ITO 1(3)(2), MUMBAI V. SAURABH INDUSTRIES LTD, MUMBAI

ITA 460/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0689 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 20-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VISHWAS MUNDHE
• Assessee Lawyers: K K LALKAKA
• Keywords: Capital asset; Gift; Depreciation; Additional evidence; Question of law; Capital receipt; Onus to prove
• Section: 143(3); 56(2); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 460/MUM/2015 ASSESSMENT YEAR: 2006-07 ITO 1(3)(2) VS. M/S. SOURABH INDUSTRIES LTD. 5 TH FLOOR, R. NO. 541 EMPIRE HOUSE, GR. FLOOR, A.K . NAIK AAYAKAR BHAVEN, MARG, FORT MUMBAI - 400020 MUMBAI 400001 PAN NO. AAFCS9949G (APPELLANT) (RESPONDENT) REVENUE BY : SHRI VISHWAS MUNDHE, DR ASSESSEE BY: SHRI K.K. LALKAKA, AR DATE OF HEARING : 16/02 /2017 DATE OF PRONOUNCEMENT: 12/05/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) 2, MUMBAI AND ARISES OUT O F THE ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE REVENUE READ AS UNDER:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING ADDITION MADE U/S 41(1) R.W.S. 28(IV) OF THE I.T. ACT AMOUNTING TO RS. 1,00,00,000 /- ON ACCOUNT OF CESSATION OF LIABILITY ON THE GROUND THAT IT WAS NO T OF THE NATURE OF TRADING LIABILITY IGNORING THE FACT THAT THE ASSESS EE IS A NBFC (NON BANKING FINANCE COMPANY) ENGAGED IN FINANCING ACTIV ITY AS A ITA NO. 460/MUM/2015 2 BUSINESS CONFIRMING THE CESSATION OF LIABILITY TO B E A TRADING LIABILITY. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW AND WITHOUT PREJUDICE TO GROUND OF APPEAL NO. 1 , THE CIT(A) OUGHT TO HAVE CONFIRMED THE ADDITION U/S 41(1) R.W. S. 28(IV) IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT I N THE CASE OF SOLID CONTAINERS LTD . (308 ITR 417) AND M/S. T.V. SUNDARAM AYYANGAR & SONS (222 ITR 344 (1996). 3. IN ITEM NO. 7 OF THE SCHEDULE O TO PROFIT & LO SS ACCOUNT AND BALANCE SHEET FILED ALONG WITH THE RETURN OF INCOME , IT HAS BEEN MENTIONED THAT THE COMPANY HAS SETTLED WITH ONE OF THE PARTY AND THE AMOUNT NOT PAYABLE HAS BEEN DIRECTLY CREDITED T O THE CAPITAL RESERVE ACCOUNT AS CESSATION OF LIABILITY. IN RESPONSE TO A QUERY RAISED BY THE ASSESSING OFFI CER (A.O.), THE ASSESSEE SUBMITTED THAT IN THE F.Y. 1994-95 TH E COMPANY HAD RECEIVED CAPITAL AMOUNTS OF RS. 1,00,00,000/- FROM M/S. S & S POWER SWITCHGEAR LTD. (S&SPSL). THE SAID LIABILITY IS NOT A TRADING LIABILITY. THUS, ON CESSATION OF LIABILITY, THE SAME WAS TREAT ED AS A CAPITAL RECEIPT AND NO EFFECT WAS GIVEN IN THE PROFIT & LOS S ACCOUNT. THE AMOUNTS RECEIVED WERE NOT FROM ANY CUSTOMER. THESE WERE ADVANCES WHICH WERE CAPITAL IN NATURE, WITHOUT HAVING ANY TR ADE TRANSACTION. ACCORDINGLY, THE WRITE BACK DOES NOT RESULTING IN M AKING THE SAID AMOUNT THE INCOME OF THE COMPANY. FURTHERMORE, S&SP SL HAVE NOT CLAIMED THE AMOUNT AS A BAD DEBT AND THEY HAVE NOT REDUCED THEIR INCOME BY THIS AMOUNT. THE ASSESSEE ALSO SUBMITTED BEFORE THE A.O. THAT IT HAD WRITTEN