Addll. CIT, New Delhi V. M/s Rollatainers Limited., Faridabad

ITA 3800/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3809 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 25-05-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 07-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RANANJAY SINGH
• Assessee Lawyers: AJAY VOHRA SHRI GAURAV JAIN; JANPRIYA
• Keywords: Capital asset; Business income; Depreciation; Capital receipt; Revised return
• Section: 43B; 143(3); 139(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F DELHI BEFORE SHRI A.D. JAIN AND SHRI K.G. BANSAL ITA NO. 3800(DEL)/2009 ASSESSMENT YEAR: 2006-07 ADDL. COMMISSIONER OF INCOME M/S ROLL ATAINERS LIMITED, TAX, RANGE-15, VS. 13/6, MATHURA ROAD, FARIDABAD. NEW DELHI. (HARYANA) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RANANJAY SINGH, CIT, D R RESPONDENT BY: SH RI AJAY VOHRA, ADVOCATE, SHRI GAURAV JAIN, & MS. JANPRIYA ROOP RAI, C.A. ORDER PER K.G. BANSAL : AM THIS APPEAL OF THE REVENUE EMANATES FROM THE O RDER OF THE CIT(APPEALS)-XVIII, NEW DELHI, PASSED ON 17.06. 2009 IN APPEAL NO. 0122/08-09, PERTAINING TO ASSESSMENT YEAR 2006 -07. THE ASSESSMENT ORDER WAS FRAMED BY THE ADDITIONAL COMMISSIO NER OF INCOME-TAX, RANGE-15, NEW DELHI, ON 29.12.2008, UNDER THE PR OVISION OF SECTION 143(3) OF THE INCOME-TAX ACT, 1961. THE REVENUE HAS TAKEN TWO SUBSTANTIVE GROUNDS IN THE APPEAL, WHICH READ AS OVERLEAF:- ITA NO. 3800(DEL)/2009 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AS WELL AS IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,01,40,554/- AND RS. 1,07,00,000/- MADE BY THE AO U/S 41(1) ON ACCOUNT OF ADVANCE FROM CUSTOMER AND SECURI TIES DEPOSITS RESPECTIVELY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING TO REDUCE THE AMOUNT OF RS. 9,41,86,658/- AND RS. 4,07,65,542/- FROM TAXABLE INCOME ACCEPTING THE ASSESSEES VERSION THAT IT WAS WRONGLY CREDITED TO P & L ACCOUNT WITHOUT CALLING FOR A REPORT FROM A.O AS REQUIRED UNDER RULE 46A OF THE IT RULES, NOR THE CIT( A) HAS HIMSELF VERIFIED THE CLAIMS OF THE ASSESSEE. AS PER DETAILS ON PAGE 20 OF THE CIT(A)S ORDER, TOTAL AMOUNT CREDITED TO THE INCOME ON ACCOUNT OF WAIVER IS ONLY RS. 10,89,07,907/- W HERE AS THE CIT(A) HAS ALLOWED A RELIEF OF RS. 13,22,52, 000/-, WHICH ESTABLISHES THAT THE CIT(A) HAS NOT PROPERLY VERIFIED THE ISSUE. 2. IN REGARD TO GROUND NO. 1, THE LD. DR DRAWS OUR ATTENTION TOWARDS PARAGRAPH 3 OF THE ASSESSMENT ORDER, IN WHICH I T IS MENTIONED THAT THE ASSESSEE WROTE OFF CERTAIN AMOUNTS AND ALSO WROTE BACK CERTAIN AMOUNTS TO THE PROFIT AND LOSS ACCOUNT, RESULT ING INTO A NET CREDIT BALANCE OF RS. 1,01,40,554/-. THIS AMOUNT ALONG AND ANOTHER CREDIT AMOUNT OF RS. 1.07 CRORE, REPRESENTING SECURITY DEPOSITS, HAVE BEEN BROUGHT TO TAX. FOR THE SAKE OF READY REFER ENCE, THIS PARAGRAPH IS REPRODUCED BELOW:- 3. THE ASSESSEE WAS REQUESTED TO FURNISH THE DETAILS OF BALANCES WRITTEN OFF. THE ASSESSEE FILED THE DETAILS OF THESE BALANCES WRITTEN OFF. FROM THE PERUSAL OF THE DETAILS FILED, IT WAS ITA NO. 3800(DEL)/2009 3 OBSERVED THAT THE ASSESSEE HAS WRITTEN OFF THE UN-RECONCILED BALANCES OF VARIOUS PARTY I.E., ALTHOUGH THE ASSESSEE HAS WRITTEN OFF THE OUTSTANDING DEBTS IN HIS BOOKS OF ACCO UNT, IT HAS NOT WRITTEN OFF THE ADVANCES CLAIMED TO BE PAID TO THE SAME PARTIES WHICH WERE STILL SHOWN IN THE BALANCE-SHEET AS ADVANCES RECEIVED AND SECURITY DEPOSIT. IT IS WORTHWHILE TO MENTION HERE THAT DEBTS CAN BE WRITTEN OFF ONLY AFTER THE NET TING OF CREDIT AND DEBIT IN THE PARTY ACCOUNT. IN OTHER WORDS, ONLY THE BALANCE OUTSTANDING CAN BE WRITTEN OFF AGAINST A PAR TICULAR PARTY BY THE ASSESSEE. THIS HAS NOT HAPPENED IN THE CASE OF THE ASSESSEE. THE LIST OF SUCH TYPE OF PARTIES ARE GIVEN BELOW: - NAME OF PARTIES AMOUNT SECURITY ADVANCE HLL ATHAL 1606585 350000 1096358 HLL ETAH DAIRY UNIT 382306 100000 HLL ETAH TEA UNIT 1037962 24300 HLL HIDE ROAD 821013 1120511 HLL SALMAN 7213439 3600000 HLL TUNDLA 6554190 1800000 HLL DHARWAD 1304344 3878205 HLL EXPORT 446170 171308 S. NAREDERKUMAR 839540 600000 SHUBHAM GO, DEE 289521 500000 TATA TEA WHITECLIFF 362620 250000 WEIKFEILD PROD 255443 100000 200000 DABUR INDIA LTD. 166 2250000 FRESHCO. INTT 3494 350000 HLL DELHI 625 110000 MAYFAIR EXPORTS 14003 788990 ALMATY TEA FACTORY (RAJASTHAN) 5047 433279 KOLHAPUR ZILA SEHAKARI 20484 100000 SUN TEA FZE 935177 2217603 MADHU GRAMOUDYOG SEWA SANSTHAN 791483 100000 MADHU GRAMOUDYOG SEWA 125000 200000 ITA NO. 3800(DEL)/2009 4 SANSTHAN (DEL AT) SAGA FOOD PRODUCTS LTD. (ANNA NAGAR) 501064 200000 SAGA FOOD PRODUCTS LTD.( KAMLA GARDEN) 370843 300000 AS PER MISC. BALANCE WRITTEN-OFF 238,80,519 10,700,000 10,140,554 THE ASSESSEE WAS REQUESTED TO EXPLAIN AS TO WHY THESE ADVANCES SHOULD NOT BE ADDED BACK TO THE INCOME OF TH E ASSESSEE UNDER SECTION 41(1) OF THE I.T. ACT. THE ASSESSEE CO ULD NOT GIVE SATISFACTORY REPLY. IN THE ABSENCE OF ANY S ATISFACTORY REPLY, ADVANCES AND SECURITY DEPOSITS OF THE ABOVE MEN TIONED PARTIES OF RS. 1,01,40,554/- AND RS. 1,07,00,000/- RESPEC TIVELY ARE BEING ADDED BACK U/S 41(1) OF THE I.T.ACT. 2.1 THEREAFTER, HE DRAWS OUR ATTENTION TOWARDS THE ORDER OF LD. CIT(APPEALS). AFTER HEARING THE ASSESSEE, THE LD. CIT(APPEALS) RETURNED A FINDING THAT THE AO COMMITTED MISTAKES IN A RRIVING AT CORRECT FACTS. THE CORRECT POSITION IS THAT (I) THE ASSESSEE HAS WRITTEN OFF OUTSTANDING AGAINST SALE OF PACKING MATERIAL, (II) IT RE CEIVED SECURITY DEPOSITS AGAINST MACHINES GIVEN ON LEASE, AND (III) ADVA NCES WERE RECEIVED AGAINST ORDERS FOR SALE OF MACHINES. IN VIEW THEREOF, IT HAS BEEN CONCLUDED THAT THE AO WRONGLY ADDED AMOUNTS REPRESENTING ADVANCES RECEIVED FROM CUSTOMERS AND SECURITY DEPOSITS AMOUNTING TO RS. 69,45,064/- AND RS. 4,50,000/- RESPECTIVELY. THEREAFTER, HE DEALT WITH OUTSTANDING LIABILITY OF SECURITY DEPOSITS AMOU NTING TO RS. 1.07 CRORE. ITA NO. 3800(DEL)/2009 5 AFTER CONSIDERING THE ASSESSMENT ORDER AND THE ARGUMENTS OF THE ASSESSEE, IT IS CONCLUDED THAT THIS AMOUNT IS N OT TAXABLE AS THE LIABILITY SUBSISTS EVEN IN THIS YEAR. FOR THE SAKE OF R EADY REFERENCE, HIS FINDINGS ARE REPRODUCED BELOW:- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT. NO ADVERSE FINDING HAS BEEN RECORDED BY THE ASSESSING OFFICER IN RESPECT OF TRANSACTIONS AGAINST AMOUN T OF SECURITY DEPOSITS. ON SECURITY OF THE MAJOR LEDGER ACC OUNTS OF THE PARTIES AGAINST WHOM SECURITY DEPOSITS HAD BE EN RECEIVED, IT IS OBSERVED THAT THE ASSESSEE IS CONTINUAL LY IN RECEIPT OF LEASE RENT FROM MOST OF THE PARTIES EVEN D URING THE RELEVANT ASSESSMENT YEAR. TO QUOTE FEW, THE ASSESSEE HAS RECEIVED LEASE RENT FROM FOLLOWING PARTIES EVEN AS AT THE END OF RELEVANT FINANCIAL YEAR: WEIKFILD PRODUCTS CO. (I) LTD. MADHU GRAMOUDYOG SEWA SANSTHAN MADHU GRAMOUDYOG SEWA SANSTHAN SAGA FOOD PRODUCTS (KAMLA GARDEN) EVEN WHERE NO RENT HAS BEEN RECEIVED BY THE AP PELLANT DURING THE RELEVANT PREVIOUS YEAR, IT CANNOT B E SAID THAT THE LIABILITY TOWARDS REFUND OF SUCH DEPOSITS HAD CEASED AS AT THE END OF THE RELEVANT FINANCIAL YEAR SPECIAL LY CONSIDERING THAT NO ENTRIES FOR WRITE BACK OF SUCH LIABI LITY HAD BEEN MADE IN THE BOOKS OF ACCOUNT NOR SUCH ENTRY CO ULD HAVE BEEN PASSED WITHOUT TAKING BACK POSSESSION OF SUCH MACHINES DURING THE RELEVANT PREVIOUS YEAR. EVEN ASSUMING THAT NO POSSESSION OF MACHINES CAN B E TAKEN BY THE APPELLANT, NO BENEFIT ACCRUES TO THE APPELL ANT AS COST OF SUCH MACHINES (BEING STOCK-IN-TRADE/TRADING ASS ET IN THE APPELLANTS BUSINESS) WILL ALSO BE REQUIRED T O BE WRITTEN OFF IN THE BOOKS OF ACCOUNT/NETTED AGAINST AMOUNT OF SUCH SECURITY DEPOSITS. ITA NO. 3800(DEL)/2009 6 IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF OUTSTANDING LIABILITIES TOWARDS SECURITY DEPOSITS AGGREGATING TO RS. 1,07,00,000/ - IS DELETED. 2.2 THE LD. DR HEAVILY RELIES ON THE ORDER OF THE AO. 2.3 IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE DRAWS OUR ATTENTION TO PAGES 5 TO 11 OF THE IMPUGNED ORDER, WHICH HAS AL READY BEEN SUMMARIZED BY US. HE ALSO DRAWS OUR ATTENTION TO PA GES 10 TO 20 OF THE PAPER BOOK, BEING THE DETAILS OF AMOUNTS WRITTEN OFF, SECURITY DEPOSITS AND ADVANCES. THIS HAS BEEN DONE WITH A VIEW TO IM PRESS THAT THERE ARE ERRORS IN THE FACTUAL FINDINGS GIVEN BY THE AO. HE RELIES ON THE ORDER OF THE LD. CIT(APPEALS) THAT SINCE LIABILITIES REMAINED TO BE PAID AND WERE SHOWN AS SUCH IN THE BOOKS OF ACCOUNT, THE PROVISIONS OF SECTIONS 28(IV) AND 41(1) ARE NOT APPLICABLE IN RESPECT OF THE AMOUNT OF RS. 1.07 CRORE BROUGHT TO TAX BY THE AO. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. THE AMOUNT OF RS. 1.07 CRORE REPR ESENTS THE SECURITY DEPOSITS RECEIVED BY THE ASSESSEE IN RESPECT OF LEASE OF MACHINES MANUFACTURED BY IT. THE LD. CIT(APPEALS) HAS FAIRLY POINTED OUT THAT THESE LIABILITIES HAVE NOT CEASED TO EXIST U/S 41(1). THE ASSESSEE HAS ITA NO. 3800(DEL)/2009 7 ALSO NOT DERIVED ANY BENEFIT OR PERQUISITE IN SO FAR AS THESE AMOUNTS ARE CONCERNED FROM CARRYING ON THE BUSINESS. CONSEQUENTLY, WE DO NOT FIND ANY ERROR IN HIS ORDER, WHICH REQUIRES AN Y INTERFERENCE FROM US. 3.1 THUS, THIS GROUND IS DISMISSED. 4. GROUND NO. 2 IS IN REGARD TO WAIVER OF LOAN AMOUNT AND INTEREST THEREON BY THE BANKS AND FINANCIAL INSTITUTION S AFTER THE ASSESSEE WAS DECLARED TO BE A SICK COMPANY BY THE BOARD FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION (BIFR FOR SHORT) LEADING TO RE-S TRUCTURING OF ITS DEBT BY CORPORATE DEBT RESTRUCTURING CELL (CDRC FOR SHOR T). THE ASSESSEE HAD CREDITED THE AMOUNT OF LOAN AND INTEREST WA IVED TO THE PROFIT AND LOSS ACCOUNT. HOWEVER, IN THE COURSE OF HEARING TH E CLAIM WAS RAISED BY WAY OF A LETTER DATED 25.11.2008 THAT THE ASSESSEE INADVERTENTLY CLAIMED RS. 5,46,95,291/- BUT OMITTED TO CLAI M THE BALANCE AMOUNT OF RS. 4,07,65,542/-, WHICH MAY NOW BE GRANTED. THIS CLAIM WAS DENIED ON THE GROUND THAT THE ASSESSEE HAS NOT FILED ANY VALID REVISED RETURN U/S 139(5) CLAIMING THIS AMOUNT. ITA NO. 3800(DEL)/2009 8 4.1 BEFORE THE LD. CIT(APPEALS), IT HAS BEEN AGITATED THAT THE ASSESSEE HAD MADE A CLAIM WHICH WAS SOUGHT TO BE REVISED IN THE COURSE OF ASSESSMENT PROCEEDINGS. THUS, IT IS A CASE OF REVISION OF CLAIM AND NOT ONE OF RAISING A FRESH CLAIM. THIS A RGUMENT HAS BEEN ACCEPTED BY THE LD. CIT(APPEALS). COMING TO THE MERITS, H IS FINDING IS THAT INTEREST HAD NOT BEEN CLAIMED IN ANY EARLIER YEAR BY THE ASSESSEE IN COMPUTATION OF INCOME BECAUSE OF THE PROVISION C ONTAINED IN SECTION 43B TO THE EFFECT THAT THE DEDUCTION SHALL BE ALLOWED ON ACTUAL PAYMENT AND NOT ON ACCRUAL OF THE LIABILITY. THEREFORE, HE GRANTED FURTHER DEDUCTION OF RS. 4,07,65,542/-. HIS FIND ING IS CONTAINED ON PAGE 25, WHICH IS REPRODUCED AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT AS WELL AS THE RELEVANT ANNEXURES OF THE TAX AUDIT REPO RT FOR EARLIER YEARS. THE APPELLANT HAS NOT CLAIMED DEDUCTIO N OF IMPUGNED INTEREST EXPENDITURE IN THE EARLIER Y EARS BY VIRTUE OF THE PROVISIONS OF SECTION 43B OF THE ACT AND FOR THAT REASON ONLY WAIVER WAS MADE BY LENDERS IN THE IMPUGNED ASSESSMENT YEAR. SINCE NO DEDUCTION WAS CLAIM ED IN THE EARLIER YEARS INTEREST WAIVED OF CANNOT BE T REATED AS INCOME IN THE RELEVANT ASSESSMENT YEAR. IN VI EW OF THE ABOVE, THE ASSESSING OFFICER IS DIRECTED TO REDUC E THE AMOUNT OF RS. 4,07,65,542/- ON ACCOUNT OF INTEREST WAIVE D OF DURING THE RELEVANT PREVIOUS YEAR FROM TAXABLE INCOM E, WHICH WAS WRONGLY OFFERED AS INCOME IN THE RETURN OF INCOM E. ITA NO. 3800(DEL)/2009 9 4.2 IN REGARD TO THE AMOUNT OF LOAN, HIS FINDIN G IS THAT THE AMOUNT HAS NOT BEEN CLAIMED IN THE PAST AND, THEREFORE, THE SAME CANNOT BE BROUGHT TO TAX U/S 41(1). HIS FINDING IS CONTAINED ON PAGE 23, WHICH IS REPRODUCED BELOW:- IN THE DECISION OF DELHI HIGH COURT IN THE CAS E OF CIT VS. PHOOL CHAND JIWAN RAM : 132 ITR 37 AND CIT VS. TOSHA INTERNATIONAL LTD.: 2008 TIOL 48 HC DEL IT, TOO, IT HAS BEEN ENDORSED THAT WAIVER OF PRINCIPAL AMOUNT OF LOANS CANNOT BE DEEMED AS INCOME UNDER SECTION 41( 1) OF THE ACT AS SUCH WAIVERS DO NOT SATISFY THE TEST OF THAT SECTION. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER IS D IRECTED TO REDUCE THE AMOUNT OF RS. 9,14,86,658/- FROM TAX ABLE INCOME OF THE APPELLANT WHICH WAS WRONGLY CREDITED TO THE PROFIT & LOSS ACCOUNT. 4.3 BEFORE US, THE LD. DR SUBMITS THAT THE QUES TION HERE IS REGARDING TAXABILITY OF THE PRINCIPAL AMOUNT AND INTEREST WAIVED BY THE BANKS AND FINANCIAL INSTITUTIONS ON ACCOUNT OF DEBT-REST RUCTURING OF THE ASSESSEE COMPANY. THE ASSESSEE RECEIVED THESE BENEFIT S IN THE COURSE OF CARRYING ON THE BUSINESS AND, THEREFORE, THESE AMOUNTS ARE INCLUDIBLE IN THE INCOME OF THE ASSESSEE U/S 28(IV). IN THE ALTERNATIVE, SINCE THESE AMOUNTS HAVE BEEN WRITTEN BACK TO PROFIT AND LOSS ACCOUNT, THESE ARE TAXABLE U/S 41(1). ITA NO. 3800(DEL)/2009 10 4.4 IN REPLY, THE LD. COUNSEL SUBMITS THAT T HE WRITING OFF OF THE PRINCIPAL AMOUNT IS A BENEFIT IN THE CAPITAL FIELD AND NOT IN THE REVENUE FIELD. IN SO FAR AS WRITING OFF OF THE INTEREST IS CONCERNED, THE AMOUNT HAD NOT BEEN CLAIMED IN ANY PREVIOUS YEAR BECAU SE OF THE PROVISION CONTAINED IN SECTION 43B. THUS, THE CONDITION THAT WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE AS SESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LI ABILITY INCURRED BY THE ASSESSEE HAS NOT BEEN SATISFIED. THEREFORE, I T IS ARGUED THE LD. CIT(APPEALS) HAS RIGHTLY GRANTED RELIEF IN T HIS MATTER. 4.5 COMING TO THE WAIVER OF PRINCIPAL AMOUNT OF LOAN IS CONCERNED, RELIANCE IS PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. PHOOL CHAND JIWAN RAM (1981) 1 31 ITR 37. RELIANCE IS ALSO PLACED ON THE DECISION IN THE CAS E OF VELOCIENT TECHNOLOGIES LTD. VS. ITO, (2009) 120 TTJ (DEL) 659, CIT VS . TOSHA INTERNATIONAL LTD. (2009) 176 TAXMAN 187 (DEL), AND CIT VS. JINDAL EQUIPMENTS LEASING & CONSULTANCY SERVICES LTD. IN ITA NO . 51 OF 2009 AND CM NO. 15419 DATED 23.12.2009. THE CASES OF CIT VS. T.V. SUNDARAM IYENGAR & SONS LTD. (1996) 222 ITR 344 (SC), MAHINDRA AND MAHINDRA LTD. VS. CIT (2003) 261 ITR 501 (BOM .), SOLID CONTAINERS ITA NO. 3800(DEL)/2009 11 LTD. VS. DEPUTY CIT AND ANOTHER (2009) 308 IT R 417 (BOM.) AND JAY ENGINEERING WORK LTD. VS. CIT (2009) 311 ITR299 W ERE ALSO DISCUSSED. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE HAD RAISED LOANS FOR PURCHASE OF CAPITAL EQUIPMENT AND WORKING CAPITAL FROM THE BANKS AND FINANCIAL INSTITUTIONS IN PAST. ON ITS DEBT-R ESTRUCTURING TERM LOAN OF RS. 7,09,44,190/- AND WORKING CAPITAL OR CASH CRED IT LIMIT LOAN OF RS. 2,05,42,468/- WERE WAIVED BY THEM. THE QUEST ION IS WHETHER, ANY OF THESE TWO AMOUNTS ARE LIABLE TO BE TAXED U/ S 41(1) OR SECTION 28(IV) OF THE ACT? 5.1 IN THE CASE OF PHOOL CHAND JIWAN RAM (SUPRA) , THE RELEVANT FACTS ARE THAT THE ASSESSEE HAD PURCHASED GOODS IN AN EARLIER YEAR FROM M/S NARSINGHDASS BANARSIDASS, THE PAYMENT IN RESPE CT OF WHICH WAS MADE BY M/S JANAKI DASS BANARSI DASS. THE AMOUNT WAS SUBSEQUENTLY WAIVED. THE CASE OF THE REVENUE WAS THAT THE AMOUNT SO PAID SHOULD BE TAKEN TOWARDS PURCHASE OF CLOTH AND, THEREFORE, IT REPRESENTS A TRADING LIABILITY. THE HONBLE COURT CAME TO THE CONCL USION THAT THIS CONCLUSION WAS RATHER FAR-FETCHED. THE CLOTH WAS PURCHASE D FROM M/S ITA NO. 3800(DEL)/2009 12 NARSINGHDASS BANARSIDASS AND THE DEBT REPRESE NTED A TRADING DEBT. HOWEVER, SO FAR AS M/S JANAKI DASS BANARSI D ASS IS CONCERNED, THE PAYMENT MADE BY IT WAS NOT FOR THE