ITO, New Delhi V. M/s. Tinna Finex Ltd., New Delhi

ITA 3584/DEL/2012

• Counselvise Citation: 358420114 RSA 2012
• Duration Of Justice: 2 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 17-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 06-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P CHANDREKAR
• Assessee Lawyers: ASISH GOEL
• Keywords: Revenue expenditure
• Section: 143(3)

Judgement Text

ITA NO. 3584/ DEL/ 2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H , NEW DELHI BEFORE SHRI N.K. SAINI, AC COUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. N O. 3584 /DEL/20 1 2 A.Y. : 200 9 - 10 INCOME TAX OFFICER, WARD 16(3), NEW DELHI VS. M/S TINNA FINEX LTD., D - 18, 1 ST FLOOR, 100 FT. ROAD, CHHATARPUR, MEHRAULI, NEW DELHI (PAN: AAACT5064C) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. J.P. CHANDREKAR, SR. DR ASSESSEE BY : SH. VED JAIN, FCA & SH. ASISH GOEL, CA DATE OF HEARING : 17 - 0 6 - 201 5 DATE OF ORDER : 2 6 - 0 6 - 201 5 ORDER PER H.S. SIDHU : J M TH IS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) - XIX, NEW DELHI DATED 02 . 4 .201 2 P ERTAINING TO ASSESSMENT YEAR 200 9 - 10. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: - 1. 'LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION MADE BY THE AO AMOUNTING TO RS.5,64,85,956/ - BY HOLDING THAT SECTION 41(1) OF THE I.T. ACT , 1961 WAS NOT APPLICABLE TO THIS CASE. ITA NO. 3584/ DEL/ 2012 2 2. LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN NOT EXERCISING HIS POWERS CONFERRED ON HIM BY VIRTUE OF SECTION 251(1)(A) OF THE INCOME TAX ACT, 1961 TO CONFIRM THE ADDITION. HE COULD HAVE CONSIDE RED OTHER PROVISIONS OF THE ACT TO UPHOLD THE ADDITION, IF IN' HIS OPINION PROVISIONS OF SECTION 41(1) OF THE I.T. ACT , 1961 WERE NOT APPLICABLE TO THIS CASE. 3. 'LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN NOT SUSTAINING THE ADDITION AT LEA ST TO THE EXTENT THE ASSESSEE INCREASED ITS RESERVE. THE AMOUNT OF RS. 4.56 CRORES ( I.E. RS.5.64 CRORES - RS.82.65 LAKH - RS.25.40 LAKH ) HAS BEEN TRANSFERRED TO THE RESERVE ACCOUNT WITHOUT PAYING TAX ON IT WHICH IS DEFINITELY A BENEFIT ARISING FROM THE B USINESS OF THE ASSESSEE WHICH IS TAXABLE UNDER SECTION 28(IV) OF THE I. T. ACT 1961. 4. 