TO M/S. S&SPSL ON 10.12.2005 STATING THAT WE ARE N OT IN A FINANCIAL POSITION TO REPAY THE PRINCIPLE LOAN AMOUNT, WE REQ UEST YOU TO PLEASE ACCEPT RS. 39,59,875/- TOWARDS INTEREST OUTSTANDING IN FULL AND FINAL. ITA NO. 460/MUM/2015 3 THE ASSESSEE ALSO STATED BEFORE THE A.O. THAT M/S. S&SPSL VIDE LETTER DATED 17.12.2005 INFORMED THE ASSESSEE THAT REFER YOUR LETTER DATED 10.12.2005 REGARDING SETTLEMENT OF OUTSTANDIN G LOAN. WE HAVE CONSIDERED YOUR REQUEST AND CONSIDERING YOUR FINANC IAL POSITION AND MOUNTING LOSSES AND OUR URGENT NEED OF FUND, WE ACC EPT RS. 39,59,875/- IN FULL & FINAL SETTLEMENT OF ALL OUR O UTSTANDING PROVIDED YOU PAY THE ABOVE AMOUNT IMMEDIATELY. THE A.O. FOUND THE BREAK-UP OF OUTSTANDING INTEREST AS ON 01.04.2005 AS UNDER: A.Y. 1999-2000 RS. 19,00,000/- A.Y. 2000-01 RS. 19,00,000/- A.Y. 2001-02 RS. 17,00,548/- TOTAL RS. 56,00,548/ LESS: ADJUSTED FOR RENT PAID RS. 15,40,673/- OUTSTANDING AS ON 01.04.2005 RS. 39,59,875/- 3.1 THE A.O. WAS NOT CONVINCED WITH THE ABOVE EXPLA NATION OF THE ASSESSEE AND OBSERVED THAT THE CESSATION OF LIABIL ITY HAS RESULTED IN THE BENEFIT TO THE ASSESSEE AND THE SAME IS COVERED BY THE PROVISIONS OF SECTION 28(IV) OF THE ACT .THEREFORE, THE A.O. M ADE AN ADDITION OF RS. 1,00,00,000/-. 4. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A) VIDE ORDER DATED 18.03.2010 DISMISSED THE APPEAL OF THE ASSESSEE. TH EREAFTER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE ITAT. THE I TAT F BENCH, MUMBAI (ITA NO. 4685/MUM/2010) SET ASIDE THE ORDER OF THE CIT(A) AND RESTORED THE MATTER BACK TO HIM FOR PASSING A F RESH ORDER AFTER CONSIDERING THE DETAILS FILED BY THE ASSESSEE VIDE LETTER DATED ITA NO. 460/MUM/2015 4 07.04.2010. THE FIRST DISPUTE WAS THE ADDITION OF R S. 1,00,00,000/- MADE U/S 41(1)/28(IV) AS MENTIONED AT PARA 2 OF THE ORDER OF THE TRIBUNAL. 4.1 THEN THE LEARNED CIT(A) PASSED AN ORDER ON 28.1 0.2014 ALLOWING THE APPEAL OF THE ASSESSEE ON THE ABOVE IS SUE ON THE GROUND THAT (I) NO DEDUCTION OR ALLOWANCE WAS AVAILED BY THE ASSESSEE IN RESPECT OF THE SAID LIABILITY NOR IT WAS IN THE NAT URE OF A TRADING LIABILITY AND THEREFORE, THE WAIVER OF THE LOAN BY M/S. S&SPSL IS NOT A PROFIT CHARGEABLE TO TAX U/S 41(1) OF THE ACT, (II) THE WAIVER OF LOAN BY THE LENDER IS NOT A PROFIT OF THE NATURE U/S 28(IV) OF THE ACT AND THEREFORE, THE SAME IS NOT TAXABLE AS A BUSINESS IN COME. THE LEARNED CIT(A) PLACED RELIANCE ON THE DECISION IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. CIT (2003)261 ITR 501 (BOM) AND BOMBAY GAS CO. LTD. VS. ADDITIONAL CIT 54 SOT 13 (2012). CONSIDERING THE ABOVE, THE LEARNED CIT(A) DELETED THE ADDITION OF RS. 1,00,00,000/- MADE BY THE A.O. 5. BEFORE US, THE LEARNED DR RELIED ON THE DECISION IN THE CASE OF SOLID CONTAINER LTD . VS. DCIT 308 ITR 417 (BOM) ; CIT VS. T.V. SUNDARAM IYENGAR & SONS LTD 222 ITR 344 AND CIT VS. M/S. RAMANIYAM HOMES P. LTD . [TAX CASE (APPEAL) NO. 278 OF 2014] ORDER DATED 22.04.2016 6. PER CONTRA , THE LEARNED COUNSEL OF THE ASSESSEE FILED A PAPER BOOK CONTAINING (I) OBJECT CLAUSE OF MEMORANDUM OF ASSOCIATION, (II) FINANCIAL FOR THE YEAR ENDED 31 ST MARCH, 2003, (III) FINANCIAL FOR THE YEAR ENDED 31 ST MARCH, 2005, (IV) FINANCIAL FOR THE YEAR ENDED 31 ST MARCH, 2006, (V) CERTIFICATE OF REGISTRATION DATED 13.06.2000 AND 20.02.2006 WITH RBI AS A NON-BANKING FINANCIAL INST ITUTION, (VI) ITA NO. 460/MUM/2015 5 STATEMENT OF LOAN ACCOUNT WITH S&SPSL, (VII) STATEM ENT OF INTEREST ACCOUNT WITH S&SPSL, (VIII) CERTIFICATE OF S S&SPS L THAT WRITE OFF OF RS. 1,00,00,000/-HAS NOT BEEN CLAIMED AS A BAD DEBT OR LOSS IN THEIR BOOKS OF ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2006 AND (IX) IMPORTANT DECISIONS U/S 28(IV). RELIANCE WAS ALSO PLACED BY HIM ON THE DECISION IN THE CASE OF PARIMISSETTI SEETHARAMAMMA VS. COMMISSIONER OF INCO ME TAX , 1965 AIR 1905; M/S. BOMBAY GAS CO. LTD. VS. ADDL. CIT (ITA NO. 646/MUM/2009) ITAT B BENCH, MUMBAI; CIT VS. ALCHEMIC PVT. LTD. (1981) 130 ITR 168 (GUJ) AND CIT VS. M/S. XYLON HOLDINGS PVT. LTD. (ITA NO. 3704 OF 2010) BY BOMBAY HIGH COURT. THE LEARNED COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN CIT VS. SULZER INDIA LTD . 369 ITR 746 747, STATING THAT THEREIN THE DECISIO N IN THE CASE OF SOLID CONTAINERS HAS BEEN DISTINGUISHED AND DECISION IN THE CASE OF MAHINDRA & MAHINDRA HAS BEEN ACCEPTED. THE LEARNED COUNSEL ALSO RELIED ON THE JUDGEMENT O F THE HON'BLE BOMBAY HIGH COURT IN MAHINDRA & MAHINDRA LTD . (SUPRA) WHEREIN THE RELIANCE HAS BEEN PLACED ON THE DECISION IN ALCHEMIC (P) LTD . (SUPRA). IT IS ALSO SUBMITTED BY HIM THAT ALCHEMIC (P) LTD . (SUPRA) HAS BEEN APPROVED BY THE HON'BLE SUPREME COURT IN CIT VS. MAFATLAL GANGABHAI & CO. (P) LTD. (1996) 219 ITR 644. HE FURTHER STATED THAT THERE HA D BEEN NO ALLOWANCE OR DEDUCTION IN RESPECT OF ANY OF THE PRECEDING YEARS AND AS SUCH THERE IS NO QUESTION OF APPLYING THE PROVISION OF SECTION 41 OF THE ACT. RELIANCE WAS PLACED BY HIM O N THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CHETAN CHEMICALS LTD . 267 ITR 770 (GUJ). ITA NO. 460/MUM/2015 6 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE BEGIN WITH THE DECISIONS REL IED ON BY THE LEARNED DR. IN SOLID CONTAINERS LTD . (SUPRA), THE ASSESSEE-COMPANY HAD TAKEN A LOAN FROM P DURING THE PREVIOUS YEAR FOR BUSINESS PURPOSES WHICH WAS WRITTEN BACK IN THE RELEVANT ASS ESSMENT YEAR, AS A RESULT OF CONSENT TERMS ARRIVED AT BETWEEN P AN D THE ASSESSEE. THE ASSESSEE CLAIMED THAT THE SAID LOAN WAS THE CAPITAL RECEIPT AND HAD NOT BEEN CLAIMED AS DEDUCTION FROM THE TAXABLE INCO ME AS EXPENSES AND, THEREFORE, WOULD NOT COME UNDER SECTION 41(1). THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION ON THE G ROUND THAT CREDIT BALANCE WRITTEN BACK WAS THE INCOME OF THE ASSESSEE IN VIEW OF THE FACT THAT IT WAS AGAIN DIRECTLY ARISING OUT OF THE BUSINESS ACTIVITY OF THE ASSESSEE AND WAS LIABLE TO THE TAX U/S 28 OF THE AC T . ON APPEAL THE COMMISSIONER (APPEALS) UPHELD THE ORDER OF THE ASSE SSING OFFICER. ON SECOND APPEAL, THE TRIBUNAL, IN VIEW OF T.V. SUNDARAM IYENGAR & SONS LTD.(SUPRA), CONFIRMED THE ORDER OF THE COMMISSIONE R (APPEALS). IN FURTHER APPEAL THE HON'BLE BOMBAY HIGH COURT HELD T HAT THE SUPREME COURT IN SUNDARAM IYENGAR & SONS LTD. S CASE (SUPRA) HAS HELD THAT IF AN AMOUNT IS RECEIVED IN C OURSE OF A TRADING TRANSACTION, EVEN THOUGH IT IS NOT TAXABLE IN THE YEAR OF RECEIPT AS BEING OF CAPITAL CHARACTER, YET THE A MOUNT CHANGES ITS CHARACTER WHEN THE AMOUNT BECOMES THE ASSESSEES OWN MONEY BECAUSE OF LIMITATION OR BY AN Y OTHER STATUTORY OR CONTRACTUAL RIGHT. WHEN SUCH A THING H APPENS, COMMON SENSE DEMANDS THAT THE AMOUNT SHOULD BE TREA TED AS INCOME OF THE ASSESSEE (PARA 2). IN VIEW OF THE ABO VE SETTLED POSITION OF LAW AND THE FACTS OF THE INSTANT CASE, NO QUESTION OF LAW, MUCH LESS SUBSTANTIAL QUESTION OF LAW, AROS E FOR CONSIDERATION IN THE INSTANT APPEAL AND, THEREFORE, THE SAME WAS TO BE DISMISSED IN LIMINE. (PARA 4). ITA NO. 460/MUM/2015 7 IN T.V. SUNDARAM IYENGAR & SONS LTD . (SUPRA), THE ASSESSEE HAD RECEIVED CERTAIN DEPOSITS FROM CUSTOMERS IN THE COU RSE OF CARRYING ON HIS BUSINESS, WHICH WERE ORIGINALLY TREATED AS CAPI TAL RECEIPTS. SINCE THESE CREDIT BALANCES STANDING IN FAVOUR OF ASSESSE E'S CUSTOMERS, WERE NOT CLAIMED BY THE CUSTOMERS, THE ASSESSEE TRA NSFERRED SUCH AMOUNTS TO ITS PROFIT AND LOSS ACCOUNT. THE ASSESSE E DID NOT INCLUDE SUCH AMOUNTS IN ITS TOTAL INCOME. THE ASSESSING OFF ICER WAS OF THE VIEW THAT BECAUSE THE SURPLUS HAD ARISEN AS A RESUL T OF TRADE TRANSACTIONS, THE AMOUNTS HAD A CHARACTER OF INCOME , AND ACCORDINGLY HE ADDED THE SAME IN ITS INCOME. ON APPEAL, THE COM MISSIONER (APPEALS) ACCEPTING ASSESSEE'S CONTENTION HELD THAT SUCH AN AMOUNT COULD NOT BE TREATED AS INCOME EITHER UNDER SECTION 41(1) OR UNDER SECTION 28, SINCE THESE WERE EXCESS TRADING ADVANCE S GIVEN BY THE CLIENTS TO THE ASSESSEE. THEREFORE, HE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THE TRIBUNAL HELD THAT THE A MOUNT RECEIVED IN COURSE OF TRADE WAS OF CAPITAL NATURE, THE TRIBUNAL , THEREAFTER, STRAIGHTWAY APPLIED THE PRINCIPLE OF MORLEY V. TATTERSALL [1939] 7 ITR 316 (CA) AND HELD SINCE IT WAS OF A CAPITAL NATURE AT THE T IME OF THE RECEIPT, IT COULD NOT BECOME ASSESSEE'S INCOME LATE R ON. THE TRIBUNAL ALSO REJECTED REFERENCE APPLICATION UNDER SECTION 2 56(2) ON THE GROUND THAT NO QUESTION OF LAW AROSE. THE HIGH COUR T HELD THAT THE QUESTION SOUGHT TO BE AGITATED WAS COMPLETELY CONCL UDED BY THE DECISION OF THAT COURT IN THE CASE OF CIT V. A.V.M. LTD. [1984] 146 ITR 355 AND REJECTED APPLICATION MADE UNDER SECTION 256 (2).THE HON'BLE SUPREME COURT HELD AS UNDER: 23. IN THE PRESENT CASE, THE MONEY WAS RECEIVED BY THE ASSESSEE IN COURSE OF CARRYING ON HIS BUSINESS. ALTHOUGH IT WAS TREATED AS DEPOSIT AND WAS OF CAPITAL NATURE AT THE POINT OF TIME IT W AS RECEIVED, BY INFLUX OF TIME THE MONEY HAS BECOME THE ASSESSEE'S OWN MON EY. WHAT REMAINS AFTER ADJUSTMENT OF THE DEPOSITS HAS NOT BE EN CLAIMED BY THE ITA NO. 460/MUM/2015 8 CUSTOMERS. THE CLAIMS OF THE CUSTOMERS HAVE BECOME BARRED BY LIMITATION. THE ASSESSEE ITSELF HAS TREATED THE MON EY AS ITS OWN MONEY AND TAKEN THE AMOUNT TO ITS PROFIT AND LOSS ACCOUNT . THERE IS NO EXPLANATION FROM THE ASSESSEE WHY THE SURPLUS MONEY WAS TAKEN TO ITS PROFIT AND LOSS ACCOUNT EVEN IF IT WAS SOMEBODY ELS E'S MONEY. IN FACT, AS ATKINSON, J. POINTED OUT THAT WHAT THE ASSESSEE DID WAS THE COMMONSENSE WAY OF DEALING WITH THE AMOUNTS. IN THE CASE OF M/S. RAMANIYAM HOMES P. LTD. (SUPRA), THE A.O. FOUND THAT THE ASSESSEE WAS INDEBTED TO THE INDIAN BANK. BY A LETTER DATED 15.02.2006, THE INDIAN BANK MOOTED A PROPOSAL FOR A ONE TIME SETTLEMENT. THE TOTAL AMOUNT PAYABLE UNDER THE ONE TIME SETTLEMENT SCHEME WAS RS. 10.50 CRORES AND THE AMOUNT HAD TO BE PAID ON OR BEFORE 30.04.2006. THE COMPANY PAID ONLY A SUM OF R S. 93,89,000/-. THE A.O. WAS OF THE VIEW THAT SINCE THE ASSESSEE AC CEPTED THE ONE TIME SETTLEMENT SCHEME, THEY SHOULD HAVE SHOWN THE ENTIRE INTEREST WAIVED BY THE BANK AS INCOME U/S 41(1) ON ACCRUAL B ASIS DURING THE RELEVANT ASSESSMENT YEAR. THE A.O. FOUND THAT THE T OTAL AMOUNT WAIVED WAS RS. 10.50 CRORES AND THAT AS PER THE ASS ESSEES ACCOUNT, THE TOTAL INTEREST AND PRINCIPAL WAIVED WORKED OUT TO RS. 9,29,32,594/- WHICH LEFT A DIFFERENCE OF RS. 1,20,6 7,406/-. THE A.O. TREATED THE ABOVE AMOUNT AS INCOME U/S 28(IV). THE FOLLOWING TWO SUBSTANTIAL QUESTIONS OF LAW WERE BEFORE THE HON'BL E HIGH COURT. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE INCOME TAX APPELLATE TRIBUNAL WAS RIGHT IN HOLDING THAT THE AMOUNT REPRESENTING THE PRINCIPAL LOAN AMOUNT WAIVED BY TH E BANK UNDER THE ONE TIME SETTLEMENT SCHEME WHICH THE ASSESSEE RECEI VED DURING THE CURSE OF ITS BUSINESS IS NOT EXIGIBLE TO TAX? 2. WHETHER ON THE FACTS AND I THE CIRCUMSTANCES OF THE CASE, THE INCOME TAX APPELLANT TRIBUNAL OUGHT TO HAVE SEEN THAT THE WAIVER OF PRINCIPAL AMOUNT WOULD CONSTITUTE INCOME FALLING UNDER SECTIO N 28(IV) OF THE INCOME TAX ACT BEING THE BENEFIT ARISING FOR THE BU SINESS. ITA NO. 460/MUM/2015 9 THE HON'BLE MADRAS HIGH COURT ANSWERED THE ABOVE QU ESTIONS OF LAW IN FAVOUR OF THE REVENUE. 7.1 NOW WE TURN TO THE DECISIONS RELIED ON BY THE L EARNED COUNSEL OF THE ASSESSEE. IN PARIMISSETTI SEETHARAMAMMA (SUPRA), THE APPELLANT SUBMITTED A RETURN OF HER INCOME FROM PROPERTY AND BUSINESS FOR THE ASSESSMENT YEAR 1947-48 AND DISCLOSED IN A STATEMEN T THAT THE MAHARANI OF BARODA HAD, BETWEEN NOVEMBER 1945 AND F EBRUARY 1948, OUT OF NATURAL LOVE AND AFFECTION, GIVEN HE R SOME JEWELLERY AND MONEY AMOUNTING TO RS. 5,20,000/-. THE INCOME-T AX OFFICER ACCEPTED THIS STATEMENT AND DID NOT TREAT THE JEWEL LERY AND MONEY AS TAXABLE INCOME. BUT WHILE CONSIDERING THE PAYMENT O F FURTHER SIMILAR AMOUNTS IN THE COURSE ASSESSMENT PROCEEDINGS FOR A SUBSEQUENT YEAR, THE INCOME TAX OFFICER DECIDED TO ISSUE THE APPELLA NT A NOTICE U/S 34; HE EVENTUALLY HELD THE GIFTS MADE BY THE MAHARANI D URING THE YEARS IN QUESTION TO BE REMUNERATION FOR SERVICES RENDERED B Y THE APPELLANT AS A MAID-SERVANT, OR SECRETARY, AND THEREFORE, TO BE TAXABLE INCOME. THE HON'BLE SUPREME COURT HELD AS UNDER: THE BURDEN OF PROOF WAS WRONGLY PLACED ON THE APPE LLANT. IN ALL CASES IN WHICH A RECEIPT IS SOUGHT TO BE TAXED AS INCOME, THE BURDEN LIES UPON THE DEPARTMENT TO PROVE THAT IT IS WITHIN THE TAXIN G PROVISION. WHERE, HOWEVER, A RECEIPT IS OF THE NATURE OF INCOME, THE BURDEN OF PROVING THAT IT IS NOT TAXABLE BECAUSE IT FALLS WITHIN AN EXEMPT ION PROVIDED BY THE ACT, LIES UPON THE ASSESSEE. THE APPELLANT ADMITTED THAT SHE HAD RECEIVED JEWELLERY AND DIVERSE SUMS OF MONEY FROM T HE MAHARANI AND CLAIMED THAT AS THESE WERE GIFTS MADE OUT OF LOVE A ND AFFECTION, THEY DID NOT FALL WITHIN THE TAXING PROVISIONS. IT WAS NOT H ER CASE THAT BEING INCOME, THE RECEIPTS WERE EXEMPT FROM TAXATION BECA USE OF A STATUTORY PROVISION. CONSEQUENTLY, IT WAS FOR THE DEPARTMENT TO ESTABLISH THAT THESE RECEIPTS WERE CHARGEABLE TO TAX. WHETHER A RE CEIPT IS LIABLE TO THE TREATED AS INCOME DEPENDS VERY LARGELY UPON THE FAC TS AND CIRCUMSTANCES OF EACH CASE; IT IS OPEN TO THE INCOM E-TAX AUTHORITIES TO RAISE AN INFERENCE THAT A RECEIPT BY AN ASSEMBLY IS ASSESSABLE INCOME WHERE HE FAILS TO DISCLOSE SATISFACTORILY THE SOURC E AND THE NATURE OF THE ITA NO. 460/MUM/2015 10 RECEIPT. BUT HERE THE SOURCE OF INCOME WAS DISCLOSE D BY THE APPELLANT AND THERE WAS NO DISPUTE ABOUT THE TRUTH OF THE DIS CLOSURE. IN M/S. BOMBAY GAS CO. LTD . (SUPRA), THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF FINANCE & INVESTMENT, I NCOME FROM HOUSE PROPERTY, COMPENSATION, SERVICE CHARGES FROM SUB-TE NANTS AND INCOME BY WAY OF INTEREST AND DIVIDEND. AS PER THE NOTE APPENDED TO FORM NO. 3CD OF THE AUDIT REPORT, THERE WAS A CESSA TION OF LIABILITY AMOUNTING TO RS. 35,67,817/- WHICH HAS NOT BEEN CRE DITED TO THE P&L A/C AND NOT DECLARED AS TAXABLE INCOME. ON ENQUIRY BY THE A.O., THE ASSESSEE SUBMITTED THAT IT OWED RS. 1,20,67,817/- T O M/S. BLUE CHIP BUSINESS CENTRE PVT. LTD. TOWARDS ADVANCE RECEIVED IN EARLIER YEARS. THAT PARTY WAS IN REQUIREMENT OF FUNDS AND AGREED T O ACCEPT RS. 85,00,000/- AS FULL AND FINAL SETTLEMENT OF THE DUE S. THE DIFFERENCE AMOUNT OF RS. 35,67,817/- HAS BEEN TRANSFERRED TO C APITAL RESERVE. THE A.O. BROUGHT TO TAX THE SUM OF RS. 35,67,817/- AS THE ASSESSEES INCOME FOR THE YEAR UNDER CONSIDERATION. THE LEARNE D CIT(A) FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH C OURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. CIT (2003) 261 ITR 501 (BOM) AND THE DECISION OF THE TRIBUNAL IN PRISM CEMENT LTD. VS. JCIT (2006) 285 ITR (AT) 43 ITAT (MUM) HELD THAT THE A.O. WAS NOT J USTIFIED IN MAKING ADDITION TO THE APPELLANTS INCOME AND HENCE HE DELETED THE SAME. IN FURTHER APPEAL, THE TRIBUNAL OBSERVED THAT (I) IT IS SETTLED THAT IF THE LOAN WAS TAKEN FOR ACQUIRING THE CAPITA L ASSET, WAIVER THEREOF WOULD NOT AMOUNT TO ANY INCOME ELIGIBLE TO TAX (II) IF THIS LOAN WAS FOR TRADING PURPOSE AND WAS TREATED AS SUCH FRO M THE VERY BEGINNING IN THE BOOKS OF ACCOUNT, AS PER T.V. SUNDARAM IYENGAR AND SONS LTD.S CASE (SUPRA), THE WAIVER THEREOF MAY RESULT IN THE INCO ME MORE SO WHEN IT WAS TRANSFERRED TO PROFIT & LOSS AC COUNT (III)IN SOLID CONTAINERS LTD. (SUPRA), THE LOAN WAS TAKEN FOR TRADING ACTIVITIES AND ITA NO. 460/MUM/2015 11 NOT FOR ACQUIRING CAPITAL ASSETS (IV) IN THE PRESEN T CASE, THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE LOAN WAS TAKEN FOR TRADING PURPOSES. THEREFORE, THE TRIBUNAL HELD THAT THE WAIVER OF LO AN LIABILITY CREDITED BY THE ASSESSEE UNDER CAPITAL RESERVE ACCO UNT IN ITS BOOKS OF ACCOUNTS IS A CAPITAL RECEIPT AND CANNOT BE DEEMED AS REMISSION OR CESSATION OF LIABILITY. IN ALCHEMIC PVT. LTD. (SUPRA), THE HON'BLE GUJRAT HIGH COURT HELD AS UNDER: (I) THAT WHEN THE TRIBUNAL DECLINED TO ALLOW THE R EVENUE TO GO INTO THE QUESTION ARISING UNDER SECTION 41(1) ON THE GROUND THAT EXTENSIVE INVESTIGATION INTO FACTS WOUL D BE NECESSARY, THE TRIBUNAL WAS ACTING IN THE EXERCISE OF ITS JURISDICTION. THE CONSIDERATIONS WHICH LED THE TRIB UNAL TO ITS CONCLUSION NOT TO ALLOW THE REVENUE TO RAISE THE CO NTENTION UNDER SECTION 41(1) NAMELY THE NECESSITY TO INVESTI GATE INTO FACTS, WOULD ALSO APPLY TO THE QUESTION WHETHER THE AMOUNT WAS ASSESSABLE UNDER THE GENERAL PRINCIPLES UNDERLY ING SECTION 41(1). THE TRIBUNAL WAS JUSTIFIED IN ITS CO NCLUSION AND THE QUESTION COULD NOT BE CONSIDERED FROM THE POINT OF VIEW OF SECTION 41(1) OR THE GENERAL PRINCIPLES UNDERLYI NG SECTION 41(1) IN XYLON HOLDINGS PVT. LTD . (SUPRA) THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH ITS HOLDING COMPANY BY VIRTUE OF WHICH THE LIABILITY TO PAY A LOAN OF RS. 29.17 LACS TAKEN TOW ARDS THE PURCHASE OF A CAR WAS TAKEN OVER BY THE HOLDING COMPANY. THE MOTO R CAR FOR WHICH THE LOAN WAS TAKEN CONTINUED TO BE A PART OF THE SC HEDULE OF ASSETS OF THE ASSESSEE AND DEPRECIATION THEREON WAS ALSO CLAI MED. THE A.O. ADDED BACK THE AMOUNT OF RS. 29.17 LACS TO THE INCO ME OF THE ASSESSEE AS BEING TAXABLE U/S 41(1) OF THE ACT. IN APPEAL, T HE LEARNED CIT(A) ITA NO. 460/MUM/2015 12 HELD THAT THE LIABILITY TO REPAY A LOAN TAKEN TOWAR DS THE PURCHASE OF A MOTOR CAR WHICH HAD CEASED CANNOT BE SUBJECT TO TAX . THIS IS FOR THE REASON THAT THE EXTINGUISHMENT OF THE LOAN WHICH WA S TAKEN FOR THE PURCHASE OF A CAPITAL ASSET LIKE A MOTOR CAR IS NOT A REVENUE RECEIPT. ALSO THE TRIBUNAL IN THIS CASE HELD THAT (I) THE CE SSATION OF LIABILITY TO REPAY A LOAN TAKEN TO PURCHASE A CAPITAL ASSET DOES NOT RESULT IN A REVENUE RECEIPT; (II) THE AMOUNT OF RS. 29.17 LACS WAS NOT TAXABLE U/S 41(1) AS THE SAME WAS NOT AN EXPENDITURE INCURRED I N THE EARLIER YEARS. THE TRIBUNAL FOLLOWED THE DECISION IN THE CA SE OF MAHINDRA & MAHINDRA LTD. (SUPRA). IN FURTHER APPEAL, THE HON'BLE HIGH COURT HELD THAT THE ISSUE WAS COVERED BY THE DECISION IN THE C ASE OF MAHINDRA & MAHINDRA (SUPRA). 8. TO RECAPITULATE THE RATIO LAID DOWN IN THE ABOV E DECISIONS, IF THE LOAN IS TAKEN FOR ACQUIRING A CAPITAL ASSET, WAIVER THEREOF WOULD NOT AMOUNT TO ANY INCOME EXIGIBLE TO TAX. ON THE OTHER HAND, IF THE LOAN IS FOR TRADING PURPOSE THE WAIVER THEREOF WOULD RESULT IN INCOME. 9. WE FIND THAT THE ASSESSEE HAD FILED BEFORE THE L EARNED CIT(A) (I) LETTERS / CERTIFICATE FROM M/S. S&SPSL, (II) COPY O F THE BOARD RESOLUTION OF THE ASSESSEE-COMPANY DATED 22.11.2005 . THE LEARNED CIT(A) CONSIDERED IT AS ADDITIONAL EVIDENCE AND FOR WARDED THE SAME TO THE A.O. ALONG WITH THE WRITTEN SUBMISSION FILED BY THE ASSESSEE BEFORE HIM AND CALLED FOR A REMAND REPORT FROM THE A.O. VIDE HIS OFFICE LETTER DATED 09.04.2014. THE LEARNED CIT(A) RECEIVE D A COPY OF THE REMAND REPORT FROM THE A.O. WHICH HAS BEEN EXTRACTE D AT PAGE 14 OF HIS APPELLATE ORDER DATED 28.10.2014. THE LEARNED C IT(A) HAVING EXAMINED THE DETAILS ALONG WITH THE REMAND REPORT H ELD AS UNDER: THE FACTS OF THE CASE INDICATE THAT NO DEDUCTION OR ALLOWANCE WAS AVAILED BY THE APPELLANT IN RESPECT OF THE SAID LIA BILITY NOR IT WAS IN ITA NO. 460/MUM/2015 13 NATURE OF A TRADING LIABILITY AND THEREFORE THE WAI VER OF THE LOAN BY M/S. S&S POWER SWITCH GEAR LTD. IS NOT A PROFIT CHARGEAB LE TO TAX U/S. 41(1) OF THE ACT. SECONDLY, THE WAIVER OF LOAN BY THE LEN DER IS NOT A PROFIT OF THE NATURE AS PER THE PROVISIONS OF SECTION 28(IV) OF THE ACT AND THEREFORE, THE SAME IS NOT TAXABLE AS A BUSINESS IN COME. IN THIS CONTEXT DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF MAHINDRA & MAHINDRA LTD. VS. COMMISSIONER OF INCOME-TAX (BOM BAY) 261 ITR 0501 (2003) RELIED UPON BY THE APPELLANT, IS FOUND TO BE APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLANT. FURTHER THE APPELLANT HAS ALSO RELIED UPON THE DECISION OF HON'BLE ITAT, MUMBAI BE NCH, IN THE CASE OF BOMBAY GAS COMPANY LTD. VS. ADDL. CIT 54 SOT 13 (20 12) WHICH IS ALSO APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLAN T. THE RATIO OF THE DECISIONS REFERRED TO ABOVE MAKE IT CLEAR THAT THE CESSATION OF LIABILITY OF THE NATURE BROUGHT TO TAX BY THE A.O. IN THE CASE O F THE APPELLANT IS NEITHER TAXABLE U/S 41(1) OF THE ACT NOR U/S 28(IV) OF THE ACT. ACCORDINGLY, THE ADDITION MADE BY THE A.O. IS HEREB Y DELETED. 9.1 WE FIND THAT THE ABOVE ORDER OF THE LEARNED CIT (A) IS BASED ON PROPER APPRECIATION OF FACTS AND AS PER THE RATIO L AID IN THE DECISIONS CITED AT LENGTH HERE-IN-ABOVE. THEREFORE, WE UPHOLD THE ORDER OF THE LEARNED CIT(A). 10. IN THE RESULT THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12/05/2017 SD/- SD/- (JOGINDER SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUN TANT MEMBER MUMBAI: DATED: 12/05/2017 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI ITA NO. 460/MUM/2015 14 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI