Sh. Jai Pal Gaba, Ludhiana V. ITO, W-III(2), Ludhiana

ITA 244/CHANDI/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4501 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 26-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRAKANTA SR DR
• Assessee Lawyers: MONICA KAUSHAL
• Keywords: Capital asset; Gift; Business income; Capital receipt; Set aside
• Section: 143(3); 56(2); 56; 28

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, A, CHANDIGARH , !' # $ % &' , '( BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO. 244/CHD/2018 / ASSESSMENT YEAR : 2007-08 SH. JAI PAL GABA, PROP. M/S MACK HOSIERY, LUDHIANA THE ITO, WARD-III (2), LUDHIANA ./PAN NO: ABMPG6663L / APPELLANT /RESPONDENT ! ' /ASSESSEE BY : SHRI RAJEEV KAUSHAL, CA SHRI B.R. KAUSHAL, ADVOCATE, SHRI VINAY KOHLI & MS. MONICA KAUSHAL, CA # ! ' / REVENUE BY : SMT.CHANDRAKANTA,SR.DR $ % ! & /DATE OF HEARING : 18.02.2019 '()* ! & / DATE OF PRONOUNCEMENT : 16.05.2019 ') / ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER DATED 28.12.2017 OF THE COMMISSIONER OF INCOM E TAX (APPEALS)-1, LUDHIANA [HEREINAFTER REFERRED TO AS CIT(A)]. 2. THE ASSESSEE IN THIS APPEAL HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. ADDITION, IN RESPECT OF SETTLEMENT OF LOAN, AMOUNTING TO 1,85,44,140.00, UNDER SECTION 28 (IV) OF THE INCOME-TAX ACT, 1961. 1.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER, AFTER RE-COMPUTATION THEREOF, FOR A SUM OF ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 2 1,85,44,140.00 IN RESPECT OF WAIVER OF LOAN ON SETTLEMENT WITH THE BANK BY INVOKING THE PROVISIONS OF SECTION 28 (IV) OF THE ACT AND SOME OF THE JUDICIAL PRONOUNCEMENTS. 1.2 THE LD. CIT(A) AND ASSESSING OFFICER FAILED TO APPRECIATE THE DETAILS SUBMISSIONS MADE BY THE APPELLANT AND THE RULE OF LAW LAID DOWN IN VARIOUS DECISIONS RELIED UPON BY THE APPELLANT IN THIS BEHALF. 2. THAT THE APPELLANT CRAVES THE RIGHT TO ADD, AMEND OR DELETE ANY GROUNDS OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 3. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE PRESENTLY IS A PROPRIETOR OF M/S MACK HOSIERY, WHICH CONCERN WAS EARLIER A PARTNERSHIP FIRM CONSTITUTED IN THE YEAR 1988 AND DISSOLVED ON 30.09.2002, WHICH WAS TAKEN OVER BY THE ASSESSEE AS HIS PROPRIETORSHIP CO NCERN ALONG WITH ASSETS AND LIABILITIES WHATSOEVER. THE LOAN TO THE FIRM TA KEN FROM M/S PUNJAB NATIONAL BANK (PNB) WAS ALSO OWED UP / TAKEN OVER B Y THE ASSESSEE IN HIS PROPRIETORSHIP CONCERN. 4. THE ASSESSEE OWED 3,78,93,001/-, SPLIT INTO TERM LOAN OF 84,83,001/- AND CASH CREDIT LIMIT OF 2,94,10,000/- AS ON 31.12.2006 WHICH HAD BECOME NON-PERFORMING ASSETS (NPA). ACCUMULATED INTEREST FOR THE PERIOD OF NPA I.E. FROM 1.4.2003 TO 31.12.2006 OF 1,93,64,729/- WAS NEITHER BOOKED BY THE BANK AS ITS INCOME NOR CLAIME D BY THE ASSESSEE AS ITS EXPENDITURE. APART FROM THAT, THERE WERE CERTAIN OT HER LIABILITIES SUCH AS LEGAL EXPENDITURE AND VALUATION CHARGES FOR THE NPA PERIOD AMOUNTING TO 1,47,857/- WHICH WERE ALSO NOT CLAIMED AS EXPENDITU RE BY THE ASSESSEE. THE TOTAL LIABILITY TO THE BANK OF THE ASSESSEE WAS 5,74,05,687/-. THE BANK IN ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 3 ONE TIME SETTLEMENT PROGRAMME SETTLED THE WHOLE DEB T AT OF 1,40,00,000/-, THUS, WAIVING PRINCIPAL AMOUNT OF LO AN OF 2,38,93,001/- AND INTEREST ALONG WITH LEGAL AND VALUATION EXPENSE S AMOUNTING TO 1,95,12,686/-, TOTAL WAIVER OF 4,34,05,687/-. 5. IN THE FIRST ROUND, THE ASSESSING OFFICER BY INV OKING THE PROVISIONS OF SECTION 28 (IV), 41(1), 56(2) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') ADDED THE WHOLE AMOUNT OF WAIVER OF 4,34,05,687/- TO THE TAXABLE INCOME OF THE ASSESSEE VIDE ORDER DATED 29.12.2009 U/S 143(3) OF THE ACT. 6. BEING AGGRIEVED BY THE ABOVE ORDER OF THE ASSESS ING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), LUDHIAN A. THE LD. CIT(A) VIDE HIS ORDER DATED 10.12.2010 CONFIRMED THE ADDIT ION W.R.T. WAIVER OF PRINCIPAL AMOUNT OF 2,83,93,001/- BY RELYING UPON THE JUDGEMENT OF TH E HON'BLE BOMBAY HIGH COURT IN SOLID CONTAINERS LIMITED VS. DCIT 308 ITR 417 (BOM.) AND T.V.SUNDRAM IYENGAR & SONS LIMITED 222 ITR 344 (SC) AND BASED HIS DECISION ON THE SEC (S), 28 (IV), 41 (1), 56(2) (VI) OF THE I.T. ACT. FURTHER, W.R.T. ADDITION ON ACCOU NT OF WAIVER OF INTEREST AND LEGAL / VALUATION CHARGES OF 1,95,12,686/-, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO VERIFY WHETHER SUCH INTERE ST AND OTHER EXPENSES WERE CLAIMED BY THE ASSESSEE IN EARLIER YEARS OR NO T, AND IF IT WOULD BE FOUND THAT NO INTEREST WAS CLAIMED AS EXPENSE IN RE SPECT OF AFORESAID AMOUNT OF INTEREST WAIVED BY THE BANK, PROVISIONS O F SECTION 41(1) OF THE ACT WOULD NOT BE APPLICABLE AND ADDITION WOULD STAN D DELETED. HOWEVER, IF IT IS FOUND THAT ASSESSEE HAS CLAIMED THE EXPENDITU RE, ADDITION WOULD BE SUSTAINED. THE RELEVANT PART OF THE ORDER OF THE C IT(A) DATED 10.12.2010 ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 4 IS REPRODUCED AS UNDER:- THAT THE PRINCIPAL AMOUNT OF LOAN OF 2,38,93,001/- IS TAXABLE U/S 28 AS WELL AS U/S 41(1) OF THE ACT. WITHOUT PREJUDICE TO THE ABOVE, AFORESAID AMOUNT IS ALSO TA XABLE U/S 56(2) (VI) ACCORDING TO WHICH WHERE ANY AMOUNT OF MONEY AGGREGATE VALUE OF WHICH EXCEEDS 50,000/- IS RECEIVED, WITHOUT CONSIDERATION, BY AN INDIVIDUAL O R HUF, IN ANY PREVIOUS YEAR FROM ANY PERSON OR PERSO NS ON OR AFTER THE FIRST DAY OF APRIL, 2006, THE WHOLE OF AGGREGATE VALUE OF SUCH SUM SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD INCOME FROM OTHER SOURC ES. THE ASSESSEE HAS RECEIVED AMOUNT OF 2,39,93,001/- ON ACCOUNT OF WAIVER OF LOAN BY PNB AND THE SAME IS AL SO TAXABLE UNDER SECTION 56(2) (VI) OF THE ACT. IN VIE W OF THE DISCUSSION ABOVE, ADDITION OF , 2,38,93,001/- IS UPHELD. 8. BEING AGGRIEVED BY THE CONFIRMATION OF ADDITION OF 2,38,93,001/- BY THE CIT(A), THE ASSESSEE FILED APPEAL BEFORE TH IS TRIBUNAL. SIMULTANEOUSLY, DEPARTMENT ALSO FILED AN APPEAL BEF ORE THIS TRIBUNAL CONTENDING THAT THE CIT(A) LUDHIANA HAD CROSSED HI S JURISDICTION WHILE DIRECTING AO TO VERIFY WHETHER IN EARLIER YEARS THE ASSESSEE HAD CLAIMED THE EXPENDITURE ON INTEREST ON LOAN THAT WAS WAIVED BY BANK. THAT THE CIT(A) HAS NO JURISDICTION TO RESTORE OR SET ASIDE AN ISSUE TO ASSESSING OFFICER AS PER SUB SECTION 1 OF SECTION 251 OF THE ACT. 9. DISPOSING OF THE APPEALS I.E. APPEAL NO. ITA NO .154/CHD/2011 (ASSESSEES APPEAL) AND APPEAL NO. ITA NO.291/CHD/ 2011 (DEPARTMENTS APPEAL), THE TRIBUNAL DIRECTED AS UNDER:- THEREFORE, WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE WITH A DIRECTION TO RECORD A FINDING AND IF FACTS ARE NOT COMING OUT OF THE ASSE SSMENT ORDER, HE MAY CALL FOR REMAND REPORT, BUT THE FINDI NG HAS TO BE RECORDED BY HIM. THEREFORE, ISSUE MAY BE ADJUDICATED AFTER FINDING OUT WHETHER INTEREST WAS ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 5 CLAIMED AS EXPENDITURE OR NOT, AS FAR AS CAPITAL W AIVER ADDITION IS CONCERNED, THIS ISSUE SHOULD ALSO GO BA CK TO THE FILE OF THE CIT(A) BECAUSE IT HAS NOT BEEN CLEA RLY DETERMINED WHETHER LOAN WAS TAKEN AS TERM LOAN OR A S CASH CREDIT LOAN. THEREFORE, LD. CIT(A) SHOULD RE- EXAMINE THE ISSUE AND DECIDE THE SAME IN THE LIGHT OF THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN TH E CASE OF COMPAQ ELECTRIC LTD (SUPRA) AND HON'BLE BOMBAY HIGH COURT IN THE CASE OF SOLD CONTAINERS ((SUPRA). 10. IN COMPLIANCE OF THE ORDER OF THE TRIBUNAL DATE D 10.12.2010, THE LD. CIT(A) ADJUDICATED BOTH THE ISSUES. SO FAR AS THE ISSUE WHETHER THE AMOUNT OF INTEREST AND CERTAIN OTHER LEGAL EXPENSES AND VA LUATION CHARGES WERE CLAIMED AS EXPENDITURE OR NOT IN EARLIER YEARS, TH E LD. CIT(A) VERIFIED AND FOUND THAT SUCH INTEREST AMOUNT OF 1,95,12,686/- WAS NEVER CLAIMED AS EXPENDITURE BY THE ASSESSEE. SO HE DELETED THE ADD ITION ON THIS ACCOUNT. REGARDING THE ISSUE RELATING TO THE PRINCIPAL LOAN, THE LD. CIT(A), IN THE ABSENCE OF ANY SPECIFIC ALLOCATION OF THE WAIVED AM OUNT BY THE BANK, CONSIDERING THE SUGGESTION OF THE ASSESSING OFFICER IN THE REMAND REPORT BIFURCATED ON PRO-RATA BASIS THE TOTAL WAIVER AMOUN T OF LOAN OF 1,40,00,000/- BETWEEN TERM LOAN AND CASH CREDIT LOAN. THE LD. CIT(A) ACCORDINGLY CALCULATED THE WAIVER OF TERM LOAN AT 53,48,860/- AND WAIVER OF CASH CREDIT LOAN AT 1,85,44,140/-. THE LD. CIT(A) FURTHER HELD THAT T HE WAIVER OF TERM LOAN CALCULATED ON PRO-RATA BASIS A MOUNTING TO 53,48,860/- SINCE TAKEN FOR ACQUIRING A CAPITAL ASS ET WOULD NOT RESULT IN INCOME EXIGIBLE TO TAX. HOWEVER, THE AMOUNT OF WAI VER OF CASH CREDIT LOAN AMOUNTING TO 1,85,44,140/- SINCE WAS IN RESPECT OF WORKING CAPI TAL LOAN UTILIZED FOR TRADING PURPOSES, HENCE, AS PER THE PR OVISIONS OF SECTION 28 (IV) OF THE ACT, THE SAME WAS IN THE NATURE OF REVENUE R ECEIPT. HE, THEREFORE, RELYING UPON THE DECISION OF THE HON'BLE BOMBAY HIG H COURT IN THE CASE OF ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 6 SOLID CONTAINERS LTD (SUPRA) TREATED THE SAME AS TA XABLE INCOME OF THE ASSESSEE. THE LD. CIT(A) HELD THAT THE AFORESAID WORKING CAPITAL LOAN OF 1,85,44,140/- RESULTED IN A BENEFIT TO THE ASSESSE E IN THE SHAPE OF REMISSION OF A LIABILITY, THEREFORE, DIRECTED THE A SSESSING OFFICER TO RESTRICT THE ADDITION TO 1,85,44,140/- AS AGAINST THE TOTAL ADDITION OF 2,38,93,001/- MADE BY THE ASSESSING OFFICER. 11. AGGRIEVED BY THE ABOVE ORDER OF THE CIT(A), THE ASSESSEE HAS COME IN APPEAL BEFORE US. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE GO NE THROUGH THE RECORD. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT NEITHER THE PROVISIONS OF SECTION 28 (IV) AND 41(1) NOR OF SECTION 56(2)(VI) OF THE INCOME TAX ACT WERE APPLICABLE TO THE FACTS OF THE PRESENT CASE. HE HAS THEREFORE, SUBMITTED THAT THE ASSESSING OFFICE R AS WELL AS THE LD. CIT(A) HAVE NOT CORRECTLY APPRECIATED THE PROPOSITI ON OF LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF T.V.SUNDRAM IYENGAR & SONS LIMITED (SUPRA) AND HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ARIES ADVERTISING (P) LTD . 255 ITR 510 (MAD.) AND BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD., (SUPRA). HE HAS FURTHER SUBMITTED THAT THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. COMPAQ ELECTRIC LTD. (66 DTR 38) CAN BE APPLIED TO THE FACTS OF THE PRESENT CASE. THE LD. DR, ON THE OTHER HAND, HAS RELIED UPON THE FINDINGS OF THE CIT(A). 13. TO PROPER ADJUDICATE THE ISSUE, WE WILL CONSIDE R THE APPLICABILITY OF ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 7 SECTIONS 28 (IV, 41(1) AND 56(2)(VI) OF THE ACT SEP ARATELY. THE RELEVANT PART OF THE PROVISIONS OF SECTION 28 (IV) IS REPRODUCED AS UNDER:- SECTION 28 (IV) AND ITS APPLICABILITY IN THE INSTAN T CASE : PROFITS AND GAINS OF BUSINESS OR PROFESSION . 28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INC OME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION, (IV) THE VALUE OF ANY BENEFIT OR PERQUISITE, WHET HER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION 14. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE LANGUAGE OF THE SECTION IS VERY MUCH CLEAR WHICH PRESCRIBES THA T SUCH VALUE OF ANY BENEFIT OR PERQUISITE MUST ARISE FROM BUSINESS OR P ROFESSION. THAT TAKING OF LOANS IS NOT REGULAR BUSINESS OF THE ASSESSEE. THAT EXCEPT IN MONEY LENDING BUSINESS, SUCH WAIVER OF LOAN CANNOT BE TREATED AS INCOME ARISING FROM BUSINESS. WHEREAS THE LD. DR HAS RELIED ON THE FINDINGS OF TH E LD. CIT(A) TO STATE THAT IT CONSTITUTES A BENEFIT TO THE ASSESSEE AND THAT THE ASSESSEE HAS BECOME RICHER BY THE SAID AMOUNT AND, HENCE, THE SA ID AMOUNT SQUARELY FALLS WITHIN THE PURVIEW OF SECTION 28 (IV) OF TH E ACT. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE V ERY LANGUAGE OF THE SECTION SPEAKS ABOUT THE VALUE OF ANY BENEFIT OR PE RQUISITE ARISING FROM BUSINESS OR EXERCISE OF A PROFESSION. NOW CONSIDER ING THE FACTS AND CIRCUMSTANCES OF THE CASE, THOUGH, THE LOAN WAS TAK EN FOR THE PURPOSE OF BUSINESS BUT THE SAME WAS NEVER TAKEN IN THE COURSE OF BUSINESS OR TO SAY THAT THE LOAN SOURCED WAS NOT LINKED TO THE TRADING RECEIPTS OR THE LIKE. SIMILARLY THE WAIVER OF THE LOAN AMOUNT WAS NOT IN THE COURSE OF BUSINESS ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 8 OR IN EXERCISE OF A PROFESSION. A PART OF THE AMOUN T WAS WAIVED BY THE BANK IN A ONE-TIME SETTLEMENT BECAUSE THERE WERE LI TTLE CHANCES OF RECOVERY OF THE ENTIRE AMOUNT. THIS ONE-TIME SETTLEMENT WAS NOT DONE AS PART OF THE BUSINESS ACTIVITY OF THE ASSESSEE, RATHER, THE TRAN SACTION OF THE LOAN AND WAIVER WAS A SEPARATE TRANSACTION. UNDER THE CIRCUM STANCES, THE WAIVER OF PART OF THE LOAN AMOUNT CANNOT BE SAID TO BE A BENE FIT OR PERQUISITE ARISING FROM BUSINESS OR PROFESSION TO THE ASSESSEE. SECTION 41 (1) AND ITS APPLICABILITY IN THE INSTA NT CASE: PROPERTIES CHARGEABLE TO TAX - 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO A S THE FIRST-MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETH ER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF S UCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT O BTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHAL L BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREV IOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WH ICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENC E IN THAT YEAR OR NOT; OR (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETHE R IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF W HICH LOSS OR EXPENDITURE WAS INCURRED BY THE FIRST-MENTIONED PER SON OR SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY REFERRE D TO IN CLAUSE (A) BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT O BTAINED BY THE SUCCESSOR IN BUSINESS OR THE VALUE OF BENEFIT ACCRU ING TO THE SUCCESSOR IN BUSINESS SHALL BE DEEMED TO BE PROFITS 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 SU CH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF' SHALL INCLUD E THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILATERAL ACT BY T HE FIRST-MENTIONED PERSON ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 9 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 COM PANY 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 PROFES SION IS SUCCEEDED BY ANOTHER FIRM, THE OTHER FIRM; (IV) WHERE THERE HAS BEEN A DEMERGER, THE RESULTING COMPANY. 16. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT NOT ONLY FROM READING OF ABOVE PROVISION BUT ALSO AS SETTLED BY L AW BY COURTS, SECTION 41(1) OF THE ACT COMES INTO OPERATION ON THE FOLLOW ING CONDITIONS:- 1) THE ASSESSEE HAD INCURRED A TRADING LIABILITY AND; 2) THIS TRADING LIABILITY HAS BEEN ALLOWED AS DEDUCTIO N IN AN EARLIER YEAR (S) AND; 3) LATER ON, SUCH LIABILITY HAS EITHER BEEN REMITTED OR HAS CEASED TO EXIST. 17. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT IN THE INSTANT CASE, NO SUCH TRADING LIABILITY HAD BEEN REMITTED O R CEASED TO EXIST, HENCE, THE PROVISIONS OF SECTION 41(1) DO NOT HAVE ANY APP LICATION. 18. THE LD. DR, ON THE OTHER HAND, HAS RELIED ON TH E FINDINGS OF THE CIT(A) AND HAS SUBMITTED THAT THE AFORESAID WAIVER OF THE WORKING CAPITAL LOAN IS A REMISSION OF LIABILITY AND, HENCE, THE SA ME WAS TAXABLE UNDER THE PROVISIONS OF SECTION 41(1)OF THE ACT. 19. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. AS PER SECTION 41(1) OF THE ACT, THE ASSESSEE MUST HAVE TAKEN AN ALLOWANCE OR DEDUCTION IN EARLIER ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 10 ASSESSMENT YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY WHICH HAS BEEN REMITTED OR CEASED TO EXIST IN THE RELEVA NT YEAR TO CONSTITUTE THE SAME AS TAXABLE INCOME OF THE ASSESSEE. THE LOAN IN QUESTION THOUGH WAS TAKEN BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS / TRADING ACTIVITY, HOWEVER, IN OUR VIEW, THE SAME WAS NOT OUT OF THE T RADING ACTIVITY OF THE ASSESSEE. THE LIABILITY OF LOAN WAS NOT CREATED OR INCURRED IN THE COURSE OF BUSINESS, RATHER, IT WAS AN INDEPENDENT LOAN TRAN SACTION OF THE ASSESSEE WITH THE BANK AND THE ASSESSEE WAS NOT INVOLVED IN ANY BUSINESS ACTIVITY WITH THE BANK. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, THE ASSESSEE WAS NOT IN A BUSINESS OF TAKING / LENDING OF THE LOAN AND, HENCE, THE AMOUNT OF LOAN RECEIVED BY THE ASSESSEE FOR THE BUSINESS OF HOSIERY WAS NOT PART OF THE TRADING ACTIVITY OF THE ASSESSEE. T HOUGH, GRANT OF LOAN ON INTEREST MAY BE THE PART OF BANKING BUSINESS OF THE LENDER BANK, BUT TO TAKE LOAN IS NOT THE BUSINESS ACTIVITY OF THE ASSES SEE. SO FAR AS THE ASSESSEE IS CONCERNED, THE LOAN IN QUESTION WAS NOT THE TRAD ING LIABILITY OF THE ASSESSEE AND, HENCE, THE BANK HAS NOT WAIVED ANY LO SS / EXPENDITURE OF TRADING LIABILITY OF THE ASSESSEE. WHAT HAS BEEN W AIVED IS A PART OF THE LOAN AMOUNT IN ONE-TIME SETTLEMENT AS THE LOAN ASSE T HAS BEEN DECLARED AS NPA AND THERE WERE LITTLE CHANCES OF THE RECOVERY O F THE LOAN. MOREOVER, THE ASSESSEE DID NOT TAKE ANY BENEFIT IN THE SHAPE OF ALLOWANCE OR DEDUCTION IN EARLIER YEARS OF SUCH PRINCIPAL LOAN A MOUNT WHICH HAS BEEN WAIVED. UNDER THE CIRCUMSTANCES, THE PROVISIONS OF SECTION 41(1)OF THE ACT ARE NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES O F THE CASE. SECTION 56 (2) (VI) OF ACT 1 AND ITS APPLICABILITY IN THE INSTANT CASE. INCOME FROM OTHER SOURCES : 56 (2) IN PARTICULAR, AND WITHOUT PREJUDICE TO THE GENERA LITY OF THE PROVISIONS OF SUB-SECTION (1), THE FOLLOWING INCOMES, ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 11 SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'I NCOME FROM OTHER SOURCES', NAMELY : . (VI) WHERE ANY SUM OF MONEY, THE AGGREGATE VALUE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, IS RECEIVED WITHOUT CONSIDERATION, BY AN INDIVIDUAL OR A HINDU UNDIVIDE D FAMILY, IN ANY PREVIOUS YEAR FROM ANY PERSON OR PERSONS ON OR AFTER THE 1ST DAY OF APRIL, 2006 BUT BEFORE T HE 1ST DAY OF OCTOBER, 2009, THE WHOLE OF THE AGGREGATE VA LUE OF SUCH SUM 20. THE LD. COUNSEL FOR THE ASSESSEE IN THIS RESPEC T HAS SUBMITTED THAT THE INVOKING OF PROVISIONS OF SECTION 56(2)(VI) IS WRONG SINCE THE SUBSTANCE OF THE PROVISIONS INSERTED BY TAXATION L AWS (AMENDMENT) ACT, 2006 W.E.F 01.04.2007, IS FOR THE GOVERNANCE OF GIF T TRANSACTIONS WITHOUT CONSIDERATION WITH A LIMIT OF 50,000/-. IN SPITE OF THE APPLICABILITY OF THE PROVISIONS OF SEC. 68, SECTION 56(2)(VI) WAS INTROD UCED WITH THE OBJECTIVE TO CURB THE MAL-PRACTICE BEING FOLLOWED BY THE ASSE SSEES TO BRING THEIR OWN UNDISCLOSED INCOME TO THE ECONOMIC SYSTEM THROUGH O THER PERSONS WITHOUT PAYING DUE TAXES THERE ON. THAT INITIALLY, IN 2004, SECTION 56(2) (V) WAS BROUGHT AS A MEASURE TO PLUG REVENUE LEAKAGES. THA T IN CASE IN HAND, WHERE THERE IS WAIVER OF LOAN FROM BANK, IT CANNOT BE SAID THAT PURPOSE FOR WHICH SUCH PROVISION WAS BROUGHT TO STATUTE BOOK IS BEING ATTAINED BY TAXING THIS SUM. EVEN THAT SECTION 56(2)(VI) IS APP LICABLE ONLY ON INDIVIDUALS AND HUFS AND NOT APPLICABLE ON OTHER PE RSONS AS DEFINED IN SEC. 2(31) OF INCOME TAX ACT 1961. THAT IN THE CASE IN HAND, THE ASSESSEE IS SOLE PROPRIETOR, WHEREAS, IN SOME OTHER CASES AS SESSEE MAY BE PARTNERSHIP FIRM, BODY CORPORATE OR SOME OTHER PERS ON. BY VIRTUE OF PROVISIONS OF THIS SECTION, THE ASSESSEE WHO IS A P ERSON OTHER THAN INDIVIDUAL AND HUF CANNOT BE BROUGHT TO TAX NET. TH AT THIS DISCRIMINATORY ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 12 TREATMENT TO TAX INDIVIDUALS AND HUFS FOR WAIVER OF LOAN IS NOT CORRECT INTERPRETATION OF THE PROVISIONS CONTAINED IN THE S TATUTE. 21. THE LD. DR, ON THE OTHER HAND, HAS SUBMITTED TH AT THE ASSESSEE IS AN INDIVIDUAL, HENCE THE ASSESSEE CLEARLY FALLS UNDER THE PROVISIONS OF SECTION 56(2) (VI) OF THE ACT. THAT THE ASSESSEE WAS UNDER LOAN LIABILITY TO THE BANK AND THAT THE WAIVER OF REMISSION OF THE LIABILITY O F THE PART OF THE LOAN AMOUNT CONSTITUTES RECEIPT IN THE HANDS OF THE ASSE SSEE, WHICH AS PER THE PROVISIONS OF SECTION 56(2)(VI) IS LIABLE TO THE TA XED AS INCOME FROM OTHER SOURCES. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE A RGUMENT OF THE LD. COUNSEL IS THAT THE ASSESSEE CANNOT BE DISCRIMINATE D AS AN INDIVIDUAL VIS-- VIS PARTNERSHIP FIRM OR A COMPANY, AS THE PROVISION S OF SECTION 56(2)(VI) ARE APPLICABLE ONLY ON INDIVIDUAL AND HUF AND THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LOAN WAS ORIGINALLY T AKEN BY FIRM AND HAD THE ASSESSEE NOT TAKEN OVER THE FIRM AND THE LOAN LIABI LITY AS SUCH, THE PROVISIONS OF SECTION 56(2)(VI) WOULD NOT HAVE BEE N APPLICABLE ON THE FIRM. WE ARE NOT CONVINCED WITH THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. THE PROVISIONS OF THE FISCAL STAT UE ARE TO BE STRICTLY INTERPRETED. IF A PARTICULAR PROVISION HAS BEEN MA DE APPLICABLE TO A PARTICULAR CLASS OF PEOPLE OR ASSESSEES THAT HAS TO BE APPLIED ACCORDINGLY. SO FAR AS THE ARGUMENT OF THE LD. COUNSEL FOR THE A SSESSEE THAT WAIVER OF LOAN DOES NOT CONSTITUTE A RECEIPT, WE AR E AGAIN NOT IN AGREEMENT WITH THE LD. COUNSEL FOR THE ASSESSEE REGARDING THI S CONTENTION ALSO. SIMPLY TO SAY THAT THE WAIVER OF THE LOAN AMOUNT DO ES NOT CONSTITUTE A RECEIPT, IN OUR VIEW, WILL NOT BE APPROPRIATE AS I T MAY LEAD TO ABSURD, ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 13 CONFUSING AND UNINTENDED INTERPRETATION. IN OUR V IEW, IF THE DONOR GIVES TO A DONEE CERTAIN AMOUNT DIRECTLY OR INDIRECTLY IT DOES NOT MAKE A DIFFERENCE. TO ELABORATE FURTHER, IF THE DONOR FIRS TLY, GIVE SOME AMOUNT AS A LOAN AND THEN WAIVE OF OR RELINQUISH THE RIGHT T O RECOVER THE SAID AMOUNT, THEN, IN OUR VIEW, ON THE DATE OF SUCH REM ISSION OR RELINQUISHMENT, THE NATURE OF SUCH LOAN CHANGES F ROM LOAN TO RECEIPT / GIFT. ANY OTHER INTERPRETATION GIVEN IN THIS RESPE CT MAY BE EXPLOITED TO COME OUT OF AND DEFEAT THE PURPOSE OF SECTION 56(2) (VI) OF THE ACT. 23. HOWEVER, THE MOOT POINT WHICH REMAINS UNDER CON SIDERATION IS THAT IF THE LOAN WAIVER RECEIVED BY THE ASSESSEE WAS NOT A BENEFIT OR PERQUISITE UNDER THE PROVISIONS OF SECTION 28(IV) OF THE ACT A ND NEITHER THE SAME WAS REMISSION OR CESSATION OF BUSINESS OR TRADING LIABI LITY U/S 41(1) OF THE ACT, CAN THE SAME BE TERMED AS A RECEIPT AND TAXED AS INCOME FROM OTHER SOURCES UNDER THE PROVISIONS OF SECTION 56(2)(VI ) OF THE ACT. A PERUSAL OF THE ABOVE REPRODUCED PROVISIONS OF SECTION 56 (2 )(VI) OF THE ACT REVEALS THAT THE AMOUNT RECEIVED BY THE INDIVIDUAL OR HUF S HOULD BE WITHOUT CONSIDERATION NOW, WE HAVE TO SEE WHETHER THE PART OF THE LOAN A MOUNT WAIVED WAS WITHOUT CONSIDERATION OR NOT. ADMITTEDLY, THE LOA N WAS ADVANCED BY THE BANKER FOR A CONSIDERATION OF INTEREST. ADVANCEMENT OF LOAN CANNOT BE SAID TO BE WITHOUT CONSIDERATION. HOWEVER, LATER ON DUE TO LOSSES, THE LOAN BECOME NPA. THE BANK, AFTER CONSIDERING THE REMOTE POSSIBILITY OF RECOVERY OF THE SAID LOAN, THOUGHT IT PRUDENT TO GO FOR ONE TIME SETTLEMENT WITH THE LOANEE. THEREAFTER, THE TERMS AND CONDITIO NS WERE SETTLED AND AS PER THE TERMS AND CONDITIONS, IN THE EVENT OF THE L OANEE PAYING AN AMOUNT ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 14 OF 140 LACS IMMEDIATELY, OUT OF WHICH 125 LACS TO BE DEPOSITED IN THIRD PARTY ACCOUNT, WHICH WOULD BE ACCEPTABLE ON THE AP PROVAL OF THE ONE-TIME SETTLEMENT AND EXECUTION OF COMPROMISE AGREEMENT AT THE COST OF THE LOANEE, THE REMAINING OF THE LOAN WAS AGREED TO BE WAIVED /SACRIFICED BY THE BANK. IT WAS NOT A SIMPLE CASE OF WAIVER WITHOU T CONSIDERATION, RATHER, THE CONSIDERATION OF THE WAIVER WAS THE CONDITION O F DEPOSITING IMMEDIATELY THE REMAINING PART OF THE LOAN I.E. 140 LACS AND PERFORMANCE OF CERTAIN OTHER FORMALITIES AS PER THE AGREEMENT. IT IS NOT JUST A CASE WHERE THE BANK HAS SIMPLY WAIVED OR REMITTED THE LOAN AMOUNT, RATHER THE BANK TO SECURE PAYMENT OF 140 LACS, WHICH OTHERWISE THE BANK WAS FEELING DIFFICULT TO RECOVER, WAS THE CONSIDERATIO N FOR SETTLEMENT OF THE LOAN ACCOUNT. HENCE, THE AMOUNT RECEIVED BY THE ASS ESSEE AS WAIVER OR REMISSION OF LOAN AMOUNT CANNOT BE SAID TO BE WITHO UT CONSIDERATION. HENCE, IN OUR VIEW, THE PROVISIONS OF SECTION 56(2 )(VI) ARE NOT APPLICABLE TO THE CASE IN HAND. 24. IN VIEW OF THE ABOVE DISCUSSION, NEITHER THE REMISSION OF THE AFORESAID AMOUNT IN THE FACTS AND CIRCUMSTANCES OF THE CASE IS TAXABLE AS BUSINESS INCOME OR AS INCOME FROM OTHER SOURCES . MOREOVER, IT IS NOT A CASE WHERE OTHER PARTY / BANKER OUT OF HIS FREE WIL L HAD DECIDED TO GIVE SOME BENEFIT TO THE ASSESSEE, RATHER, THE SETTLEMEN T WAS ARRIVED AT BY THE BANK OUT OF COMPULSION. THE OTHER PARTY IN THIS CAS E IS A NATIONALIZED BANK, HENCE, IT CANNOT BE SAID THAT THE WAIVER WA S A SHAM TRANSACTION OR A COLOURFUL DEVICE TO GIVE BENEFIT TO THE ASSESSEE. UNDER THE CIRCUMSTANCES, THOUGH THE ASSESSEE HAS GOT SOME BENEFIT BY WAY OF WAIVER OF THE PRINCIPAL AMOUNT BUT THE SAME CANNOT BE TERMED AS INCOME OF T HE ASSESSEE EXIGIBLE TO TAX. HOWEVER, IT IS MADE CLEAR THAT OUR OBSERVAT IONS MADE ABOVE ARE IN ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 15 THE PECULIAR FACTS AND CIRCUMSTANCES OF THIS CASE A ND, HENCE, CANNOT BE SIMPLY APPLIED IN EACH AND EVERY TYPE OF WAIVER OF THE LOAN AMOUNT. 25. NOW, COMING TO THE RELIANCE PLACED ON VARIOUS C ASE LAWS IN THIS CASE. THE THRUST OF ARGUMENTS OF THE DEPARTMENTS IS THAT IF THE LOAN IS FOR A TRADING ACTIVITY THEN THE WAIVER OF THE LOAN WILL B E A TRADING RECEIPT EXIGIBLE TO TAX AND IF THE LOAN IS FOR CAPITAL ASSE TS, THE WAIVER OF THE LOAN WILL TANTAMOUNT TO CAPITAL RECEIPT. THOUGH BOTH THE PARTIES HAVE CITED VARIOUS DECISIONS OF VARIOUS COURTS OF LAW, HOWEVER , THE BASE DECISION WHICH HAS BEEN RELIED UPON BY BOTH THE PARTIES IS T HE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CASE OF T.V.SUNDRAM IYENGAR & SONS LIMITED 222 ITR 344 (SC). THE FACTS OF THE SAID CASE WERE THAT THE DEPOSITS WERE TAKEN BY THE ASSESSEE DURING THE COUR SE OF TRADE FROM CUSTOMERS AND ADJUSTMENTS WERE MADE AGAINST THESE D EPOSITS IN THE COURSE OF TRADE. THE UNCLAIMED SURPLUS RETAINED BY THE ASS ESSEE WAS TREATED AS TRADE RECEIPT. AFTER CONSIDERING THE FACT AND VARIO US CASE LAWS THE HON'BLE SUPREME COURT CONCLUDED AS UNDER;- THE PRINCIPLE LAID DOWN BY ATKINSON, J. APPLIES IN FULL FORCE TO THE FACTS IF THIS CASE. IF A COMMON SENSE VIEW IF THE MATTER IS TAKEN, THE ASSESSEE, BECAUSE OF THE T RADING OPERATION, HAD BECOME RICHER BY THE AMOUNT WHICH IF TRANSFERRED TO ITS PROFIT AND LOSS ACCOUNT. THE MON EYS HAD ARISEN OUT IF ORDINARY TRADING TRANSACTIONS. ALTHOU GH THE AMOUNTS RECEIVED ORIGINALLY WAS NOT OF INCOME NATUR E, THE AMOUNTS REMAINED WITH THE ASSESSEE FOR A LONG PERIO D UNCLAIMED BY THE TRADE PARTIES. BY LAPSE OF LONG TI ME, THE CLAIM OF THE DEPOSIT BECAME TIME BARRED AND THE AMO UNT ATTAINED A TOTALLY DIFFERENT QUALITY. IT BECAME A D EFINITE TRADE SURPLUS. ATKINSON, J. POINTED OUT THAT IN TAT TERSALL'S CASE NO TRADING ASSET WAS CREATED. MERE CHANGE OF METHOD OF BOOK-KEEPING HAD TAKEN PLACE. BUT, WHERE A NEW ASSET CAME INTO BEING AUTOMATICALLY BY OPERATIO N OF LAW, COMMON SENSE DEMANDED THAT THE AMOUNT SHOULD B E ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 16 ENTERED IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR AND BE TREATED INCOME. IN OTHER WORDS, THE PRINCIPLE APPEA RS TO BE THAT OF AN AMOUNT IS RECEIVED IN COURSE OF TRADI NG TRANSACTION, EVEN THOUGH IT IS NOT TAXABLE IN THE Y EAR OF RECEIPT AS BEING OF REVENUE CHARACTER, THE AMOUNT CHANGES ITS CHARACTER WHEN THE AMOUNT BECOMES THE ASSESSEE'S WON MONEY BECAUSE OF LIMITATION OR BY AN Y OTHER STATUTORY OR CONTRACTUAL RIGHT. WHEN SUCH A T HING HAPPENS, COMMON SENSE DEMANDS THAT THE AMOUNT SHOUL D BE TREATED AS INCOME OF THE ASSESSEE. IN THE PRESENT CASE, THE MONEY WAS RECEIVED BY THE ASSESSEE IN COURSE OF CARRYING ON HIS BUSINESS. ALT HOUGH IT WAS TREATED AS DEPOSIT AND WAS OF CAPITAL NATURE AT THE POINT OF TIME IT WAS RECEIVED, BY INFLUX OF TIME TH E MONEY HAD BECOME THE ASSESSEE'S OWN MONEY. WHAT REMAINS AFTER ADJUSTMENT OF THE DEPOSITS HAD NOT BEEN CLAIM ED BY THE CUSTOMERS. THE CLAIMS OF THE CUSTOMERS HAVE BEC OME BARRED BY LIMITATION. THE ASSESSEE ITSELF HAS TREAT ED THE MONEY AS ITS OWN MONEY AND TAKEN THE AMOUNT IN ITS PROFIT AND LOSS ACCOUNT. THERE IS NO EXPLANATION FROM THE ASSESSEE WHY THE SURPLUS MONEY WAS TAKEN TO ITS PRO FIT AND LOSS ACCOUNT EVEN IF IT WAS SOMEBODY ELSE'S MON EY. IN FACT, AS ATKINSON, J. POINTED OUT THAT WHAT THE ASS ESSEE DID WAS THE COMMON SENSE WAY OF DEALING WITH THE AMOUNTS. 26. SO THE CONCLUSION ARRIVED AT BY THE HON'BLE SUPREME COURT WAS THAT SINCE THE AMOUNT RECEIVED BY THE ASSESSEE WAS DEPOS ITS FROM THE CUSTOMERS, NOT BEING IN THE NATURE OF SECURITY DEPOSITS, IN TH E COURSE OF HIS BUSINESS WHICH LATER ON WAS TRANSFERRED BY THE ASSESSEE TO I TS PROFIT AND LOSS ACCOUNT, THE HON'BLE SUPREME COURT HELD THAT EVEN THOUGH THE DEPOSITS WERE TREATED AS CAPITAL RECEIPTS, THE SAME HAD BECO ME TRADING RECEIPTS ON TRANSFER OF THE SAME INTO PROFIT AND LOSS ACCOUNT O F THE ASSESSEE. WHAT IS RELEVANT IN THIS RESPECT IS THAT RECEIPTS WERE RECE IVED BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS OR TO SAY TRADING OPERATIONS AND THE ASSESSEE BY WAY OF TRANSFER OF THE SAID AMOUNT INTO THE PROFIT AND LOSS ACCOUNT HAD BECOME ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 17 RICHER BY THAT AMOUNT AND THE SAID AMOUNT HAS BEEN RETAINED BY THE ASSESSEE IN ITS BUSINESS. HOWEVER, IN THE CASE BEFORE US, THE LOAN AMOUNT WA S NEVER RECEIVED BY THE ASSESSEE IN THE COURSE OF BUSINESS BUT FROM THE BANK AS A LOAN FOR CARRYING ON OR TO SAY FOR THE PURPOSE OF BUSINESS. THERE IS A CLEAR DIFFERENCE BETWEEN THE TERM IN THE COURSE OF BUSIN ESS AND FOR THE PURPOSE OF BUSINESS. THOUGH, THE BANKER WAS IN THE BUSINESS OF LENDING MONEY AND RECEIVING INTEREST BUT TO TAKE LOAN ON IN TEREST WAS NOT THE BUSINESS OF THE ASSESSEE. THE BUSINESS OF THE ASSES SEE ADMITTEDLY WAS THE HOSIERY BUSINESS. THE SAID LOAN AMOUNT WAS NOT A TRADING RECEIPT RECEIVED FROM THE CUSTOMERS OR FROM THE PARTIES WITH WHOM TH E ASSESSEE WAS IN BUSINESS ACTIVITY. EVEN ON WAIVER OF THE LOAN AMO UNT OUT OF THE SETTLEMENT UNDER COMPULSIVE CIRCUMSTANCES, NEITHER THE ASSESSE E HAD BECOME RICHER NOR IT CAN BE SAID THAT THE SAID AMOUNT WAS RETAIN ED BY THE ASSESSEE IN THE BUSINESS AS HIS OWN MONEY. THE UNDERLINED TRANSACTI ON WAS NOT AN INTEGRAL PART OF THE BUSINESS ACTIVITY OF THE ASSESSEE. IT I S A CASE WHERE THE ASSESSEE HAD TAKEN LOAN, PART OF THE LOAN WAS USED FOR CAPIT AL ASSETS IN THE SHAPE OF MACHINERY ETC. AND THE OTHER PART OF THE LOAN AMOUN T WAS USED FOR TRADING ASSETS / ACTIVITIES. THE BANK IN THIS CASE WHILE AR RIVING AT ONE TIME SETTLEMENT DID CONSIDER AS TO WHICH PART OF THE LOA N AMOUNT WAS USED BY THE ASSESSEE FOR CAPITAL ASSETS AND WHICH PART OF THE LOAN AMOUNT WAS USED FOR TRADING ACTIVITY. THE PURPOSE OF THE LOAN, SO F AR AS THE BANK IS CONCERNED, WAS TO GET INTEREST INCOME ON THE LOAN ADVANCED, THOUGH, FOR THE SECURITY OF THE LOAN OR OTHERWISE THE BANK HAD GIVEN THE LOAN FOR SPECIFIC PURPOSES, I.E. FOR CAPITAL ASSETS OR FOR T RADING ACTIVITY SEPARATELY. HOWEVER, SINCE THE MOTIVE FOR SETTLEMENT WAS RECOVERY OF THE NON- ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 18 PERFORMING ASSETS, HENCE, THE BANK CLUBBED AND TAKE N INTO CONSIDERATION THE ENTIRE DEFAULTING AMOUNT AGAINST THE ASSESSEE AND SETTLED FOR A RECEIPT OF CERTAIN SUM OUT OF THE TOTAL AMOUNT OUTSTANDING AGAINST THE ASSESSEE. UNDER THE CIRCUMSTANCES, FOR THE PURPOSE OF WAIVER OR SETTLEMENT, IT WAS IRRELEVANT FOR THE BANK WHETHER THE LOAN WAS ON ACC OUNT OF TRADING ACTIVITY OR CAPITAL ASSETS OF THE ASSESSEE. AN EXAMPLE IN TH IS RESPECT CAN BE GIVEN OF A PARTNERSHIP FIRM WHERE THE PARTNERS CONTRIBUTE C APITAL. FROM WHATEVER SOURCE THEY CONTRIBUTE THE CAPITAL I.E. EITHER BY T AKING LOAN FROM BANK OR OUT OF THEIR OWN ASSETS, IS IMMATERIAL SO FAR AS THE UTILITY / USAGE OF THE SAID CAPITAL BY THE PARTNERSHIP FIRM IS CONCERNED. OUT OF THE TOTAL CAPITAL CONTRIBUTION, THE PARTNERSHIP FIRM MAY USE PART OF SUCH CAPITAL TOWARDS CAPITAL ASSETS AND PART OF THE SAID AMOUNT TOWARDS TRADING ACTIVITY. HOWEVER, ANY INCOME OR LOSS IN THE BUSINESS OF ONE PARTNERSHIP FIRM HAS NO RELEVANCY WITH THE SOURCE OF CAPITAL CONTRIBUTE D BY THE PARTNERS. SIMILAR IS THE CASE WITH THE COMPANY. IN THE PRESEN T CASE ALSO, WHETHER THE ASSESSEE HAD EARNED PROFIT OR INCURRED LOSSES IN THE BUSINESS ACTIVITY, IT HAS NO RELEVANCY SO FAR AS THE SOURCE OF CAPITAL IS CONCERNED WHICH, IN FACT, WAS A LOAN FROM THE BANK ON INTEREST. SINCE THE ASS ESSEE WAS RUNNING INTO LOSSES, HENCE THE WAIVER OF PART OF THE LOAN IN A S ETTLEMENT, IS TOWARDS THE CAPITAL RECEIPT OF THE ASSESSEE AND CANNOT BE SAID TO BE OUT OF BUSINESS ACTIVITY NOR THE SAME CAN BE SAID TO BE IN THE NATU RE OF TRADING RECEIPTS. IN VIEW OF THIS, WE DO NOT FIND ANY JUSTIFICATION O N THE PART OF THE LOWER AUTHORITIES IN TAXING THE AMOUNT OR PART OF THE LO AN AMOUNT WAIVED IN ONE TIME SETTLEMENT BY THE BANK. THE ADDITION MADE BY T HE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) IS ACCORDINGLY ORDE RED TO BE DELETED. ITA NO. 244/CHD/2018- SH. JAI PAL GABA, LUDHIANA 19 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS, HEREB Y, ALLOWED. ORDER DICTATED AND PRONOUNCED IN THE OPEN COURT ON 16.05.2019. SD/- SD/- ( # $ % &' / ANNAPURNA GUPTA) '( / ACCOUNTANT MEMBER ( / SANJAY GARG) / JUDICIAL MEMBER DATED : 16.05.2019 .. (, ! -. /. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. $ 0 / CIT 4. $ 0 ( )/ THE CIT(A) 5. .12 3 , & 3 , 45627 / DR, ITAT, CHANDIGARH 6. 26 8% / GUARD FILE (, $ / BY ORDER, 9 # / ASSISTANT REGISTRAR