'THE APPELLANT CRAVES TO ADD, ALTER, AMEND AND WITHDRAW ANY GROUND OF APPEAL BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL.' 3. THE BRIEF FACTS OF THE CASE ARE THAT THE E - RETURN DECLARING NIL INCOME WAS FILED ON 29.9.2009 AND THE SAME WAS PROCESSED U/S. 143(1) OF THE I.T. ACT , 1961 (HEREINAFTER CALLED THE ACT ) AND LATER ON PICKED UP UNDER CASS FOR SCRUTINY BY ISSU ING OF ITA NO. 3584/ DEL/ 2012 3 NOTIC E U/S. 143(2) OF THE ACT AND THE SAME WAS DULY SERVED ON THE ASSESSEE. IN RESPONSE TO SAME , ASSESSE S AUTHORISED REPRESENTATIVE OF THE ASSESSEE ATTEND ED THE HEARING S . 3.1 THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF FINANCE AND EXPORT. HOWEVER, DU RING THE YEAR, THERE WAS NO BUSINESS ACTIVITY EXCEPT RECEIPT OF INTEREST AND SOME HIRE CHARGES ETC. AS AGAINST GROSS RECEIPTS OF RS. 6 , 54 , 900/ - THE ASSESSEE COMPANY HAS CLAIMED EXPENDITURE OF RS. 10 , 83 , 949/ - WORKING OUT ON LOSS OF RS. 4 , 29 , 049/ - . DURING THE ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE AMOUNT OF SECURED AND UNSECURED LOANS APPEARING AT RS.5,64,85,956/ - AS ON 31.03.2008 WAS REDUCED TO NIL AS ON 31.03.2009. THE ASSESSEE WAS ASKED TO EXPLAIN THE CHANGE. THE ASSESSEE SUBMITTED THAT THERE WA S A FAMILY SETTLEMENT BETWEEN THE GROUP MEMBERS AND THE ASSETS AND LIABILITIES WERE REALLOCATED. COPY OF THE MEMORANDUM OF FAMILY SETTLEMENT WAS FILED. THE ASSESSEE EXPLAINED THAT THE ASSESSEE COMPANY TRANSFERRED ITS INVESTMENT IN TINNA OVERSEAS LTD. COSTI NG RS.82.65 IAKH AND INVESTMENT IN PRATHAM ROAD TECHNOLOGIES LTD. COSTING RS.25.40 LAKH IN FAVOUR OF BKS GROUP AND IN TURN, LIABILITY OF SECURED AND UNSECURED LOAN OFRS.5.64 CRORES WAS DISCHARGED BY TINNA OVERSEAS LTD. THE ASSESSEE SUBMITTED THAT THE DIFFE RENCE OF THESE FIGURES I.E. 5.64 CRORES - 82.65 LAKH - 25.40 LAKH = RS.4.56 CRORES WAS CREDITED TO THE RESERVE ACCOUNT OF THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTED ITA NO. 3584/ DEL/ 2012 4 THAT THERE WAS NO TRADING TRANSACTION INVOLVED IN THESE TRANSACTIONS AND THEREFORE THE PR OVISIONS OF SECTION 41 ( 1) OF THE I.T. ACT WERE NOT ATTRACTED. THE AO INVOKED THE PROVISIONS OF SECTION 41(1) OF THE I.T. ACT AND MADE ADDITION OF RS.5,64,85,956/ - TO THE INCOME OF THE ASSESSEE AND COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT VIDE ORDE R DATED 28.12.2011. 4. AGAINST THE ABOVE ASSESSMENT ORDER THE ASSESSEE APPEALED BEFORE THE LD. CIT(A) WHO DELETED THE ADDITION MADE BY THE AO BY HOLDING THAT AS THERE WAS A FAMILY SETTLEMENT AND THE ADDITION WAS NOT COVERED UNDER SECTION 41(1) OF THE ACT VIDE IMPUGNED ORDER DATED 02.4.2011. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. LD. DR RELIED UPON THE ORDER OF THE AO AND REITERATED THE CONTENTIONS RAISED BY THE REVENUE IN ITS GROUNDS OF APPEAL. 7. ON THE CONTRARY, LD. COUNSEL OF THE ASSESSEE RELIED UPON THE ORDER OF THE LD. CIT(A). 8 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT RECORDS , ORDERS OF THE REVENUE AUTHORITIES AND WRITTEN SYNOPSIS FILED BY THE ASSESSEE THROUGH PAPER BOOK WHER EIN ASSESSEE HAS STATED THAT PROVISIONS OF SECTION 41(1) OF THE ACT ARE NOT APPLICABLE ITA NO. 3584/ DEL/ 2012 5 TO THE FACTS OF THE PRESENT CASE , HENCE, THE IMPUGNED ORDER OF THE LD. CIT(A) MAY BE UPHELD. 8 .1 WE FIND THAT LD. CIT(A) HAS ADJUDICATED THE ISSUE IN DISPUTE AS UNDER : - AS PER THE SCHEME OF ARRANGEMENT APPROVED BY THE HONORABLE HIGH COURT OF DELHI VIDE ORDER DATED 07.11.1997 READ WITH MEMORANDUM OF UNDERSTANDING (MOU) DATED 2ND APRIL, 1997 AND ADDENDUM DATED 3RD & 15TH DECEMBER, 1997 AMONG THE COMPANY, TINNA OILS & CHEMICALS LTD. AND ARCHER DANIELS MIDLAND SINGAPORE PTE LTD., MOVABLE ASSETS, LIABILITIES AND INVESTMENT OF SPIN OFF DIVISION OF TINNA OIL & CHEMICALS LIMITED, AS PER ITS AUDITED BALANCE SHEET AS ON 31/3/1997 GOT VESTED WITH THE APPELLANT COMPANY I.E. TIN NA FINEX LIMITED (FOR SHORT TFL). BESIDES THIS 91,10,170 EQUITY SHARES OF RS.1 0/ - EACH FULLY PAID UP IN TINNA FINEX LIMITED WERE ALLOTTED TO EXISTING SHARE HOLDERS OF TINNA OILS & CHEMICALS LIMITED, IN THE RATIO OF 1: 1 AS PER THE SCHEME (NOTES ON ACCOUNT S NO.3B TO THE AUDITED BALANCE SHEET AS ON 31/3/1998) (PB - 164). THE TOTAL AMOUNT DUE TO THE BANKS AS PER SCH - C OF SECURED LOAN AND NOTE NO. 2 OF NOTES ON ACCOUNTS TO THE AUDITED BALANCE SHEET AS ON 31.3.1998 OF THE APPELLANT COMPANY WERE RS. 11.22 CRORES (PB - 152). TINNA GROUP OF COMPANIES WERE BEING RUN AS A FAMILY BUSINESS BETWEEN MR. BHUPINDER KUMAR SEKHRI, MR. VIJAY SEKHRI & MR. ANIL KUMAR SEKHRI AND THEIR FAMILY MEMBERS. IN THE YEAR 2008, DISPUTES AROSE AMONG THE FAMILY MEMBERS AND THE MATTER WAS REFE RRED TO HON'BLE COMPANY LAW BOARD (CLB). A BROADER ITA NO. 3584/ DEL/ 2012 6 FAMILY SETTLEMENT WAS ARRIVED BEFORE THE CLB VIDE ITS ORDER DATED 5.1.2009. IT WAS FOLLOWED BY A MEMORANDUM OF FAMILY SETTLEMENT SIGNED BY ALL THE FAMILY MEMBERS ON 27.03.2009. SUBSEQUENTLY, SCHEME OF ARRA NGEMENT DATED 17.05.2009 WAS FILED BEFORE THE HON'BLE CLB AND THE SAME WAS APPROVED BY THE HON'BLE CLB VIDE ITS ORDER DATED 9TH JUNE, 2009 (PB ... 