PURPOSE O F PURCHASE OF STOCK-IN- TRADE. THEREFORE, IT WAS HELD THAT THE LIABILI TY WAS NOT A TRADING LIABILITY AND THE AMOUNT WAIVED COULD NOT BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. FOR READY REFERENCE, THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW:- THE POINT THAT IS URGED ON BEHALF OF THE DEPART MENT BEFORE US, AS WAS ALSO URGED BEFORE THE TRIBUNAL, WA S SLIGHTLY DIFFERENT. IT WAS POINTED OUT THAT FOR THE PE RIOD FROM NOVEMBER 12, 1947, TO OCTOBER 30, 1948, THE ASS ESSEE-FIRM HAD PURCHASED CLOTH WORTH RS. 3,75,120/- FROM A FIRM IN BOMBAY STYLED AS M/S NARSINGHDASS BANARSIDASS. ON THE LAST DAY OF THE ACCOUNTING YEAR, I.E., OC TOBER 30, 1948, THIS ACCOUNT HAD BEEN DEBITED WITH A SUM OF RS. 1,80,000/- REPRESENTING THE AMOUNT PAID TO THAT FIRM BY M/S JANKI DASS BANARSI DASS ON BEHALF OF THE ASSESSEE-FI RM. THE ARGUMENT IS THAT TO THE EXTENT THE ACCOUNT OF M/S JANKI DASS BANARSI DASS REFLECTS A CREDIT OF RS. 1,80,000/ - ON ACCOUNT OF THIS CASH PAYMENT IT SHOULD ALSO BE TREATED AS A PAYMENT TO M/S JANKI DASS BANARSI DASS FOR THE PURCHASE OF CLOTH FROM THE BOMBAY FIRM AND, THEREFORE, IS IN EFFECT REPRESENTING A TRADING LIABILITY OF THE ASSESSEE-FIRM. WE A GREE WITH THE TRIBUNAL THAT THIS CONSTRUCTION OF THE TRANSACTI ON IS FAR- FETCHED. THE PURCHASE OF CLOTH BETWEEN NOVEMBER 12, 1947, AND OCTOBER 30, 1948, WAS EFFECTED BY THE AS SESSEE FROM THE BOMBAY FIRM. THE DEBT OWED BY THE ASSESSEE TO THE BOMBAY FIRM WAS A TRADING DEBT AND THAT WAS NO DOUBT ALLOWED FOR THE PURPOSE OF INCOME-TAX. HOWEV ER, SO FAR AS THE ACCOUNT OF M/S JANKI DASS BANARSI DASS I S CONCERNED, THE LIABILITY OF THE ASSESSEE TO THIS PARTY ARO SE BECAUSE THE ITA NO. 3800(DEL)/2009 13 ABOVE PARTY HAD PAID A SUM OF RS. 1,80,000/- TO THE BOMBAY FIRM ON THE ASSESSEES ACCOUNT. IN OTHER WOR DS, VIS--VIS THE ASSESSEE AND M/S JANKI DASS BANARSI DASS, THIS WAS NOT A PAYMENT MADE FOR THE PURCHASE OF STOCK-IN-TRA DE; IT WAS A CREDIT IN RESPECT OF AN AMOUNT BORROWED BY THE ASSESSEE FROM M/S JANKI DASS BANARSI DASS IN ORDER TO DI SCHARGE ITS LIABILITY TO THE BOMBAY FIRM. THE SUM OF RS. 1,80,000/- WHICH IS REFLECTED IN THE ACCOUNT OF M/S JANK I DASS BANARSI DASS COULD NOT, THEREFORE, BE DESCRIBED AS A LIABILITY ON TRADING ACCOUNT. AS RIGHTLY POINTED OUT BY TH E TRIBUNAL, SEC. 10(2A) ENACTS A STATUTORY FICTION. THE OPERATION OF THIS FICTION SHOULD BE LIMITED TO THE LANGUAGE OF THE SECTION. IT IS ONLY WHERE THE ASSESSEE HAS INCURRED A TRADING LIABILITY AND THIS TRADING LIABILITY HAS BEEN ALLOWED IN EARLIER YEARS THAT S. 10(2A) IS ATTRACTED ON T HE OCCASION WHEN THE TRADING LIABILITY IS EITHER REMITTED OR CEASED TO EXIST. IN OUR OPINION, THE TRIBUNAL WAS RIGHT IN COMING TO THE CONCLUSION THAT THE SUM OF RS. 1,80,000/- DID NOT REPRESENT A TRADING LIABILITY OWED BY THE ASSESSEE TO M/S JANKI DASS BANARSI DASS, NOR HAD THIS AMOUNT OF LIABILITY B EEN ALLOWED AS A DEDUCTION IN EARLIER ASSESSMENTS. 5.2 IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA), THE ASSESSEE RECEIVED DEPOSITS IN THE COURSE OF BU SINESS WHICH WERE TREATED AS CAPITAL RECEIPTS. SOME DEPOSITS WERE NOT C LAIMED AND SOME WERE NOT RETURNED TO THE DEPOSITORS. THESE WERE WRITTEN OFF TO THE CREDIT OF THE PROFIT AND LOSS ACCOUNT. THE HONBLE COURT C AME TO THE CONCLUSION THAT THE TRANSACTIONS WERE IN THE COURSE OF BUSINE SS. ALTHOUGH, ORIGINALLY THE RECEIPTS WERE CAPITAL IN NATURE BUT THIS CHA RACTER CHANGED WHEN THE AMOUNT WAS CREDITED TO PROFIT AND LOSS ACC OUNT. THE ASSESSEE BECAME ITA NO. 3800(DEL)/2009 14 RICHER BY THIS AMOUNT BY TREATING IT ITS OWN MONEY. THEREFORE, THE RECEIPTS WERE LIABLE TO BE TAXED U/S 28(IV). 5.3 IN THE CASE OF MAHINDRA AND MAHINDRA LTD. ( SUPRA), THE FACTS ARE SOMEWHAT MORE INVOLVED IN AS MUCH AS THE PURCHA SE CONSIDERATION OF THE TOOLS WAS CONVERTED INTO LOAN, FOR WHICH THE ASSESSEE HANDED OVER THREE PROMISSORY NOTES. THIS COMPANY WAS TAKEN OVE R BY ANOTHER COMPANY, WHICH DECIDED TO WRITE OFF THE LOAN AS A PA RT OF TAKE-OVER DEAL, POSSIBLY LOOKING TO THE PAUCITY OF FOREIGN EXCH ANGE IN INDIA. ONE OF THE QUESTIONS WAS WHETHER THE AMOUNT SO WRITTEN OFF WAS INCOME OF THE ASSESSEE U/S 28(IV). THE FINDING OF THE HONBLE COURT IS COUCHED WITH RESERVATIONS, BUT IT WAS FINALLY HELD THAT TH E WAIVER DID NOT CONSTITUTE BUSINESS INCOME. FOR THE SAKE OF READY REFERE NCE, THE RELEVANT PORTIONS OF THE JUDGMENT ARE REPRODUCED BELOW:- AT THE OUTSET, WE WISH TO CLARIFY THAT THIS JUDGMENT IS CONFINED TO THE FACTS OF THIS CASE. THIS IS BE CAUSE THE VALUE OF ANY BENEFIT OR PERQUISITE ARISING FROM BUSINE SS, AS CONTEMPLATED BY SECTION 28(IV), COULD ACCRU E IN NUMEROUS WAYS. THE INCOME WHICH CAN BE TAXED UNDER SE CTION 28(IV) MUST NOT ONLY BE REFERABLE TO A BENEFIT OR P ERQUISITE, BUT IT MUST BE ARISING FROM BUSINESS. SECONDLY, SEC TION 28(IV) DOES NOT APPLY TO BENEFIT IN CASH OR MONEY (SE E CIT VS. ALCHEMIC PVT. LTD. [1981] 130 ITR 168 (GUJ.)). APPLYING SECTION 28(IV) TO THE FACTS OF THIS CASE, ONE FINDS THAT ON ITA NO. 3800(DEL)/2009 15 JUNE 18,1964, THE ASSESSEE ENTERED INTO AN A GREEMENT TO PURCHASE TOOLINGS FROM KJC. IN 1964-65, INDI A WAS FACING FOREIGN EXCHANGE CRUNCH. IN THE CIRCUMSTANCES, AROUND JUNE 7, 1965, THE GOVERNMENT OF INDIA AND THE RES ERVE BANK OF INDIA, IN THIS CASE, APPROVED THE ARRANGEMENT UNDER WHICH KJC (SUPPLIER OF TOOLINGS) WAS PERMITTED TO ADVAN CE A LOAN OF $ 6,50,000 TO THE ASSESSEE FOR TEN YEARS BEARIN G INTEREST AT THE RATE OF 6 PER CENT, FREE FROM INCOME-TAX . KJC WAS LATER ON TAKEN OVER BY AMC AND AS A PART OF TAKE-OVER, AMC AGREED TO WAIVE THE PRINCIPAL AMOUNT OF T HE LOAN AND NOT THE INTEREST. IN THE CIRCUMSTANCES, AS STATED IN THE ABOVE THREE UNDISPUTED FACTS, THE ASSESSEE PAID INTEREST AT 6 PER CENT PER ANNUM FOR TEN YEARS, BEING TH E CONTRACTUAL PERIOD. ACCORDING TO THE ASSESSING OFFICER, THE L OAN AROSE FROM BUSINESS DEALINGS. ACCORDING TO THE ASS ESSING OFFICER WHEN AMC WAIVED THE LOAN, THE CREDITS BEC AME PART OF BUSINESS INCOME; THAT PRIOR TO SUCH WAIVER, THE CREDITS REPRESENTED LIABILITY. IN THE CIRCUMSTANCES, TH E ASSESSING OFFICER HAS TAXED SUCH CREDITS AS BUSINESS IN COME. HOWEVER, IN THIS CONNECTION, THERE ARE TWO IMP ORTANT FACTS WHICH ARE OVERLOOKED BY THE ASSESSING OFFICER. FI RSTLY, THE ASSESSEE HAS CONTINUED TO PAY INTEREST AT 6 PE R CENT FOR A PERIOD OF TEN YEARS ON THE LOAN AMOUNT. IN TH IS CASE, THE ASSESSING OFFICER HAS NOT GONE BEHIND THE LOAN AGREEMENT. IN THIS CASE, THE APPROVAL BY THE GOVERNMENT OF INDIA AND THE RESERVE BANK OF INDIA ARE ON RECORD. IN THIS CASE, THE AGREEMENT FOR PURCHASE OF TOOLINGS WAS ENTERED INTO, MUCH PRIOR TO THE APPROVAL OF THE LOAN ARRANGEMEN T GIVEN BY THE RESERVE BANK OF INDIA. THEREFORE, THE LOAN ARR ANGEMENT, IN ITS ENTIRETY, WAS NOT OBLITERATED BY SUCH WAI VER. SECONDLY, IN THIS CASE WE ARE CONCERNED WITH THE PURCHA SE CONSIDERATION RELATING TO CAPITAL ASSET. THE TO OLINGS WERE IN THE NATURE OF DIES. THE ASSESSEE WAS A MANUFA CTURER OF HEAVY VEHICLES AND JEEPS. IT REQUIRED THESE DIES FOR EXPANSION. THEREFORE, THE IMPORT WAS THAT OF PLANT AND MACHINERY. THE CONSIDERATION PAID WAS FOR SUCH IMPORT. IN THE CIRCUMSTANCES, SECTION 28(IV) IS NOT ATTRAC TED. LASTLY, WE MAY MENTION THAT, IN THIS CASE, AMC AGREED TO FOREGO THE PRINCIPAL AMOUNT OF LOAN AS A PART OF TAKE-OVE R ARRANGEMENT WITH KJC TO WHICH THE ASSESSEE WAS NOT A PAR TY. THE ITA NO. 3800(DEL)/2009 16 WAIVER OF THE PRINCIPAL AMOUNT WAS UNEXPECTED. IN THE CIRCUMSTANCES, ONE FAILS TO UNDERSTAND HOW SU CH WAIVER WOULD CONSTITUTE BUSINESS INCOME. 5.4 COMING TO THE CASE OF SOLID CONTAINERS LTD. (SUPRA), IN WHICH THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD. WAS R EFERRED TO, AND THE CASE OF MAHINDRA AND MAHINDRA LTD. WAS DISTINGU ISHED, IT HAS BEEN MENTIONED THAT IN THE CASE OF MAHINDRA AND MA HINDRA LTD., THERE WAS A CLEAR FINDING THAT THE ASSESSEE CONTINUED T O PAY INTEREST @ 6% FOR A PERIOD OF 10 YEARS AND THE AGREEMENT FOR PURC HASE OF TOOLS WAS ENTERED INTO MUCH PRIOR TO APPROVAL OF LOAN ARRANGE MENT BY THE RESERVE BANK OF INDIA. THEREFORE, THE LOAN AGREEMENT WAS NOT ENTIRELY OBLITERATED BY THE WAIVER. FURTHER, IN THAT CASE PURCHASE CON SIDERATION RELATED TO A CAPITAL ASSET. IN THE PRESENT CASE, THE LOAN WAS TAKEN FOR TRADING ACTIVITY AND THUS THE PRINCIPLE ENUNCIATED IN TH E CASE OF T.V. SUNDARAM IYENGAR & SONS LTD. WOULD BE APPLICABLE. SIMI LAR VIEW WAS ALSO TAKEN BY HONBLE MADRAS HIGH COURT IN THE CASE OF ARIES ADVERTISING PVT. LTD. (2002) 255 ITR 510, IN WHICH IT WA S HELD THAT BECAUSE OF TRADING OPERATIONS, THE ASSESSEE BECAME RICHER BY THE AMOUNT WHICH HAD BEEN TRANSFERRED TO PROFIT & LOSS ACCOUNT . ITA NO. 3800(DEL)/2009 17 5.5 COMING TO THE CASE OF VELOCIENT TECHNOLOGIE S LTD. (SUPRA), THE FACTS OF THE CASE ARE THAT THE ASSESSEE FOR FEITED A SUM OF RS. 10.65 CRORE, CLAIMED TO BE A LOAN FROM A COMPANY C ALLED SFT AND CREDITED THE AMOUNT TO THE RESERVE AND SURPLUS ACCOUNT. THAT COMPANY ENTERED INTO A JOINT VENTURE AGREEMENT WITH THE AS SESSEE UNDER WHICH EQUITY AND THE AFORESAID LOAN OF RS. 10.65 CRORE WE RE CONTRIBUTED. THE TENURE OF THE LOAN WAS FIVE YEARS AND NO INTEREST WAS PAYABLE FOR INITIAL PERIOD OF FIVE YEARS. THEREAFTER, INTEREST @ 6 % WAS PAYABLE. THE TRIBUNAL CAME TO THE CONCLUSION THAT THE AMOUNT WAS NOT RECEIVED IN THE COURSE OF BUSINESS OPERATION BUT THE SAME WAS RECEIVED EVEN BEFORE ANY BUSINESS OF SOFTWARE DEVELOPMENT HAD S TARTED. THEREFORE, IT COULD NOT BE SAID THAT THE BENEFIT ACCRUED OUT OF ORDINARY TRADING TRANSACTIONS. THUS, THE MATTER WAS DECIDED AG AINST THE REVENUE. 5.6 COMING TO THE CASE OF TOSHA INTERNATIONAL LTD. (SUPRA), THE FACTS ARE THAT THE ASSESSEE WAS ENGAGED IN MANUFA CTURING OF BLACK AND WHITE PICTURE TUBES. IT RAN INTO HUGE LOSSES AND U LTIMATELY BECAME A SICK COMPANY AND WAS SO REGISTERED WITH THE BIF R. UNDER ONE TIME SETTLEMENT SCHEME, THE BANKS AND FINANCIAL INSTITUTIONS REQUIRED THE ITA NO. 3800(DEL)/2009 18 ASSESSEE TO PAY 60% OF THE AMOUNT TOWARDS THE PR INCIPAL AND WAIVED THE ENTIRE INTEREST AMOUNT. THE QUESTION BEFORE THE COURT WAS-WHETHER, WAIVER OF THE PRINCIPAL AMOUNT OF ABOUT RS. 10. 48 CRORE, CREDITED TO THE CAPITAL RESERVE ACCOUNT, CONSTITUTED INCOME? T HE COURT CAME TO THE CONCLUSION THAT THE AMOUNT IS NOT COVERED BY THE PROVISION CONTAINED IN SECTION 41(1). IT WAS ALSO MENTIONED THAT T HE PRINCIPLES ENUNCIATED IN THE CASE OF MAHINDRA AND MAHINDRA LTD. ARE FU LLY APPLICABLE. 5.7 COMING TO THE CASE OF JINDAL EQUIPMENT LEAS ING & CONSULTANCY SERVICES LTD. (SUPRA), IT WAS MENTIONED THAT TH E INCOME WHICH CAN BE TAXED U/S 28(IV) MUST NOT ONLY BE REFERABLE T O A BENEFIT OR PERQUISITE, IT MUST BE ARISING FROM BUSINESS. CONSEQUENTLY, IT WAS HELD THAT THE AMOUNT OF ABOUT RS. 1.47 CRORE WRITTEN OFF TO T HE CREDIT OF PROFIT AND LOSS ACCOUNT IN RESPECT OF JINDAL STEEL & POWER LTD. , DID NOT CONSTITUTE INCOME U/S 28(IV). 5.8 IN THE CASE OF JAY ENGINEERING WORK LTD. (SUP RA), UNCLAIMED BALANCES OF RS. 1,16,240/- WERE WRITTEN OFF TO TH E CREDIT OF P & L ACCOUNT. THE HONBLE COURT MENTIONED THAT THE LIABILITY IS CONTRACTUAL AND NOT STATUTORY IN NATURE. AFTER CONSIDERING THE CA SE OF TVS IYENGAR & SONS ITA NO. 3800(DEL)/2009 19 LTD., CIT VS. SUGAULI SUGAR WORKS (P) LTD. (1999) 236 ITR 518 (SC) AND OTHERS, IT CAME TO THE CONCLUSION THAT THE AMOUNT REPRESENTED INCOME AS SETTLED IN THE CASE OF TVS IYENGA R & SONS LTD. 6. WE MAY FIRSTLY TAKE UP THE MATTER REGARDING TAXABILITY OF THE LOAN AMOUNT WAIVED BY THE BANKS AND THE FINANCIAL INSTITUTIONS. THE DETAILS OF THE LOAN HAVE BEEN FURNISHED IN TWO PARTS, THE FIRST BEING THE TERM- LOAN AND THE SECOND BEING CASH-CREDIT LIMIT. THE TERM-LOANS ARE AS UNDER:- S.NO. NAME OF INSTITUTION AMOUNT (RS.) 1 LIFE INSURANCE CORPORATION OF INDIA 8,925,261.00 2 UNIT TRUST OF INDIA 11,786,334.00 3 GENERAL INSURANCE COMPANY OF INDIA 581,955.00 4 THE ORIENTAL INSURANCE COMPANY LTD. 581,955.00 5 UNITED INDIA INSURANCE COMPANY LTD. 581,955.00 6 FEDERAL BANK LIMITED 2,672,043.00 7 IDBI NEW LOAN 33,852,171.00 8 CANARA BANK TL 5,292,000.00 9 WCTL SBI 7,779,126.00 10 WCTL SBM 13,583,693.00 11 ICICI LOAN 7,425,000.00 12 UNIT TRUST OF INDIA 1,455,365.00 TOTAL: 70,944,190.00 ITA NO. 3800(DEL)/2009 20 6.1 THE LOAN BY WAY OF CASH-CREDIT LIMIT, WRIT TEN OFF BY THE BANKS ARE AS UNDER:- S.NO. NAME OF BANK AMOUNT(RS.) AMOUNT (RS.) (I) STATE BANK OF INDIA 13,215,818.00 (II) STATE BANK OF MYSORE 18,426,756.00 (III) CANARA BANK 28,893,320.00 TOTAL: 60,535,894 .00 LESS: WAIVER OF INTEREST DEBITED DURING THE YEAR 20,457,235.00 LESS: WAIVER OF INTEREST PERTAINING TO PREVIOUS YEARS 19,536,191.00 39,993,426.00 WAIVER OF PRINCIPAL AMOUNT 20,542,468.00 6.2 IN SO FAR AS TERM-LOANS ARE CONCERNED, I T IS CLEAR THAT THESE WERE TAKEN FOR PURCHASE OF CAPITAL ASSETS FROM TIME TO TIME. THE FACTS OF THE CASE OF VELOCIENT TECHNOLOGIES LTD. (SUPRA) ARE SOMEWHAT DIFFERENT AS IN THAT CASE THE ASSESSEE HAD RECEIVED EQUITY CONTRIBUTION AND LOAN FROM A FOREIGN COLLABORATOR FOR SETTING UP JOINT V ENTURE AGREEMENT. THE SAME WAS RECEIVED EVEN BEFORE THE BUSINESS WAS ST ARTED. THEREFORE, THE RATIO OF THAT CASE IS NOT APPLICABLE TO THE FACTS OF THIS CASE, AS IN THIS CASE LOANS HAVE BEEN RECEIVED FROM TIME TO TIME. T HE FACTS OF THE CASE OF TOSHA INTERNATIONAL LTD., DECIDED BY THE JURISDI CTIONAL HIGH COURT, ARE QUITE SIMILAR TO THE FACTS OF THIS CASE. IN T HIS CASE, THAT ASSESSEE RAN ITA NO. 3800(DEL)/2009 21 INTO HUGE LOSSES AND WAS DECLARED TO BE A S ICK COMPANY. UNDER ONE- TIME SETTLEMENT SCHEME, THE BANKS REQUIRED THE ASSESSEE TO PAY 60% OF THE AMOUNT DUE TOWARDS PRINCIPAL AND WAIVED TH E ENTIRE INTEREST PAYMENT. IT WAS THE CASE OF THE REVENUE THAT THE ASSESSEE HAD DERIVED BENEFIT BY WAY OF DEPRECIATION. THE LD. CIT(A) DELETED THE ADDITION, WHICH WAS UPHELD BY THE TRIBUNAL BY MAKING THE F OLLOWING OBSERVATIONS:- AS PER OUR CONSIDERED VIEW, FOR ATTRACTING T HE PROVISIONS OF SECTION 41(1), THE FIRST REQUISITE CONDITION TO BE SATISFIED IS THAT THE ASSESSEE SHOULD HAVE GOT DEDUCTION OR BENEFIT OF ALLOWANCE IN RESPECT OF LOSS, EXPENDITURE OR T RADING LIABILITY INCURRED BY IT AND SUBSEQUENTLY DURING ANY PRE VIOUS 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 W OULD BECOME INCOME ONLY IF THE ASSESSEE HAS CLAIME D DEDUCTION IN RESPECT OF EXPENDITURE OR TRADING LIABILITY . IN MAHINDRA & MAHINDRA LTD. VS. CIT [ 2003] 261 ITR 501, HO NBLE HIGH COURT OF BOMBAY HELD THAT NO ALLOWANCE OR DEDUCTION HAVING BEEN ALLOWED IN RESPECT OF LOAN TAKEN BY ASSESSEE FOR PURCHASE OF 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 ACQUISITION OF CAPITAL ASSETS AS TH E SAME HAS BEEN REFLECTED IN THE BALANCE SHEET AND NOT IN THE P & L ACCOUNT, AND ALSO THE REMISSION OF THE PRINCIPAL AMOUNT OF LOAN SO OBTAINED FROM THE BANK AND FINANCIAL INSTITUTION HAD NOT BEEN CLAIMED AS EXPENDITURE OR TRADING LIABILITY IN ANY OF THE EARLIER PREVIOUS YEAR. SO FAR A S WAIVER OF INTEREST IS CONCERNED, THE ASSESSEE-COMPANY ITS ELF HAS TREATED THE SAME EITHER AS INCOME OR HAS NOT CLAIMED THE ITA NO. 3800(DEL)/2009 22 SAME AS EXPENDITURE IN THE COMPUTATION OF INCOME FILED BEFORE THE LOWER AUTHORITIES. 6.3 THE HONBLE HIGH COURT UPHELD THIS ORDER BY MENTIONING THAT THE DECISION WAS BASED ON CORRECT APPRECIATION OF L AW AND THE PRINCIPLES ENUNCIATED IN MAHINDRA & MAHINDRA LTD WERE FUL LY APPLICABLE. FROM THIS DECISION, IT IS CLEAR THAT THE PROVISION OF SECTION 41(1) IS NOT APPLICABLE IN RESPECT OF A LOAN. THE TRIBUNAL DELETED THE ADDITION BY APPLYING THE PROVISION CONTAINED IN THE AFORESA ID SECTION. HOWEVER, THE PROVISION CONTAINED IN SECTION 28(IV) WAS NOT CONSIDERED BY THE TRIBUNAL. THIS PROVISION WAS CONSIDERED IN THE CASE OF MAHINDRA & MAHINDRA LTD. THE RELEVANT PORTION OF THE JUDGMENT IN THAT CAS E HAS ALREADY BEEN REPRODUCED BY US. IT HAS ALSO BEEN MENTIONED T HAT THAT DECISION IS COUCHED IN A CAUTIOUS LANGUAGE AND THE FACTS AR E SOMEWHAT MORE COMPLICATED. THEREFORE, WE WILL NOT LIKE TO BASE OUR DECISION ON THAT JUDGMENT PARTICULARLY BECAUSE THE HONBLE COURT ITSELF MENTIONED THAT THIS JUDGMENT IS CONFINED TO THE FACTS OF THIS CASE. COMING TO THE CASE OF AFORESAID JINDAL EQUIPMENT, THE FACTS ARE THA T THE ASSESSEE REFLECTED A LOAN OF RS. 6,80,31,189/- PAYABLE TO JSPL. OUT OF THIS, JSPL WROTE OFF A SUM OF RS. 1,46,53,065/- IN ITS BOOKS. THE AO TREATED THIS AMOUNT AS THE INCOME OF THE ASSESSEE ON THE PREMISE THAT LIABILITY TO THIS EXTENT ITA NO. 3800(DEL)/2009 23 CEASED TO EXIST AND THE ASSESSEE STOOD TO G AIN THIS AMOUNT. THE AMOUNT WAS ASSESSED U/S 41(1). THE CIT(APPEALS) ALSO CONSIDERED THE PROVISION OF SECTION 28(I) AND UPHELD THE ADDITION. THE TRIBUNAL DELETED THE ADDITION BY STATING THAT THE AMOUNT WAS NEV ER CLAIMED AS DEDUCTION IN THE PAST AND, THEREFORE, THE PROVISION CONTAIN ED IN SECTION 41(1) WAS NOT APPLICABLE. THE HONBLE HIGH COURT CONSIDERE D THE AFORESAID PROVISION AND THE PROVISIONS CONTAINED IN SECT ION 28(IV) ALSO. THE FINDING OF THE COURT IS THAT THE BENEFIT MUST NOT ARISE IN CASH AND THE BENEFIT OR PERQUISITE MUST ARISE IN THE COURSE OF BUSINES S. ON THE FACTS, IT HAS BEEN HELD THAT LOOKING TO NATURE OF BUSINESS, THE AMOU NT CONSTITUTED CAPITAL RECEIPT. ON ANALYZING THE FACTS OF OUR CASE I N SO FAR AS TERM-LOANS ARE CONCERNED, WE FIND THAT THOSE WERE RAISED FO R PURCHASE OF MACHINERY AND PLANT WITH STIPULATION TO PAY INTEREST. THESE MONIES DID NOT COME IN POSSESSION OF THE ASSESSEE ON ACCOUNT OF ANY TRADING TRANSACTION. IN OTHER WORDS, THE RECEIPTS WERE CAPITAL IN NAT URE, BEING LOAN PAYABLE OVER A PERIOD OF TIME ALONG WITH INTEREST. T HEREFORE, IT CANNOT BE SAID THAT ON WRITING OFF OF THE LOANS, ANY BENEFIT OR PERQUISITE ARISES TO THE ASSESSEE IN THE REVENUE FIELD. IF ANY BENEFIT ETC. ARISES, IT IS IN THE CAPITAL FIELD AS HELD IN THE CASE OF JINDAL EQUIPME NTS LEASING & CONSULTANCY SERVICES LTD. ITA NO. 3800(DEL)/2009 24 7. THE POSITION IN CASE OF LOANS WRITTEN OFF IN CASH-CREDIT ACCOUNT IS SOMEWHAT DIFFERENT AS THE LOANS WERE RECEIVED F OR CARRYING OUT DAY-TO-DAY OPERATIONS OF THE ASSESSEE. THE DECISION OF HO NBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD. SUPPORTS THE REVENUE. IN THAT CASE, THE AO HAD MADE ADDITION ON THE GROUND THAT T HE CREDIT BALANCE WRITTEN BACK TO PROFIT & LOSS ACCOUNT IS A BENEFIT DIR ECTLY ARISING OUT OF BUSINESS ACTIVITIES. THIS FINDING WAS REJECTED BY THE TRIBUNAL. THE DETAILED FACTS ARE THAT THE ASSESSEE HAD TA KEN A LOAN OF RS. 6,86,071/- FROM M/S P.S.JAIN MOTORS, WHICH WAS WRITTEN BACK TO PROFIT & LOSS ACCOUNT ON THE BASIS OF CONSENT TERMS ARRIVED AT BETWEEN THEM. IT WAS CLAIMED THAT THE RECEIPT IS CAPITAL IN NATURE . THE HONBLE COURT CONSIDERED THE DECISION IN THE CASE OF T.V. S UNDARAM IYENGAR & SONS LTD., MAHINDRA & MAHINDRA LTD. AND FOUND THAT N O SUPPORT COULD BE DERIVED BY THE ASSESSEE FROM THE LATTER DECISIO N. IT WAS MENTIONED THAT THE MONEY WAS RECEIVED BY THE ASSESSEE IN THE COURSE OF CARRYING ON BUSINESS. AT THE TIME OF RECEIPT IT WAS TREAT ED AS A DEPOSIT AND, THUS, THE RECEIPT WAS OF CAPITAL NATURE. HOWEVER, BY EFFLUX OF TIME, THE MONEY BECAME ASSESSEES OWN MONEY. THE MONEY WAS TAK EN TO PROFIT AND LOSS ACCOUNT. THEREFORE, THE CHARACTER OF THE RECEI PT CHANGED WHEN THE AMOUNT ITA NO. 3800(DEL)/2009 25 WAS CREDITED TO PROFIT AND LOSS ACCOUNT AS THERE WAS NO EXPLANATION AS TO WHY SOMEBODY ELSES MONEY WAS TAKEN TO P ROFIT AND LOSS ACCOUNT. THE HONBLE COURT NOTED THAT SIMILAR VIEW WAS TAKEN IN THE CASE OF ARIES ADVERTISING PVT. LTD. BY HONBLE MADRAS HIGH COURT. COMING TO THE FACTS OF THIS CASE, THE ASSESSEE OBTAINED CASH CREDIT LIMITS FROM STATE BANK OF INDIA, STATE BANK OF MYSORE AND CAN ARA BANK FOR ITS BUSINESS OPERATIONS. THESE MONIES WERE USED FO R DAILY OPERATIONS. THE PRINCIPAL AMOUNT TO THE EXTENT OF ABOUT RS 2 .05 CRORE HAS NOW BEEN WRITTEN OFF TO THE CREDIT OF PROFIT AND LOSS ACCOUNT. IF WE APPLY THE RATIO OF THE DECISION OF HONBLE BOMBAY AND MADRAS HIGH COURT, THE CHARACTER OF RECEIPTS CHANGES WHEN THE AMOUNTS ARE CREDITED TO PROFIT AND LOSS ACCOUNT. THIS BENEFIT ARISES IN THE BUSINESS OPERATIONS OF THE ASSESSEE AS THE MONIES HAVE BEEN BORROWED FOR DAY-TO-DAY OPERATIONS. HOWEVER, THE CASE OF THE LD. COUNSEL IS THAT TH E DECISION OF HONBLE DELHI HIGH COURT IS DIFFERENT FROM THE DECISIO N OF BOMBAY & MADRAS HIGH COURTS IN THIS MATTER. IN THIS CONNECTION, THE CASE OF PHOOL CHAND JIWAN RAM HAS BEEN CITED. IN THAT CASE, THE C REDITOR HAD PAID THE LIABILITY OF THE ASSESSEE ARISING ON ACCOUNT OF PURCHASE OF CLOTH. THIS LIABILITY WAS WRITTEN OFF. THE DECISION OF HONBLE DELHI HIGH COURT IS THAT THE LIABILITY WAS NOT FOR PURCHASE OF CL OTH BUT IT WAS AN AMOUNT ITA NO. 3800(DEL)/2009 26 BORROWED FROM M/S JANAKI DASS BANARSI DASS. THIS LIABILITY WAS NOT A TRADING LIABILITY AS THE TWO TRANSACTIONS WE RE SEPARATE AND INDEPENDENT. IT MAY BE MENTIONED IN THE FIRST PLACE THAT THE DECISION WAS RENDERED UNDER THE OLD ACT AND MUCH PRIOR TO RENDERI NG THE DECISION IN THE CASE OF T.V. SUNDRAM IYENGAR & SONS LTD. TO OUR MIND, THE AFORESAID DECISION OF THE HONBLE SUPREME COURT UNSETTLES SOME OF THE EARLIER DECISIONS TO THE EFFECT THAT THE CHARACTER OF A RECEIPT IS ONCE AND FOR ALL DECIDED AT THE TIME IT WAS OBTAINED. IT HAS B EEN HELD THAT THE CHARACTER MAY CHANGE SUBSEQUENTLY WHEN THE AMOUNT IS CRE DITED TO PROFIT AND LOSS ACCOUNT, MORE SO WHEN IT IS A BENEFIT RECEIVE D IN THE COURSE OF CARRYING ON THE BUSINESS. THEREFORE, THE FACTS OF THE CASE, TO OUR MIND, COME NEARER TO THE FACTS OF THE CASE OF T.V. SUNDA RAM IYENGAR & SONS LTD. RATHER THAN PHOOL CHAND JIWAN RAM. WE HAVE A LREADY MENTIONED THAT THE DECISION IN THE CASE OF MAHINDRA & MAHIND RA LTD. IS CONFINED TO PECULIAR FACTS OF THAT CASE. IN THE CASE OF VELOCIENT TECHNOLOGIES LTD., THE BENEFIT WAS RECEIVED AT A TIME WHEN BUSI NESS WAS NOT EVEN COMMENCED. FROM THE DECISION IN THE CASE OF TO SHA INTERNATIONAL LTD., IT IS NOT CLEAR WHETHER ANY AMOUNT OF LOAN WAS OUTSTANDING IN RESPECT OF CASH-CREDIT ACCOUNT ALSO. IN THAT CASE THE AMOUNT WAS DIRECTLY CREDITED TO CAPITAL RESERVE ACCOUNT AND NOT T O PROFIT AND LOSS ACCOUNT. ITA NO. 3800(DEL)/2009 27 IN REGARD TO TERM-LOAN, WE HAVE ALREADY GRAN TED RELIEF TO THE ASSESSEE NOTWITHSTANDING THE ARGUMENT OF THE REVENUE T HAT DEPRECIATION WAS ALLOWED IN PAST ON THE MACHINERY AND PLANT. T HE FACTS OF THIS CASE ARE ALSO DISTINGUISHABLE. IN THE CASE OF JINDAL EQUIPM ENTS LEASING & CONSULTANCY SERVICES LTD., THE BACKGROUND FAC TS LEADING TO LOAN OF ABOUT RS. 6.8 CRORE ARE NOT AVAILABLE. ONLY A PART OF THE LOAN WAS WRITTEN OFF BY THE CREDITOR IN ITS BOOKS OF ACCOUNT. THUS, IT HAS NOT BEEN DEMONSTRATED BEFORE US THAT IN THAT CA SE THE LOAN WAS TAKEN IN THE COURSE OF BUSINESS FOR CARRYING OUT BUSIN ESS OPERATIONS. THUS, WE FINALLY FIND THAT THE FACTS OF THE CASE AR E CLOSER TO THE FACTS OF THE CASE OF SOLID CONTAINERS LTD. AND THERE IS NO DECISION TO THE CONTRARY FROM THE JURISDICTIONAL HIGH COURT AS CONTENDED . ON THE OTHER HAND, THE DECISION IN THE CASE OF JAY ENGINEERING WORKS ( SUPRA), DECIDED BY THE JURISDICTIONAL HIGH COURTS, SUPPORTS THE CASE O F THE REVENUE. FURTHER, THE BENEFIT IS IN THE REVENUE FIELD AS THE MONI ES HAVE BEEN BORROWED FOR DAY-TO-DAY OPERATIONS AND NOT FOR PURCHASES OF M ACHINERY, THUS, THE LOANS ARE FOR THE CIRCULATING CAPITAL AND NOT THE FIX ED CAPITAL. THE LIABILITY IS ALSO CONTRACTUAL IN NATURE. THEREFORE, RESPECTFU LLY FOLLOWING THESE DECISIONS, IT IS HELD THAT THE AMOUNT OF RS. 2, 05,42,468/- WRITTEN OFF BY THE BANKS IN CASH-CREDIT ACCOUNTS CONSTITUTE THE INCOME OF THE ASSESSEE. ITA NO. 3800(DEL)/2009 28 8. COMING TO THE ISSUE OF TAXABILITY OF INTEREST WAIVED BY THE BANKS AND FINANCIAL INSTITUTIONS, THERE IS A CLEAR FINDING BY THE LD. CIT(APPEALS) THAT THESE AMOUNTS WERE NOT CLA IMED IN THE PAST BY THE ASSESSEE BY WAY OF DEDUCTION. THEREFORE, THE RE QUIREMENT OF SECTION 41(1) TO THE EFFECT THAT WHERE A DEDUCTION HAS BEEN MADE IN THE ASSESSMENT OF ANY YEAR IN RESPECT OF EXPENDIT URE INCURRED BY THE ASSESSEE HAS NOT BEEN SATISFIED. THE AMOUNT W AS OTHERWISE DEBITED TO PROFIT AND LOSS ACCOUNT EARLIER AND HAS BEEN C REDITED TO PROFIT AND LOSS ACCOUNT NOW. THUS, THERE IS NO BENEFIT TO THE ASSESSEE AS THE DEBITS AND THE CREDIT GET NETTED TO A ZERO SUM. THERE FORE, THE PROVISION CONTAINED IN SECTION 28(IV) IS ALSO NOT APPLICABLE. THU S, THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST T HE REVENUE. 9. WE FIND THAT THERE MAY BE SOME ERROR IN COMPUTA TION OF THIS AMOUNT, AS MENTIONED IN THE GROUNDS OF APPEAL. THE LD. CIT(APPEALS) HAS FURNISHED THE NET EFFECT OF THE WAIVER OF LOA N AND INTEREST ON PAGE 20 OF HIS ORDER, ACCORDING TO WHICH BALANCES AMOUNTI NG TO RS. 11,53,72,340/- HAVE BEEN WRITTEN OFF, BUT MISCELLANEOUS INCOME ACCOUNT HAS BEEN CREDITED WITH RS. 10,89,07,907/-. THE LD. CIT(A PPEALS) HAS GRANTED THE ITA NO. 3800(DEL)/2009 29 RELIEF AMOUNTING TO RS. 13,22,52,000/-, AN AMOUNT DIFFERENT FROM THE AMOUNT CREDITED TO PROFIT AND LOSS ACCOUNT AS WELL AS THE AMOUNT OF BALANCES WRITTEN OFF. THEREFORE, THE AO MAY ASC ERTAIN THE EXACT AMOUNT WRITTEN OFF BY THE ASSESSEE BY WAY OF TERM-LOA N, CASH-CREDIT LIMIT AND THE INTEREST. THEREAFTER, HE MAY GIVE EFFECT TO THI S ORDER AS MENTIONED ABOVE. 10. IN THE RESULT, THE APPEAL IS PARTLY ALLOW ED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 1 1 TH OF JUNE, 2010. SD/- SD/- (A.D. JAIN) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 11TH JUNE, 2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- 1. M/S ROLLATAINERS LTD., FARIDABAD. 2. ADDITIONAL CIT, RANGE-15, NEW DELHI. 3. CIT(A) 4. CIT 5. THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.