ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS EARED IN DELETING ADDITION OF RS.67,75,839/- MADE ON ACCO UNT OF CESSATION OF LIABILITIES U/S 41 OF THE I.T. ACT, 1961 IGNORING THAT THE TRAD ING LIABILITIES AS TO SUNDRY CREDITORS & EXPENSES PAYABLE HAVE BEEN CONVERTED IN TO SHARE CAPITAL & SHARE PREMIUM WITHOUT PAYING FOR THE SAME & THE SAME ARE THE CEASED LIABILITIES U/S 41(1) OF THE I.T. ACT, 1961. 5. 'ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS EARED IN ALLOWING ABOVE RELIEFS NOTWITHSTANDING THAT THE ASSESSEE COY HAVING ACCUMULATED LOSSES EXCEEDING RS.20 CRORES ALLOTTED SHARES HAVING FACE VALUE OF RS.10/- ONLY AT A HEFTY PREMIUM OF RS.146.51/- & TH E SAID CONVERSION OF LOAN, SHARE APPLICATION MONEY & COURT IN THE CASE OF MCDO WELL & CO. HAS BEEN IGNORED. 6. 'THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AM END ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING.' ITA NO.2414/DEL/2011 12 5. GROUND NOS.1 & 6 ARE GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION, HENCE SAME ARE DISMISSED. 6. IN GROUND NO.2, THE ISSUE RAISED IS DELETING THE ADDITION OF RS.4,39,03,750/-. AS PRE REVENUE, IT WAS WAIVER OF LOAN, HENCE COVERED BY TH E PROVISIONS OF SECTION 28(IV) OF THE INCOME- TAX ACT, 1961. CIT (A) DELETED THE ADDITION. 7. LD. DR SUBMITTED THAT THE LOAN AMOUNT WAS OUTSTA NDING FOR ABOUT A DECADE AND NO CONFIRMATION WAS FILED DESPITE REPEATED REQUESTS. THE LOAN AMOUNT WAS NOT ADVANCED IN NORMAL COURSE OF BUSINESS AND WAS GIVEN AGAINST THE TRAWLE RS AND SAME WAS TRADING LIABILITY AT ONE POINT OF TIME. SHE ALSO SUBMITTED THAT SUCH BENEFITS ARE SQUARELY COVERED UNDER THE PROVISIONS OF SECTION 28(IV) OF THE ACT. 8. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT THE ASSESSEE COMPANY FORMED JOINT VENTURE VIDE AGREEMENT DATED 27.08.1993. THIS JOINT VENTUR E COMPANY PURCHASED A TRAWLER FROM M/S. OAKEAN LIMITED FOR A SUM OF RS.4,26,25,000/-. THIS WAS FINANCED BY M/S. OAKEAN LIMITED UNDER A LOAN AGREEMENT. THIS LOAN WAS CARRIED INTE REST @ 6%. THE ACCRUED INTEREST UP TO 31.03.1995 WAS OF RS.12,78,750/-. THUS, THE OUTSTA NDING AMOUNT PAYABLE TO M/S. OAKEAN LIMITED WAS OF RS.4,39,03,750/- AS ON 31.03.1995. THIS REMAINED UNCHANGED UP TO 31.03.2004. IT WAS AGREED BETWEEN THE PARTIES THAT IN THE EVENT OF NON-PAYMENT OF LOAN, THE JOINT VENTURE PARTNER SHALL HAVE RIGHT TO GET THE SHARES FOR THE OUTSTANDING AMOUNT IN ITS FAVOUR. SINCE THE BUSINESS INCURRED HEAVY LOSSES, HENCE THE COMPANY W AS UNABLE TO PAY THE LOAN. THE TRAWLER WHICH WAS ACQUIRED BY THE ASSESSEE WAS REGISTERED I N ASSESSEES NAME AND USED FOR BUSINESS IN THE DEEP SEA FISHING. THE SHARES OF THE FACE VALUE OF RS.10 WITH A PREMIUM OF RS.146.51 PER SHARE WERE ISSUED IN THE NAME OF M/S. OAKEAN LIMITE D FOR THE LOAN AMOUNT OUTSTANDING. THUS, ITA NO.2414/DEL/2011 13 BY ISSUING THE SHARES, THE LOAN ACCOUNT WAS SQUARED UP. THE AO WRONGLY TREATED THE TRANSACTION COVERED BY THE PROVISIONS OF SECTION 28(1)(IV) OF T HE ACT. THE AO WAS OF THE VIEW THAT THIS WAS THE WAIVER OF LOAN. HOWEVER, THE FACTUAL POSITION WAS COMPLETELY DIFFERENT. ON THE ONE HAND, THE AO HAS OBSERVED THAT THE LOAN WAS NOT GIVEN IN NORMAL COURSE OF BUSINESS AND AT THE SAME TIME, HE OBSERVED THAT IT WAS A TRADING LIABILITY O F THE ASSESSEE. WHILE THE FACTS OF THE CASE SHOW THAT THIS WAS A SIMPLE CASE WHERE THE CAPITAL ASSET WAS PURCHASED BY LOAN AMOUNT AND THE SAME WAS CAPITALIZED IN THE BOOKS OF ACCOUNT OF THE ASSE SSEE. THE OUTSTANDING LOAN AMOUNT WAS CONVERTED INTO THE SHARE CAPITAL IN THE NAME OF THE LENDER WHO IS ALSO A PARTNER OF THE JOINT VENTURE COMPANY. THIS AMOUNT WAS NEVER CARRIED TO PROFIT & LOSS ACCOUNT. M/S. OAKEAN LIMITED WAS ENTITLED TO ALL PRIVILEGES AND BENEFITS WHICH A NORMAL SHAREHOLDER IS ENTITLED. THERE WAS NO BENEFIT ACQUIRED OF REVENUE NATURE BY THE AS SESSEE COMPANY WHILE CONVERTING LOAN AMOUNT TO THE SHARES FOR THE OUTSTANDING LOAN AMOUN T. IN SUCH A SITUATION, THE LOAN AMOUNT FOR WHICH THE SHARES WERE ISSUED WAS ON CAPITAL ACCOUNT . IT CANNOT BE TREATED AS BENEFIT OR PERQUISITE ARISEN TO THE ASSESSEE COMPANY. THE AO HAS UNNECES SARILY TRIED TO EMBRACE SUCH TRANSACTION UNDER THE PROVISIONS OF SECTION 28(1)(IV) OF THE AC T. THE AO HAS TRIED TO STRETCH THE EXPRESSION ARISING FROM TO SUCH EXTENT THAT EVERY TYPE OF BE NEFIT OR PERQUISITE COVERED BY THE SECTION 28(1)(IV). NO BENEFIT AROSE TO THE ASSESSEE COMPAN Y. ASSESSING OFFICER TRIED TO COVER SUCH TRANSACTION UNDER THE PROVISIONS OF SECTION 28(1)(I V). THE AO HAS ALSO TRIED TO APPLY THE RATIO OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. T.V. SUNDRAM IYENGAR & SONS REPORTED IN 222 ITR 354. HOWEVER, THE RATIO OF THA T JUDGMENT IS COMPLETELY NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. IN THAT CASE, THE NATURE OF THE AMOUNT WAS SECURITY DEPOSIT HELD BY THE ASSESSEE FOR PERFORMANCE OF CONTRACT BY ITS CONSTIT UENTS. THE ASSESSEE WROTE BACK THE AMOUNTS TO ITS PROFIT & LOSS ACCOUNT BECAUSE THE VARIOUS TRADI NG PARTIES DID NOT CLAIM THESE AMOUNTS FOR A ITA NO.2414/DEL/2011 14 LONG. THE AMOUNT REPRESENTED CREDIT BALANCE IN THE NAME OF TRADING PARTIES AND WAS TAKEN TO PROFIT & LOSS ACCOUNT. IN THAT FACTUAL MATRIX, THE HONBLE SUPREME COURT HELD THAT DEPOSITS WERE TAKEN IN THE COURSE OF THE TRADE AND ADJUSTMENTS WE RE MADE AGAINST THESE DEPOSITS IN THE COURSE OF TRADE. THE UNCLAIMED SURPLUS RETAINED BY THE AS SESSEE WILL BE ITS TRADE RECEIPTS. THE ASSESSEE ITSELF TREATED THE AMOUNT AS ITS TRADE RECEIPT BY B RINGING IT TO ITS PROFIT & LOSS ACCOUNT. THE HONBLE SUPREME COURT HELD THAT MONEY WAS RECEIVED BY ASSESSEE IN THE COURSE OF CARRYING ON HIS BUSINESS. ALTHOUGH THESE DEPOSITS WERE OF CAPI TAL NATURE AT THE POINT OF TIME WHEN THESE WERE RECEIVED, BUT BY EFFLUX OF TIME THE MONEY HAS BECOM E THE ASSESSEES OWN MONEY. WHAT REMAINS AFTER ADJUSTMENT OF THESE DEPOSITS HAVE NOT CLAIMED BY THE CUSTOMERS. THE CLAIMS OF CUSTOMERS HAVE BECOME BARRED BY LIMITATION. THE ASSESSEE ITS ELF HAS TREATED THE MONEY AS ITS OWN MONEY AND TAKEN THE AMOUNT TO ITS PROFIT & LOSS ACCOUNT. THERE IS NO EXPLANATION FROM THE ASSESSEE WHY THESE SURPLUS DEPOSITS WERE TAKEN TO ITS PROFIT & L OSS ACCOUNT, EVEN IF IT IS SOMEBODY ELSES MONEY. IN SUCH A SITUATION, HONBLE SUPREME COURT HELD SUCH AMOUNT TO BE TAXABLE. WHILE IN ASSESSEES CASE THE LOAN WAS TAKEN FROM M/S. OAKEAN LIMITED. M/S. OAKEAN LIMITED WAS JOINT VENTURE PARTNER. THE AO HIMSELF HAS RECORDED THAT THE AMOUNT WAS NOT GIVEN IN NORMAL COURSE OF BUSINESS. THIS AMOUNT WAS FOR THE PURCHASE OF CAPI TAL ASSET (TRAWLER). THIS ASSET WAS CAPITALIZED IN ASSESSEES BOOKS. THE UNPAID PURCHASE PRICE OF THE CAPITAL ASSET IN THE FORM OF LOAN HAS BEEN CONVERTED INTO LIABILITY IN THE FORM OF SHARE CAPIT AL. THE LIABILITY WAS NOT CEASED. THE ASSESSEE HAS NOT CARRIED THE AMOUNT TO THE PROFIT & LOSS ACC OUNT BUT ALLOCATED SHARES. THIS WAS A CONVERSION OF ONE LIABILITY TO ANOTHER LIABILITY. LD. AR SUBMITTED THAT IN SUCH A SITUATION, THE RATIO LAID DOWN BY HONBLE SUPREME COURT IN THE CAS E OF CIT VS. T.V. SUNDRAM IYENGAR & SONS REPORTED IN 222 ITR 354 IS NOT APPLICABLE. THE LD. AR ALSO SUBMITTED THAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF ISKRAEMECO REGENT LTD. VS . CIT REPORTED IN 331 ITR 317 (MADRAS) HAS ITA NO.2414/DEL/2011 15 HELD THAT THE COURT SHOULD NOT PLACE RELIANCE ON A DECISION WITHOUT DISCUSSING THE FACTUAL POSITION INVOLVED IN THAT CASE AND HOW IT WOULD APPLY TO TH E FACTS INVOLVED IN THE SUBSEQUENT CASE. A RATIO LAID DOWN BY A HIGHER FORUM SHOULD NOT BE TAK EN OUT OF CONTEXT AND CONSTRUED LIKE A STATUE. THE LD. AR ALSO SUBMITTED THAT EVERY RECEIPT IN CON NECTION WITH THE BUSINESS CANNOT BE SAID TO BE A TRADING RECEIPT. SECTION 28(IV) OF THE ACT SPEAK S ABOUT THE BENEFITS AND PERQUISITES RECEIVED IN KIND AND HAVE NO APPLICATION TO ANY TRANSACTION WHI CH INVOLVES MONEY. THE TRANSACTION IN QUESTION IN THE ASSESSEES CASE IS A LOAN TRANSACTI ON HAVING NO APPLICATION WITH RESPECT TO SECTION 28(IV) OF THE ACT. THE AMOUNT WAS A LOAN AMOUNT. THE ASSESSEE WAS NOT TRADING IN TRAWLER FOR WHICH THE LOAN WAS TAKEN. THE LOAN WAS TAKEN FOR T HE PURPOSE OF INVESTING IN CAPITAL ASSET. IN THE ASSESSEES CASE, IT WAS CONVERTED INTO SHARE CA PITAL. HONBLE MADRAS HIGH COURT IN THE CASE OF ISKRAEMECO REGENT LTD. VS. CIT, CITED SUPRA, HAS HELD THAT WHEN THE LOAN IS TAKEN FOR THE PURPOSE OF INVESTING IN THE CAPITAL ASSET AND THE P ART OF THE LOAN WAS WAIVED UNDER THE AGREEMENT THEN ALSO SUCH AMOUNT WOULD NOT CONSTITUTE A TRADIN G RECEIPT. LD. AR ALSO RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF LOGITRON ICS P. LTD. VS. CIT & CIT VS. JUBILANT SECURITIES P. LTD. REPORTED IN 333 ITR 386 (DELHI) WHEREIN THE LOAN TAKEN FOR ACQUIRING CAPITAL ASSET, WAIVER THEREOF WOULD NOT AMOUNT TO ANY INCOM E EXIGIBLE TO TAX. LD. AR ALSO RELIED ON THE DECISION OF CIT VS. JINDAL EQUIPMENTS LEASING AND C ONSULTANCY SERVICES LTD. REPORTED IN 325 ITR 87 WHEREIN THE HONBLE DELHI HIGH COURT HAS HEL D THAT ONE OF THE PRE-REQUISITES FOR ATTRACTING THE PROVISIONS OF SECTION 28(IV) IS THAT THE SUM IN QUESTION SHOULD BE A BENEFIT OR PERQUISITE ARISING IN THE COURSE OF BUSINESS IS OF NATURE, OTHER THAN CASH OR MONEY. THE TRIBUNAL HAS HELD THAT THE SUM WRITTEN OFF BY J DID NOT CONS TITUTE INCOME IN THE HANDS OF THE ASSESSEE. ON THE FACTS OF THIS CASE AND PARTICULARLY HAVING REGA RD TO THE NATURE OF BUSINESS ONLY, IT WOULD CONSTITUTE A CAPITAL RECEIPT. THE SUM COULD NOT BE TAXED. LD. AR ALSO SUBMITTED THAT THE LD. DRS ITA NO.2414/DEL/2011 16 RELIANCE ON THE AMENDMENT IN SECTION 2(24) IS ALSO OF NO HELP AS THE PROVISION OF SECTION 2(24)(IV) HAS BEEN INSERTED BY THE FINANCE ACT, 201 2 W.E.F. 1.4.2013 ONLY. THE LD. AR ALSO SUBMITTED THAT EVEN THIS AMOUNT CANNOT BE ADDED U/S 41(1) AS THIS AMOUNT HAS NEVER BEEN CLAIMED FOR ALLOWANCE OR DEDUCTION. THEREFORE, THE BENEFIT IS NOT OBTAINED IN RESPECT OF ANY SUCH TRADING LIABILITY BY WAY OF ESTIMATION OR CESSATION THEREOF DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS NOT OBTAINED ANY BENEFIT IN THE PAST Y EARS ALSO. THE LD. AR ALSO SUBMITTED THAT THE LOAN AMOUNT WAS NOT RECEIVED DURING THE TRADING OPE RATION. IT WAS ON CAPITAL ACCOUNT. LD. AR PLEADED THAT IN SUCH A SITUATION, THE RATIO OF HON BLE SUPREME COURT HAS RELIED UPON BY THE AO IS NOT APPLICABLE AND THE CIT (A) HAS RIGHTLY DELETED THE ADDITION. 9. AFTER HEARING BOTH THE SIDES ON THE ISSUE, WE HO LD THAT THE LOAN WAS TAKEN FOR ACQUIRING THE CAPITAL ASSET IN THE FORM OF TRAWLERS. THIS LO AN WAS TAKEN FROM OOKEAN LTD. WHO IS ALSO A JOINT VENTURE PARTNER IN THE COMPANY. THIS LOAN WA S CARRYING ON INTEREST @ 6%. THE INTEREST ACCRUED UP TO 31.03.1995 WAS TAKEN INTO ACCOUNT. T HEREAFTER, THIS AMOUNT REMAINED UNCHANGED. SINCE ASSESSEE INCURRED HEAVY LOSSES THE LOAN COULD NOT BE REPAID. THE CAPITAL ASSET IN THE FORM OF TRAWLER WAS REGISTERED IN ASSESSEES NAME AND RE FLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE SAME WAS USED FOR BUSINESS PURPOSES. THIS AMOUNT WAS CONVERTED INTO THE SHARES AND SHARE PREMIUM. THIS AMOUNT WAS NOT TAKEN TO THE PR OFIT & LOSS ACCOUNT. THEREFORE, IN OUR CONSIDERED VIEW, THIS AMOUNT HAS NOT CHANGED ITS CH ARACTER FROM CAPITAL TO REVENUE. THE LIABILITY WAS NOT CEASED. THE ASSESSEE HAS NOT DERIVED ANY B ENEFIT OUT OF THIS CONVERSION OF ONE LIABILITY TO ANOTHER LIABILITY. IN OUR CONSIDERED VIEW, THE RATIO LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IENGAR AND SONS, CITED SUPRA, IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. THE DECISION OF THE HIGHER FORUM CANNOT BE MADE APPLICABLE WITHOUT DISCUSSING THE FACTUAL POSITION INVOLVED. FURTHE R, THE ASSESSING OFFICER HAS INVOKED SECTION ITA NO.2414/DEL/2011 17 28(IV) WHICH COVERS THE BENEFITS IN PERQUISITES REC EIVED IN KIND AND IT HAS NO APPLICABILITY TO ANY TRANSACTION WHICH INVOLVES MONEY. THE LOAN WAS TAK EN TO INVEST IN THE CAPITAL ASSET. THERE WAS NO WAIVER OF THE LOAN, THEREFORE, IN OUR CONSIDERED VIEW, CONVERSION OF THE LOAN INTO SHARE CAPITAL SHALL NOT CONSTITUTE A TRADING RECEIPT. AS HELD BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. JINDAL EQUIPMENTS LEASING AND CONSULTANCY SERVICES LTD., CITED SUPRA, TO ATTRACT THE PROVISIONS OF SECTION 28(IV), THE SUM IN QUESTION MUST BE A BE NEFIT OR PERQUISITE ARISING IN THE COURSE OF BUSINESS IS OF NATURE, OTHER THAN CASH OR MONEY. K EEPING THESE FACTS IN VIEW, WE FIND NO FAULT IN THE ORDER OF CIT (A) AND ACCORDINGLY, THIS GROUND I S DISMISSED. 10. IN THE THIRD GROUND OF APPEAL, THE ISSUE INVOLV ED IS DELETING THE ADDITION OF RS.5,42,50,000/- MADE ON ACCOUNT OF SHARE APPLICATI ON MONEY U/S 28 (IV) OF INCOME-TAX ACT, 1961. 11. THE LD. DR SUBMITTED THAT THE CIT (A) HAS WRONG LY DELETED THE ADDITION BY IGNORING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. T.V. SUNDARAM IENGAR AND SONS, CITED SUPRA. THE LD. DR ALSO SUBMITTED THAT THIS AMOUNT WAS OUTSTANDING FOR ALLOTMENT FOR ABOUT A DECADE AND IT CANNOT BE SAID THAT SAME WAS MAINTAIN ING ITS NATURE AS CAPITAL. SHE ALSO PLEADED THAT THESE BENEFITS AS ARISEN TO THE ASSESSEE IN TH E COURSE OF BUSINESS ARE SQUARELY COVERED UNDER THE PROVISIONS OF SECTION 28(IV) OF INCOME-TAX ACT, 1961. 12. ON THE OTHER HAND, LD. AR SUBMITTED THAT ON 31. 03.2004, THE ASSESSEE COMPANY WAS HAVING PAID UP CAPITAL OF RS.6,33,00,700/-. THE AM OUNT OF RS.5,42,50,000- WAS PENDING FOR ALLOTMENT OF SHARES FROM M/S. OOKEAN LTD. SINCE FIN ANCIAL YEAR ENDING 31.3.1995. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS ALLOT TED SHARES TO M/S. OOKEAN LTD. OF THE FACE VALUE OF RS.10 PER SHARE AT A PREMIUM OF RS.146.51. THIS AMOUNT WAS NEVER CARRIED TO THE PROFIT ITA NO.2414/DEL/2011 18 & LOSS ACCOUNT. THE TOTAL AUTHORIZED CAPITAL OF TH E ASSESSEE WAS ONLY RS.7 CRORES AND DURING THE YEAR, 6,69,930 EQUITY SHARES OF THE FACE VALUE OF R S.10 WERE ALLOTTED AGAINST THE OUTSTANDING SHARE APPLICATION MONEY. SINCE THE SHARES WERE ALL OTTED TO M/S. OOKEAN LTD. FOR THIS AMOUNT, THIS WILL NOT FALL UNDER SECTION 28 (IV) OF THE ACT OR IT ALSO DOES NOT FALL U/S 41(1) OF THE ACT. 13. AFTER HEARING BOTH THE SIDES, WE HOLD THAT THE AMOUNT OF RS.5,43,50,000/- WAS PENDING FOR ALLOCATION OF SHARES TO OOKEAN LIMITED SINCE 1995. DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HAS ALLOTTED SHARES. THE OUTSTANDING SHARE APPLICATION MONEY HAS NOT BEEN CARRIED OUT TO THE PROFIT & LOSS ACCOUNT. IN OUR CONSIDERED VI EW, IN SUCH A SITUATION, THE PROVISIONS OF SECTION 298(IV) OF THE INCOME-TAX ACT, 1961 CANNOT BE MADE APPLICABLE. THEREFORE, WE FIND NO FAULT IN THE ORDER OF CIT (A) AND THIS GROUND IS DISMISSED. 14. IN GROUND NO.4, THE ISSUE INVOLVED IS DELETING THE ADDITION OF RS.67,75,839/- MADE ON ACCOUNT OF CESSATION OF LIABILITIES U/S 41 OF THE A CT. 15. LD. DR SUBMITTED THAT THE CIT (A) HAS DELETED T HE ADDITION BY IGNORING THE FACT THAT THE TRADING LIABILITY AS TO THE SUNDRY CREDITORS AND EX PENSES PAYABLE HAVE BEEN CONVERTED INTO SHARE CAPITAL AND SHARE PREMIUM WITHOUT PAYING FOR THE SA ME AND THE SAME ARE CEASED LIABILITY U/S 41 (1) AND SHE PLEADED TO SET ASIDE THE ORDER OF THE C IT (A). 16. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT R S.67,75,839/- WAS OUTSTANDING ON ACCOUNT OF LIABILITY WHICH HAS BEEN CONVERTED INTO THE SHAR E CAPITAL AND PREMIUM. THE ASSESSEE HAS FILED CONFIRMATION FROM THESE FOUR COMPANIES TO WHOM THE SHARES WERE ALLOTTED FOR CONFIRMING THAT THEY HAVE BEEN ALLOTTED SHARES. THERE WAS NO CESSA TION OF LIABILITY BY ALLOTTING OF SHARES TO THE CREDITORS. HENCE THERE IS NO TAXABLE INCOME FOR TH IS TRANSACTION AND LD. AR RELIED ON THE ORDER OF THE CIT (A). ITA NO.2414/DEL/2011 19 17. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH E AMOUNT OF OUTSTANDING LIABILITY OF RS.67,75,839/- HAS BEEN CONVERTED INTO THE SHARE CA PITAL PLUS PREMIUM. THE CREDITORS HAVE CONFIRMED THE ALLOCATION OF THE SHARES IN THEIR FAV OUR. CONVERSION OF THE OUTSTANDING LIABILITY INTO SHARES CANNOT BE TERMED AS CESSATION OF LIABIL ITY. KEEPING THESE FACTS IN VIEW, WE FIND NO FAULT IN THE ORDER OF THE CIT (A). GROUND NO.4 IS DISMISSED. 18. IN THE GROUND NO.5, THE ISSUE RAISED BY THE REV ENUE IS THAT CIT (A) HAS ERRED IN ALLOWING THE RELIEF ON THESE THREE COUNTS AS RAISED IN GROUN D NOS.2 TO 4 AND ASSESSEE COMPANY HAVING ACCUMULATED LOSSES EXCEEDING RS.20 CRORES ALLOTTED SHARES OF FACE VALUE OF RS.10 AT A HEFTY PREMIUM OF RS.146.51 AND THE SAID CONVERSION OF LOA N AND SHARE APPLICATION MONEY ATTRACT THE RATIO LAID DOWN BY HONBLE SUPREME COURT IN THE CAS E OF MCDOWELL & COMPANY REPORTED IN 154 ITR 148. 19. ON THE OTHER HAND, LD. AR SUBMITTED THAT RELIAN CE PLACED BY THE REVENUE ON THE CASE OF MCDOWELL & CO., CITED SUPRA, HAS BEEN CONSIDERED BY HONBLE APEX COURT IN THE CASE OF AZADI BACHAO ANDOLAN VS. UOI REPORTED IN 263 ITR 706 WHER EIN THE HONBLE COURT HAS HELD THAT IF THE COURT FINDS THAT NOTWITHSTANDING A SERIES OF LEGAL STEPS TAKEN BY AN ASSESSEE, THE INTENDED LEGAL RESULT HAS NOT BEEN ACHIEVED, THE COURT MIGHT BE JU STIFIED IN OVERLOOKING THE INTERMEDIATE STEPS, BUT IT WOULD NOT BE PERMISSIBLE FOR THE COURT TO TR EAT THE INTERMEDIATE LEGAL STEPS AS NON EST BASED UPON SOME HYPOTHETICAL ASSESSMENT OF THE REAL MOTIV E OF THE ASSESSEE. HONBLE SUPREME COURT ALSO HELD THAT THE COURTS MUST DEALT WITH WHAT IS T ANGIBLE IN AN OBJECTIVE MANNER AND CANNOT AFFORD TO CHASE A WILL OF THE WISP. HE FINALLY REL IED ON THE ORDER OF CIT (A). 20. WE HAVE HEARD BOTH THE SIDES. THE ISSUE REGARD ING THE APPLICABILITY OF THE RATIO OF DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MC DOWELL & COMPANY, CITED SUPRA, HAS NOT ITA NO.2414/DEL/2011 20 BEEN CONSIDERED BY THE ASSESSING OFFICER ALTHOUGH P ENALTY PROCEEDINGS U/S 271(1)(C) WERE INITIATED. FURTHER, THE DECISION OF HON'BLE SUPREM E COURT IN THE CASE OF MCDOWELL & COMPANY HAS BEEN CONSIDERED BY HON'BLE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN VS. UOI, CITED SUPRA, WHERE THE HON'BLE SUPREME COURT HAS HE LD AS UNDER :- 'IF THE COURT FINDS THAT NOTWITHSTANDING A SERIES O F LEGAL STEPS TAKEN BY AN ASSESSEE, THE INTENDED LEGAL RESULT HAS NOT BEEN ACHIEVED, TH E COURT MIGHT BE JUSTIFIED IN OVERLOOKING THE INTERMEDIATE STEPS, BUT IT WOULD NO T BE PERMISSIBLE FOR THE COURT TO TREAT THE INTERVENING LEGAL STEPS AS NON EST BASED UPON SOME HYPOTHETICAL ASSESSMENT OF THE 'REAL MOTIVE' OF THE ASSESSEE. IN OUR VIEW, THE COURT MUST DEAL WITH WHAT IS TANGIBLE IN AN OBJECTIVE MANNER AND CA NNOT AFFORD TO CHASE A WILL-O'- THE-WISP. CONSIDERING THESE FACTS IN VIEW, WE DISMISS THE REV ENUES GROUND. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF OCTOBER, 2012. SD/- SD/- (C.M. GARG) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 31 ST DAY OF OCTOBER, 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT NEW DELHI