8 - 73). BEFORE THE FAMILY SETTLEMENT ON 05.01.2009 THE APPELLANT COMPANY WAS A SUBSIDIARY COMPANY OF TINNA OV ERSEAS LIMITED. M/S TINNA OVERSEAS LIMITED (FOR SHORT TOL) WAS A CORPORATE GUARANTOR FOR THESE LOANS. THE APPELLANT COMPANY PAID OFF PART OF THE BANK'S LIABILITIES MENTIONED ABOVE OUT OF ITS OWN SOURCES AND THE BALANCE AMOUNT OF RS.5.64 CRORES WAS PAID BY WAY OF TAKING SECURED/UNSECURED LOANS FROM THE ERSTWHILE HOLDING COMPANY TINNA OVERSEAS LTD. THE AMOUNT OF RS.5.64 CRORES WAS PAID DIRECTLY BY TOL TO THE BANKS DURING THE PERIOD 12.09.2002 TO 31.05.2003. THE TOTAL AMOUNT PAID BY TOL AND DEBITED TO TFL AS A LOAN WAS RS.7.35 CRORES. OUT OF THIS TOTAL AMOUNT, AN AMOUNT OF RS.1. 71 CRORES WAS PAID BACK BY TFL TO TOL AND THE BALANCE OUTSTANDING ON THE DATE OF FAMILY SETTLEMENT WAS RS.5.64 CRORE, WHICH WAS WRITTEN OFF BY TOL AS PER SCHEME OF ARRANGEMENT DATED 17 .05.2009, PARA 4.2.1 PAGE 19, AND WAS DEBITED BY TOL TO ITS RESERVE & SURPLUS ACCOUNT AS APPEARING IN THE AUDITED FINAL ACCOUNTS OF TOL FOR THE F. Y. 2008 - 09 (PAGE NO.8, SCHEDULE F (E) AND SCHEDULE B (III) TOTAL AMOUNT RS. 25,48,25,973/ - ) (PB .. 132). ITA NO. 3584/ DEL/ 2012 7 THE AMOUNT OF LOANS TAKEN FROM HOLDING COMPANY TINNA OVERSEAS LIMITED AND OUTSTANDING AS ON 31/3/2008 WERE AS UNDER: SECURED LOANS RS. 4,10,00,000/ - UNSECURED LOANS RS. 1,54,85,956/ - TOTAL LOANS RS. 5,64,85,956/ - AS PER THE SCHEME OF ARRANGEMENT DULY APPROVED BY THE HON'BLE COMPANY LAW BOARD, THE SAID AMOUNT WAS WRITTEN OFF AS UNDER: TOTAL LOANS (AS ABOVE) RS. 5,64,85,956/ - LESS: INVESTMENT IN SHARES HELD BY APPELLANT COMPANY IN: -- TINNA OVERSEAS LTD. RS.82,65,000/ - -- PRATHAM ROAD TECHNOLOGIES & CONSTRUCTION LTD. RS.25,40,250/ - RS. 1,08,05,250/ - NET LOAN AMOUNT RS. 4,56,80,706/ - AMOUNT PAYABLE TO TINNA OVERSEAS LTD. RS. 36,095/ - NET AMOUNT OF LOAN FROM TINNA OVERSEAS LTD. W/BACK RS. 4,56,44,611/ - (SCHEDULE 'A' TO AUDITED BALANCE SHEET AS ON 31/3/2009) AS SUCH, AS PER FAMILY SETTLEMENT, A SUM OF RS.4,56,44,611 / - HAS BEEN CREDITED TO RESERVE & SURPLUS BY THE APPELLANT COMPANY ITA NO. 3584/ DEL/ 2012 8 AND AS PER CLAUSE 4.9 OF THE SCHEME OF ARRANGEMENT, TINNA OVERSEAS LIMITED REDUCED ITS RESERVE & SURPLUS ACCORDINGLY. SECTION 41(1) OF THE INCOME TAX ACT, 1961 SAYS THAT ANY LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY RECOVERED BY HIM IS TAXABLE AS INCOME IN THE YEAR OF RECOVERY AND IT IS APPLICABLE NOT ONLY TO THE ASSESSEE WHO CLAIMED SUCH DEDUCTION BUT ALSO TO HIS 'SUCCESSOR IN BUSINESS'. IT COVERS ANY PERSON WHO SUCCEEDS TO THE BUSINESS OF ANOTHER, VIZ IN THE CASE OF COMPANIES AMALGAMATING COMPANY, IN THE CASE OF FI RMS, THE SUCCEEDING FIRM AND THE RESULTING COMPANY IN THE CASE OF DEMERGER. IN THIS CASE AO HAS NOT PROVED THAT THERE WAS RECOVERY OF ANY LOSS OR EXPENDITURE OR TRADING LIABILITY WHICH WAS ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME IN EARLIER YEARS. ON MERITS AS WELL AS ON LEGAL GROUNDS THERE IS NO SCOPE FOR INVOKING PROVISIONS OF S. 41(1) IN THE APPELLANT'S CASE. IN THE APPELLANT'S CASE THE BORROWED FUNDS FROM ITS ERSTWHILE HOLDING COMPANY WERE UTILIZED TO PAY OFF ITS BANK LIABILITIES. IN THE CASE O F CIT VS. JUBILANT SECURITIES PVT. LTD. ITA NO. 503 OF 2010 (DELHI HIGH COURT), IT WAS HELD THAT WHEN MONEY BORROWED WAS NOT UTILIZED IN ITS BUSINESS, THE BORROWED AMOUNT CANNOT BE TAKEN AS PART OF CIRCULATING CAPITAL AND TO BE TREATED AS A TRADING RECEIPT . WHENEVER AN AMOUNT IS BORROWED AND UTILIZED FOR PAYING OFF ITS LIABILITIES AND THE BORROWED AMOUNT WAS WAIVED; THE SAME CANNOT BE BROUGHT INTO TAX NET EITHER IN TERMS OF S.41(1) OR 28(IV) OF THE IT ACT. THIS PROPOSITION WAS LAID DOWN IN THE FOLLOWING CA SES 'WHICH ARE REFERRED TO BY THE AR IN THE SUBMISSIONS: GOVINDBHAI C. PATEL VS. DCIT (ITA NO. 1675/ AHD/2009, DATED 30.10.2009) (ITAT, AHMEDABAD) ITA NO. 3584/ DEL/ 2012 9 CIT VS. PHOOL CHAND JIWAN RAM (131 ITR 17) (DEL.) CIT VS. COMPAQ ELECTRIC LTD. (ITA NO. 172 OF 2011 DATED 18.10.2011) (BANGALORE) CIT VS. CHETAN CHEMICALS PVT. LTD. (267 ITR 770) (GUJ.) CIT VS. TOSHA INTERNATIONAL LTD. (176 TAXMAN 187) (DEL.) MAHINDRA & MAHINDRA LTD. VS. CIT (261 ITR 501) (BORN.) CIT - 3 VS. M/S CIPLA INVESTMENTS LTD. (ITA NO. 6988 OF 2010, DATED 07.02.2012) (HC OF BOMBAY) THE A O HAS NOT DISPUTED THE FACTS BROUGHT ON RECORD BY THE APPELLANT COMPANY. THE LIABILITY OF RS.5,64,85,956 AS ON 1.01.2009 IN FAVOUR OF M/ S TINNA OVERSEAS LTD., WAS NO LONGER REQUIRED. TO BE PAID IN VIEW OF THE SETTLEMENT. SIMILARLY THE APPELLANT HAD FOREGONE THE INVESTMENT IN THE SHARES AND LOAN TOTALLING TO RS.1,08,41,345 AS PER THE TERMS OF THE SETTLEMENT. THE NET GAIN TO THE APPELLANT IS R S. 4,56,44,611. THE APPELLANT HAS CLEARLY ESTABLISHED THAT THE ADJUSTMENTS ARE ON CAPITAL SIDE AND THERE IS NO CASE FOR INVOKING PROVISIONS OF S.41(1) SINCE THE LIABILITY WAIVED BY THE CREDITOR WAS NEVER CLAIMED AS REVENUE EXPENDITURE. IN THE LIGHT OF THE ABOVE FACTS AND LEGAL POSITION BROUGHT ON RECORD, THE ADDITION MADE BY THE A O CANNOT BE SUSTAINED. (RELIEF RS. 5,64,85,956/ - ) . 8 .2 WE FIND THAT THE A SSESSEE FILED RETURN OF INCOME CLAIMING NET LOSS OF RS. 4 , 29 , 049/ - ON 29.9.2009 AND ENGAGED IN THE BUSINESS OF FINANCE AND EXPORTS , HOWEVER , THERE ARE NO BUSINESS DURING THE YEAR & ASSESSEE EARNED ONLY INTEREST SUMS & SUMS WERE CHARGING OF RS. 6 , 54 , 900/ - AND HAS CLAIMED EXPENSES OF RS. 10 , 83 , 949/ - & LOSS OF ITA NO. 3584/ DEL/ 2012 10 RS. 4 , 29 , 049 HAS BEEN CLAIMED. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS CREDI TED AMOUNT OF RS. 4.56 CR TO THE RESERVES & SURPLUS. WE FURTHER NOTE THAT IN CONSIDERATION THEREOF THE COMPANY ISSUED 91,10,170 SHA R ES OF RS. 10/ - EACH AND ALSO TAKEOVER THE BANK LOAN OF RS. 11.22 C R O RES. THE A SSESSEE COMPANY WAS A SUBSIDIARY OF TINNA OVER SEAS LTD (TAL). TINNA OVERSEAS LTD WAS A CORPORATE GUARANTOR FOR THE BANK LOAN. THE COMPANY PAID OFF PART OF THE BANK LOAN AND SINCE IT WAS NOT ABLE TO PAY PART OF THE BANK LOAN OF RS. 5.64 CRORE, THE TINNA OVERSEAS LTD BEING GUARANTOR, PAID OFF THIS LOAN DURING THE YEAR 2002 - 03. ACCORDINGLY THE BANK LOAN GOT SUBSTITUTED WITH THE LOAN FROM TINNA OVERSEAS LTD AND CONTINUED TILL 2009. IN THE YEAR 2009, CONSEQUENT TO ORDER PASSED BY THE COMPANY LAW BOARD, THE ABOVE LOAN WAS WRITTEN OFF AFTER ADJUSTMENT OF INV ESTMENTS HELD BY APPELLANT COMPANY OF RS. 108,05,250/ - . THUS, THERE WAS NET LOAN OF RS. 4,56,44,611 / - WHICH GOT WRITTEN OFF AND WAS CREDITED TO RESERVES AND SURPLUS ACCOUNT. 8 . 3 AFTER GOING THROUGH THE PROVISIONS OF SECTION 41(1) OF THE INCOME TAX ACT , WE FIND THAT THE SAME ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEE CASE. WE ALSO FIND THAT THE AO HAS MADE THE ADDITION OF RS. 5.64 CRORE BY INVOKING PROVISION OF SEC. 41(1) OF THE INCOME TAX WITHOUT STATING HOW THE PROVISION ARE APPLICABLE TO THE AS SESSEE'S CASE . MERE CESSATION OF LIABILITY DOES NOT RESULT INTO FIT CASE OF SEC. 41 (1) OF THE I. T. ACT. A SSESSEE HAS SUBMITTED THAT ASSESSEE WAS NOT INCURRED ANY LOSS/EXPENDITURE/TRADING LIABILITY WHICH IS SUBSEQUENTLY RECOVERED BY HIM IS TAXABLE AS INCO ME IN THE YEAR OF RECOVERY. WE FIND THAT THE ASSESSE IS SQUARELY COVERED BY THE FOLLOWING JUDGMENTS WHEREIN IT HAS BEEN HELD THAT WHENEVER, AN ITA NO. 3584/ DEL/ 2012 11 AMOUNT IS BORROWED TOWARDS CAPITAL ACCOUNT AND THE LOAN IS WAIVED OFF, THE SAME CANNOT BE BROUGHT TO TAX NET EITH ER IN TERMS OF SEC - 41 (1) OR 28(IV) OF THE ACT . THE SAME OBSERVATION WAS MENTIONED BY THE LD. CIT(A) IN HIS IMPUGNED ORDER AT PAGE NO. 11 AND LD. CIT(A) ALSO PLACED RELIANCE THE FOLLOWING CASES ON THIS ISSUE: II) CIT VS. TOSHALNTERNATIONAL LTD. (176 TAXAM AN 187) (DEL.) I II) GOVIND BHAI C PATEL VS DCIT (ITA NO. 1675/AHD/2009) DATED 30.10.2009 (ITAT AHMEDABAD) IV) CIT VS. PHOOL CHAND JIWAN RAM (131 ITR 17) (DEL.) V)CIT VS. COMPAQ ELECTRIC LTD. (ITA NO. 172 OF 2011 DATED 18.10.2011) (KARNATKA HC) VI) CIT VS. CHETAN CHEMICALS PVT. LTD. (267 ITR 770) (GUJ.) VII) MAHINDRA & MAHINDRA LTD. VS. CIT (261 ITR 501) (BOM.) VIII)CIT - 3 VS. M/S CIPLA INVESTMENTS LTD. (ITA NO. 6988 OF 201 2 , DATED 07.02.2012) (HC OF BOMBAY) 8 . 4 WE FURTHER NOTE THAT IT IS WELL SETTLED LAW THAT WHERE NO DEDUCTION/ALLOWANCE HAS BEEN MADE IN RESPECT OF LOSS, EXP/LIABILITY IN THE ASSESSMENT YEAR OR IN ANY EARLIER YEARS, CESSATION OF SUCH ITA NO. 3584/ DEL/ 2012 12 LIABILITY CANNOT BE TAXED UNDER SECTION 41(1) OF THE INCOME TAX ACT. TO SUPPORT THIS FINDING , WE PLACE R ELIANCE ON THE FOLLOWING JUDGMENTS: - I. CIT - III VS. SHIVALI CONSTRUCTIONS P LTD 355 ITR 218(0) DATED 01.5.2013, (DELHI HIGH COURT) II. CIT - II VS NATIONAL DAIRY DEVELOPMENT BOARD - GUJARAT HC 49 TAXMAN.COM 316 (ITA APPEAL NO. 195 OF 2014) DATED. 6.5.201 4 . 8 . 5 IN VIEW OF THE ABOVE, WE FIND THAT THE AO HAS NOT DISPUTED THE FACTS BROUGHT ON RECORD BY THE A SSESSEE COMPANY. IN OUR OPINION, T HE LIABILITY OF RS.5,64,85,956 / - AS ON 1.01.2009 IN FAVOUR OF M/S TINNA OVERSEAS LTD., WAS NO LONGER REQUIRED TO BE PAID IN VIEW OF THE SETTLEMENT. SIMILARLY THE A SSESSEE HAD FOREGONE THE INVESTMENT IN THE SHARES AND LOAN TOTALING TO RS.1,08,41,345 / - AS PER THE TERMS OF THE SETTLEMENT. T HE NET GAIN TO THE A SSESSEE IS RS. 4,56,44,611 / - . THE ASSESSEE HAS CLEARLY ESTABLISHED THAT THE ADJUSTMENTS ARE ON CAPITAL SIDE AND THERE IS NO CASE FOR INVOKING PROVISIONS OF S.41(1) SINCE THE LIABILITY WAIVED BY THE CREDITOR WAS NEVER CLAIMED AS REVENUE EXPENDITURE. 8 . 6 KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES AND THE PRECEDENTS, AS EXPLAINED AFORESAID, WE FIND CONSIDERABLE COGENCY IN THE FINDING OF THE LD. CIT(A) THAT THE ADDITION MADE BY THE AO ITA NO. 3584/ DEL/ 2012 13 CANNOT BE SUSTAINED. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE FINDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE, HENCE, WE UPHOLD THE SAME 9 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE O PEN C OURT ON 2 6 / 0 6 /20 1 5 . S D / - S D / - [ N.K. SAINI] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 2 6 / 0 6 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES