DCIT, New Delhi V. M/s Logitronics Pvt. Ltd., Delhi

ITA 4716/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3991 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 17-02-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ANIL KUMAR SUJANTI
• Keywords: Capital asset; Business income; Depreciation; Capital receipt; Capital Gains
• Section: 143(3); 142(1); 201; 143(2); 207; 208; 192; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `D: NEW DELHI BEFORE SHRI C.L.SETHI, JM & SHRI SHAMIM YAHYA, AM I.T. A. NO.4716/DEL OF 2009 ASSESSMENT YEAR: 2006-07 DY. COMMR. OF INCOME-TAX, M/S LOGITR ONICS P. LTD., CIRCLE 4(1), NEW DELHI. VS 1745, HARDAYAL STREET, CHEERA KHANA, NAI SARAK, DELHI. APPELLANT RESPONDENT APPELLANT BY: SMT. KAVITA BHATNAGAR RESPONDENT BY: SHRI ANIL KUMAR SUJANTI ORDER PER C.L. SETHI, JM: IN THIS APPEAL FIELD BY THE REVENUE AGAINST THE ORD ER DATED 23.10.09 PASSED BY THE LEARNED CIT(A) IN THE MATTER ON AN AS SESSMENT MADE U/S 143(3) OF THE INCOME-TAX ACT, 1961(THE ACT) FOR T HE ASSTT. YEAR 2006-07, A SOLITARY GROUND RAISED BY THE REVENUE IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING TH E ADDITION OF RS.2,91,42,213/- MADE BY THE AO TREATING THE SUM WAIVED BY THE BANK ON FINAL SETTLEMENT AS REVENUE RECEIPTS AS AGAINST THE CAPIT AL RECEIPTS ACCOUNTED FOR BY THE ASSESSEE. 2 2. RELEVANT FACTS GIVING RISE TO THE ISSUE IN HAND ARE, IN BRIEF, STATED AS UNDER: 3. THE ASSESSEE FILED ITS RETURN OF INCOME ON 21.1. 2006 DECLARING TOTAL INCOME AT RS.1,52,99,616/-. THE CASE WAS SELECTED FOR SCRUTINY, AND, ACCORDINGLY, NOTICES U/S 143(2) AND 142(1) OF THE A CT WERE ISSUED, WHICH WERE COMPLIED WITH BY THE ASSESSEE. VARIOUS DETAIL S REQUIRED BY THE AO WERE FURNISHED DURING THE COURSE OF ASSESSMENT PROC EEDINGS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT ASSESSEE HAS APPENDED A NOTE TO THE ACCOUNTS IN SCHEDULE XV, PAR T B, WHICH READS AS UNDER: THE COMPANY HAS SOLD/AGREED TO SELL DURING THE YEAR ITS ENTIRE FIXED ASSETS COMPRISING, LEASEHOLD LAND, BUILDING AND ELECTRIC INSTALLATION THEREIN AN D HAS REALIZED A SUM OF RS.1.85 CRORES FROM SALE AND ADVANCE AND HAS PAID THE SAID SUM TO STATE BANK OF INDIA TO SETTLE THE ENTIRE OUTSTANDING PRINCIPAL AMOUNT OF RS.4,76,42,213/- UNDER THE ONE TIME SETTLEMENT WITH THE SAID BANK. THE COMPANY HAS CREATED THE CAPITAL RESERVE OF RS.2,91,42,213/- FOR THE BALANCE OUTSTANDING PRINCIPAL AMOUNT NOT TO BE PAID BY THE COMPANY UNDER THE SETTLEMENT WITH THE SAID BANK. THE COMPANY HAS WRITTEN BACK OUTSTANDING PROVISION FOR BANK INTEREST OF RS.1,90,42,295/- IN THE BOOKS NOW NOT LIABLE TO BE PAID BY THE COMPANY UNDER THE SETTLEMENT WITH THE SAID BANK TO PROFIT AND LOSS ACCOUNT AND SHOWN UNDER PROVISION FOR BANK INTEREST WRITTEN BACK RESPECTIVELY. THE COMPANY HAS FURTHER CREATED CAPITAL RESERVE OF RS.1,60,55,232.95 OUT OF THE 3 AMOUNT REALIZED IN EXCESS OF ORIGINAL COST ON SALE OF LEASEHOLD LAND. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEES REPRESENTATIVE EXPLAINED BEFORE THE AO THAT ONE TIME SETTLEMENT WI TH STATE BANK OF INDIA BY PAYING RS.1.85 CRORES AGAINST THE ENTIRE OUTSTAN DING PRINCIPAL AMOUNT OF RS.4,76,92,213/- WAS MADE, AND THE COMPANY HAS WRIT TEN BACK THE OUTSTANDING PROVISION FOR BANK INTEREST AMOUNTING T O RS.1,90,42,295/- TO THE PROFIT AND LOSS ACCOUNT AND OFFERED THE SAME AS INC OME. HOWEVER, THE PRINCIPAL AMOUNT OF LOAN WAIVED BY THE BANK TO THE EXTENT OF RS.2,91,42,213/- WAS NOT TAKEN TO THE PROFIT & LOSS ACCOUNT BUT WAS TAKEN DIRECTLY TO THE BALANCE SHEET BY CREATING A CAPITAL RESERVE. THE PRINCIPAL OUTSTANDING LOAN AMOUNT OF RS.4,76,42,213/- WAS SET TLED FOR RS.1.85 CRORES, AND THE BALANCE OUTSTANDING PRINCIPAL AMOUNT OF RS. 2,91,42,212/- HAS BEEN WRITTEN OFF BY THE BANK AFTER ACCEPTING THE PAYMENT OF RS.1.85 CRORES AGAINST TOTAL OUTSTANDING PRINCIPAL AMOUNT OF RS.4,76,42,21 3/-. IT WAS CLAIMED BY THE ASSESSEE THAT THIS PRINCIPAL AMOUNT WRITTEN OFF BY THE BANK DOES NOT FALL WITHIN THE AMBIT OF CESSATION OF LIABILITIES AS C ONTEMPLATED U/S 41 OF THE ACT AND, THEREFORE, IT WAS NOT CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. IN SUPPORT THEREOF, THE ASSESSEE RELIED UPON THE DE CISION OF HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS TOSHA INTERNAT IONAL LTD. (2009) 176 4 TAXMAN 187 (DEL), AND THE DECISION OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS CIT, 261 ITR 50 1 (BOM). 4. THE SUBMISSIONS OF THE ASSESSEE WERE CONSIDERED AND EXAMINED BY THE AO. IT WAS STATED BY THE AO THAT THE BASIC LINE OF ARGUMENT PUT FORWARD BY THE ASSESSEE WAS THAT SECTION 41(1) OF THE ACT COVE RS ONLY SUCH LIABILITIES, WHICH HAVE BEEN ALLOWED OR DEDUCTED IN EARLIER YEAR S AS EXPENDITURE OR TRADING LIABILITY, AND WHEN SUCH A LIABILITY IS WRI TTEN OFF, IT IS CHARGEABLE TO TAX AS INCOME U/S 41(1) OF THE ACT. THE ASSESSEES ARGUMENT WAS THAT SINCE NO ALLOWANCE OR DEDUCTION WAS MADE IN THE ASSESSMEN T FOR ANY YEAR IN RESPECT OF PRINCIPAL AMOUNT OF LOAN OBTAINED BY THE ASSESSEE FROM BANK, THE PRINCIPAL AMOUNT OF LOAN WRITTEN OFF BY THE BANK IS NOT COVERED BY SECTION 41(1) OF THE ACT, THE SAME IS THUS NOT LIABLE TO BE INCLUDED AS INCOME IN THE HANDS OF THE ASSESSEE U/S 41(1) OF THE ACT. THIS L INE OF THE ARGUMENT ADVANCED BY THE LEARNED COUNSEL FOR THE ASSESSEE BE FORE THE AO HAS BEEN ACCEPTED BY THE AO, WHO OBSERVED THAT THIS VERSION OF THE LEARNED COUNSEL IS QUITE ACCEPTABLE IN THE LIGHT OF THE DECISION OF HO NBLE DELHI HIGH CURT IN THE CASE OF CIT VS TOSHA INTERNATIONAL LTD. (SUPRA) . HOWEVER, THE AO PROCEEDED FURTHER TO STATE THAT THE MATTER DOES NOT END THERE BUT THE NEXT QUESTION TO BE DECIDED IS AS TO WHETHER THE ABOVE P RINCIPAL AMOUNT WRITTEN OFF BY THE BANK IS OTHERWISE ASSESSABLE AS INCOME I N THE HANDS OF THE 5 ASSESSEE UNDER THE PROVISIONS OF INCOME-TAX ACT. I N THIS RESPECT, THE AO EXAMINED THE DEFINITION OF INCOME GIVEN IN SECTIO N 2(24) OF THE ACT AND HOLD THAT IN CASE ANY BENEFIT ARISES TO THE ASSESSE E BY WAY OF WAIVER OF LOAN TAKEN BY THE ASSESSEE, THE SAME SHALL BE TREATED TO BE THE INCOME CHARGEABLE TO TAX UNDER THE ACT NOTWITHSTANDING THE FACT THAT THE ITEM MAY NOT BE COVERED BY THE PROVISIONS OF SECTION 41(1) OF THE A CT. THE AO FURTHER HOLD THAT SINCE THIS LOAN AMOUNT WAS RELATED TO THE BUSI NESS OF THE ASSESSEE, THE SAME WOULD BE ASSESSABLE UNDER THE HEAD BUSINESS. HE, THEREFORE, BROUGHT THE SAID AMOUNT OF RS.2,91,42,213/- TO TAX AS INCOM E INCLUDIBLE IN THE ASSESSEES TOTAL INCOME. 5. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A). 6. BEFORE THE LEARNED CIT(A), THE ASSESSEE CONTENDE D THAT THE ASSESSEE COMPANY AVAILED LOAN FACILITY FROM STATE BANK OF IN DIA, WHICH WAS CATEGORIZED AS NPA BY THE SAID BANK DURING THE YEAR 2000, AND THE BANK THEN REFERRED THE MATTER TO DEBTS RECOVERY TRIBUNAL . ON THE APPROVAL OF COMPROMISE OFFER OF THE COMPANY, THE ASSESSEE PAID RS.1.85 CRORES TO STATE BANK OF INDIA TO SETTLE THE ENTIRE OUTSTANDING PRIN CIPAL AMOUNT OF RS.4,76,42,213/- UNDER THE ONE TIME SETTLEMENT AND CONSEQUENTLY, ASSESSEE CREDITED TO THE CAPITAL RESERVE THE SUM OF RS.2,91, 42,213/-, BEING THE BALANCE 6 OUTSTANDING PRINCIPAL AMOUNT OF LOAN WAIVED BY THE BANK DURING THE CURRENT YEAR. THE ASSESSEE FURTHER SUBMITTED THAT SUCH WAIV ER OF THE PRINCIPLE AMOUNT OF LOAN IS NOT IN THE NATURE OF REMISSION OR CESSATION OF TRADING LIABILITY AND, THEREFORE, THE SAID WAIVER DOES NOT HAVE THE CHARACTER OF INCOME WITHIN THE MEANING OF SECTION 41(1) OF THE A CT. THE DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS TOSH A INTERNATIONAL LTD. (SUPRA) AND THE DECISION OF HONBLE BOMBAY HIGH COU RT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS CIT (SUPRA) WERE RELIED UPON. IT WAS FURTHER POINTED OUT THAT THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS TOSHA INTERNATIONAL LTD. (SUPRA), HAS NOTED THE FACTS RE CORDED BY THE TRIBUNAL IN ITS ORDER, AND THEN HOLD THAT THE PRINCIPLE ENUNCIATED IN MAHINDRA & MAHINDRA LTD. VS CIT (SUPRA) ARE FULLY APPLICABLE TO THAT CA SE. THE ASSESSEE INVITED THE ATTENTION TO THE FINDINGS AND OBSERVATIONS RECORDED BY THE TRIBUNAL IN PARA 4 OF ITS ORDER IN THE CASE OF TOSHA INTERNATIONAL LTD . (SUPRA). IT WAS FURTHER CONTENDED BY THE ASSESSEE THAT THE PRINCIPAL AMOUNT OF LOAN WAIVED IS NEITHER TAXABLE U/S 41(1) NOR U/S 28(IV) OR 2(24) OF THE AC T. 7. AFTER CONSIDERING THE AOS ORDER AND THE ASSESSE ES SUBMISSIONS, THE CIT(A) DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE PROVISIONS OF SECTION 2(24) OR SECTION 28(I) OR 28( IV) AND SECTION 41(1) ARE NOT APPLICABLE TO THE PRESENT CASE. THE CIT(A) HAS APPLIED THE DECISION OF 7 HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS P. GANESA CHETTIAR (1979) 133 ITR 103(MAD) AS WELL AS THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS TOSHA INTERNATIONAL LTD. (SUPRA) AND DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD. VS CIT, (SUPRA). FOR READY REFERENCE, THE CIT(A)S ORDER I S EXTRACTED HERE AS UNDER: 3.1 I HAVE CAREFULLY CONSIDERED THE WRITTEN AND ORAL SUBMISSIONS MADE ON BEHALF OF THE APPELLANT, THE FINDINGS OF THE AO AND THE FACTS ON RECORD. I HAVE ALSO GONE THROUGH THE CASE LAWS - CIT VS P. GANESA CHETTIAR (1979) 133 ITR 103(MAD), MAHINDRA & MAHINDRA LTD. VS CIT, AND THE DECISION OF HONBLE DELHI HIGH COURT DATED 23.9.2008 IN THE CASE OF CIT VS TOSHA INTERNATIONAL LTD. RELIED UPON BY THE APPELLANT DURING THE APPELLATE PROCEEDINGS BEFORE THE UNDERSIGNED. IT HAS BEEN GATHERED THAT THE DECISIO N OF THE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF TOSHA INTERNATIONAL LTD. (SUPRA) HAS BEEN REPORTED IN 176 TAXMAN 187 (DEL). THE RELEVANT PORTION OF THE SAID JUDGMENT IN THE CASE OF TOSHA INTERNATIONAL LTD.(SUPRA) IS EXTRACTED BELOW FOR READY REFERENCE: PARA 2,3,4 OF THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF TOSHA INTERNATIONAL LTD. (SUPRA) HAS BEEN REPRODUCED HERE BY THE CIT(A). (SUPPLIED BY US) 3.2 AFTER HAVING CONSIDERED THE FACTS OF THE CASE OF THE APPELLANT, I AM OF THE VIEW THAT RATIO DECIDENDI OF THE ABOVE CITED JUDGMENTS IS APPLICABLE TO IDENTICAL FACTS OF THE CASE OF THE APPELLANT. UNDER THE CIRCUMSTANCES STATED ABOVE, I 8 AM OF THE CONSIDERED VIEW THAT THE PROVISIONS OF SECTION 2(24), SECTION 28(I) OR 28(IV) AND SECTION 41(1) ARE NOT APPLICABLE TO THE INSTANT CASE. ACCORDINGLY, IT IS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS.2,91,42,213/- BEING WAIVER OF PRINCIPAL AMOUNT OF LOAN WHICH WAS CREDITED TO CAPITAL RESERVE AND THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT SUSTAINABLE IN LAW. THEREFORE, IT IS DELETED. AS A RESULT, GROUND NO. 1 & 2 ARE ALLOWED. 8. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 9. THE LEARNED DR HAS SUBMITTED THAT IN SO FAR AS T HE QUESTION AS TO WHETHER THE PRINCIPAL AMOUNT OF BANK LOAN WAIVED BY THE BANK IS INCLUDIBLE AS INCOME UNDER THE PROVISIONS OF SECTION 41(1) OF THE ACT, THE AO HAS ACCEPTED THE ASSESSEES CONTENTION THAT THIS ITEM I S NOT COVERED BY THE PROVISIONS OF SECTION 41(1) OF THE ACT INASMUCH AS IT WAS NEITHER ALLOWED OR DEDUCTED AS EXPENSES OR TRADING LIABILITY IN EARLIE R YEARS. THEREFORE, THE DISPUTE IN THIS CASE IS NOT WITH REGARD TO THE APPL ICABILITY OF SECTION 41 OF THE ACT. HE FURTHER SUBMITTED THAT IN THIS CASE, THE A SSESSEE HAS OBTAINED BANK LOAN TO BE UTILIZED IN ITS BUSINESS, AND SUBSEQUENT LY, THE BANK LOAN TO THE EXTENT OF RS.2,91,42,212/- HAS BEEN WAIVED BY THE B ANK IMPLYING THEREBY THAT THE ASSESSEE HAS BECOME RICHER BY THIS AMOUNT IN THE COURSE OF CARRYING ON ITS BUSINESS AND, THEREFORE, IN THE LIGHT OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS T.V. SUNDARAM IYENGAR & SONS LTD, 220 ITR 344 (SC), THIS AMOUNT IS LIABLE TO BE INCLUDED AS INCOM E OF THE ASSESSEE 9 NOTWITHSTANDING THE FACT THAT THIS AMOUNT WAS NOT I NCLUDIBLE IN THE INCOME AT THE TIME WHEN IT WAS RECEIVED. 10. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, SUPPORTED THE ORDER OF CIT(A) TO CONTEND THAT IN THE LIGHT OF THE DECISIONS OF JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS TOSHA IN TERNATIONAL LTD. (SUPRA) AND HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHIND RA & MAHINDRA LTD. VS CIT (SUPRA), THE PRINCIPAL AMOUNT OF LOAN WAIVED BY THE BANK CANNOT BE TREATED TO BE INCOME OF THE ASSESSEE EITHER WITHIN THE MEANING OF SECTION 41(1) OF THE ACT OR OTHERWISE WITHIN THE MEANING OF SECTION 28(IV) OR SECTION 28(I) OR SECTION 2(24) OF THE ACT. HE FURT HER SUBMITTED THAT THE PRINCIPAL AMOUNT OF LOAN WAIVED BY THE BANK IS ALSO NOT LIABLE TO BE TAXED IN THE LIGHT OF THE DECISION OF HONBLE MADRAS HIGH CO URT IN THE CASE OF CIT VS. P. GANESA CHETTIAR (SUPRA). THE LEARNED COUNSE L FOR THE ASSESSEE ALSO RELIED UPON THE DECISION OF HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS PHOOL CHAND JIVAN RAM 131 ITR 37. HE FURTHER SUBM ITTED THAT THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF T .V. SUNDARAM IYENGAR & SONS (SUPRA) IS ALSO NOT APPLICABLE TO THE PRESEN T CASE INASMUCH AS THE TRANSACTION BETWEEN THE ASSESSEE AND THE BANK WAS N OT IN THE NATURE OF ANY TRADING TRANSACTION, BUT THE LOAN WAS OBTAINED FOR THE PURPOSE OF BUSINESS DE- HORS TRADING TRANSACTION CARRIED OUT BY THE ASSESSE E. HE, THEREFORE, SUBMITTED 10 THAT SINCE THE TRANSACTION BETWEEN THE ASSESSEE AND THE BANK IS NOT CONNECTED OR RELATED TO ANY TRADING ACTIVITY OF THE BUSINESS OF THE ASSESSEE, THE PRINCIPAL LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS (SUPRA) CANNOT BE APPLIED TO THE PRE SENT CASE SO AS TO TREAT THE PRINCIPAL AMOUNT OF RS.2,91,42,213/- WAIVED BY THE BANK AS INCOME OF THE ASSESSEE EVEN IN COMMON SENSE OF THE TERM. 11. IN THE COURSE OF HEARING, THE LEARNED COUNSEL F OR THE ASSESSEE WAS INVITED TO CLARIFY ABOUT THE NATURE AND THE PURPOSE FOR WHICH THE LOAN WAS TAKEN BY THE ASSESSEE FROM THE BANK. IN RESPECT TH ERETO, THE ASSESSEE SUBMITTED BEFORE US A COPY OF SETTLEMENT LETTER DAT ED 9.2.2005 ISSUED BY THE BANK WHEREBY THE PRINCIPAL AMOUNT OF LOAN WAS SETTL ED ON COMPROMISE AT RS.1.85 CRORES. HE FURTHER INVITED OUR ATTENTION T O THE AUDIT REPORT FOR THE YEAR ENDED ON 31 ST MARCH, 2006 ALONG WITH NOTES TO THE ACCOUNTS. IN THE COURSE OF HEARING, ATTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS OF THE DR WAS ALSO INVITED TO THE RECENT DECISION O F HONBLE HIGH COURT OF BOMBAY IN THE CASE OF SOLID CONTAINERS LTD. VS DCI T (2009) 178 TAXMAN 192 (BOM) : (2009) 308 ITR 417 (BOM) WHERE THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS T.V. SUNDARAM I YENGAR & SONS (SUPRA), DECISION OF HONBLE BOMBAY HIGH COURT IN T HE CASE OF MAHINDRA & MAHINDRA VS CIT (SUPRA) AND THE DECISION OF HONBLE MADRAS HIGH COURT IN 11 THE CASE OF CIT VS ARIES ADVERTISING P. LTD. (2002) 255 ITR 510 WERE REFERRED TO AND CONSIDERED. AT THIS STAGE, THE LEA RNED COUNSEL FOR THE ASSESSEE REITERATED HIS CONTENTION THAT INASMUCH AS THE TRANSACTION OF LOAN IN QUESTION IS NOT CONNECTED OR RELATED TO, OR, WAS NO T MADE IN THE COURSE OF, ANY TRADING ACTIVITY OF THE ASSESSEE, THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS (SUPRA) AND THE DECISION OF HIGH COURT OF BOMBAY IN THE CASE OF SOLID CONTAINER S LTD. (SUPRA) WOULD NOT BE APPLICABLE TO THE PRESENT CASE. 12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF BOT H THE PARTIES. WE HAVE ALSO GONE THROUGH THE ORDERS OF AUTHORITIES BE LOW AND DELIBERATED UPON THE VARIOUS DECISIONS CITED BY THE LEARNED AUTHORIZ ED REPRESENTATIVES FOR BOTH THE PARTIES. 13. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD TAKEN OR OBTAINED LOAN FROM THE STATE BANK OF INDIA, AND LAT ER, AS A RESULT OF COMPROMISE BETWEEN THE ASSESSEE AND STATE BANK OF I NDIA, THE OUTSTANDING LIABILITY OF RS.1,90,42,295/- TOWARDS INTEREST PAY ABLE ON LOAN AMOUNT WAS WAIVED, AND SINCE THE ASSESSEE HAD OBTAINED A DEDUC TION ON ACCOUNT OF INTEREST PAYABLE ON LOAN AMOUNT IN THE ASSESSMENT O F EARLIER YEARS, THE ASSESSEE CREDITED THE SAID AMOUNT OF INTEREST OF RS .1,90,42,295/- TO THE PROFIT AND LOSS ACCOUNT AND ALSO INCLUDED THE SAME IN THE TOTAL INCOME SHOWN BY 12 THE ASSESSEE IN THE RETURN OF INCOME FILED BY IT. THUS, THERE IS NO DISPUTE WITH REGARD TO THE WAIVER OF INTEREST INCLUDIBLE IN THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. HOWEVER , A DISPUTE HAS ARISEN BETWEEN THE DEPARTMENT AND THE ASSESSEE WITH REGARD TO WAIVER OF THE PRINCIPAL AMOUNT TO THE EXTENT OF RS.2,91,42,213/-. THE ENTIRE OUTSTANDING PRINCIPAL AMOUNT OF RS.4,76,42,213/- WAS SETTLED AT RS.1.85 CRORES GIVING A BENEFIT OF RS.2,91,42,213/- TO THE ASSESSEE BY WAY OF WAIVER. NOW, THE QUESTION ARISES WHETHER THE WAIVER OF THE PRINCIPAL AMOUNT TO THE EXTENT OF RS.2,91,42,213/-, WHICH HAS BEEN CREDITED TO THE CA PITAL RESERVE ACCOUNT, IS AN INCOME CHARGEABLE TO TAX UNDER THE ACT. ACCORDI NG TO THE AO, THE ASSESSEE HAD DERIVED BENEFIT BY WAY OF WAIVER OF LO AN IN THE COURSE OF CARRYING ON BUSINESS ACTIVITY AND, THEREFORE, THE A MOUNT TO THE EXTENT IT IS WAIVED BY THE BANK, IS INCLUDIBLE IN THE ASSESSEES HANDS AS BUSINESS INCOME. FROM THE ORDER OF THE AO, IT IS CLEAR THAT NO DISPUTE HAS BEEN RAISED BY THE AO WITH REGARD TO THE CONTENTION OF THE ASSE SSEE THAT THE REMISSION OF THE PRINCIPAL AMOUNT OF LOAN IS NOT HIT BY SECTION 41(1) OF THE ACT. IN OTHER WORDS, NO DISPUTE HAS BEEN RAISED BY THE AO AGAINST THE ASSESSEES CLAIM THAT THE PRINCIPAL AMOUNT WAIVED BY THE BANK IS NOT TO BE TREATED AS INCOME OF THE ASSESSEE WITHIN THE MEANING OF SECTION 41(1) OF THE ACT. IN THIS SITUATION, THE QUESTION NOW ARISES AS TO WHETHER TH E WAIVER OF THE PRINCIPAL 13 AMOUNT TO THE EXTENT OF RS.2,91,42,213/- CAN BE TRE ATED AS BUSINESS INCOME IN VIEW OF THE PRINCIPLE LAID DOWN BY THE HONBLE S UPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS (SUPRA). IN ORDER TO DECIDE THE QUESTION AS TO WHETHER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS (SUPRA) IS APPLICABLE TO TH E PRESENT CASE, WE DEEM IT NECESSARY ON OUR PART TO DWELL UPON THE FACTS OF THE PRESENT CASE, PARTICULARLY TO FIND OUT THE NATURE AND PURPOSE FOR WHICH THE LOAN WAS TAKEN AND UTILIZED. 14. WE HAVE PERUSED THE AUDIT REPORT ALONG WITH AUD ITORS NOTES TO THE ACCOUNTS. IN ANNEXURE REFERRED TO IN PARA 3 OF THE AUDITORS REPORT THE AUDITOR HAS STATED UNDER ITEM NO.(XI) AS UNDER: IN OUR OPINION AND ACCOUNTING TO THE INFORMATION A ND EXPLANATIONS GIVEN BY THE COMPANY, THE COMPANY HAS DEFAULTED IN REPAYMENT OF FOLLOWING DUES OF BANK UPTO 31.3.19 98 AND THEREAFTER NO PROVISION OF INTEREST IS MADE ON THE SAID DUES AND HAS SETTLED THE SAID DUES BY MAKING PAYMENT OF RS.1 .85 CRORE AS PER ONE TIME SETTLEMENT ARRIVED AT WITH THE BANK DU RING THE YEAR PERIOD AMOUNT OF DEFAULT REMARKS 1998 TO 2005 RS.2,79,42,213.00 FOR C/C SBI 1998 TO 2005 RS.1,19,00,000.00 FOR CTL SBI 1998 TO 2005 RS. 78,00,000.00 FOR WCIL SBI 1998 TO 2005 RS.1,90,42,295.00 FOR INTEREST IN ITEM NO.16 OF ANNEXURE, THE AUDITOR HAS STATED A S UNDER: 14 IN OUR OPINION, THE TERM LOANS OUTSTANDING AT THE BEGINNING OF THE YEAR HAVE BEEN APPLIED FOR THE PURPOSE FOR WHICH LOANS WERE RAISED. IN THE SCHEDULE OF SECURED LOANS, THE NATURE AND PU RPOSE OF LOAN AND THE SECURITY PLACED AGAINST LOAN ARE DESCRIBED AS UNDER : SECURED LOANS STATE BANK OF INDIA, NOIDA (SECURED AGAINST THE HYPOTHECATION OF FINISHED GOODS, SEMI FINISHED GOODS, RAW MATERIAL BOOK DEBTS, RECEIVABLE CLAIMS, SECURITIES RIGHTS BY WAY OF FIRST CHARGE, MORTGAGE OF BUILDING AND PLANT AND MACHINERY BY WAY OF SECOND CHARGE AND PERSONAL GUARANTEE OF DIRECTORS): A) IN CASH CREDIT ACCOUNT 27942213.00 B) C.T.L. STATE BANK OF INDIA 11900000.00 C) W.C.T.L. STATE BANK OF INDIA 7800000.00 47642213.00 ___________ IN THE NOTES TO THE ACCOUNTS (SCHEDULE XV), UNDER I TEM B, IT HAS BEEN STATED AS UNDER: (B) THE COMPANY HAS SOLD/AGREED TO SELL DURING THE YEAR ITS ENTIRE FIXED ASSETS COMPRISING LEASEHOLD LAND, BUILDING AND ELECTRIC INSTALLATION 15 THEREIN AND HAS REALIZED A SUM OFRS.1.85 CRORES FROM SALE AND ADVANCE AND HAS PAID THE SAID SUM TO STATE BANK OF INDIA TO SETTLE THE ENTIRE OUTSTANDIN G PRINCIPAL AMOUNT OF RS.47642213.00 UNDER THE ONE TIME SETTLEMENT WITH THE SAID BANK. THE COMPANY HAS CREATED THE CAPITAL RESERVE OF RS.29142213/- FOR THE BALANCE OUTSTANDING PRINCIPAL AMOUNT NOT TO BE PAID BY THE COMPANY UNDER THE SETTLEMENT WITH THE SAID BANK. THE COMPANY HAS WRITTEN BACK OUTSTANDING PROVISION FOR BANK INTEREST OF RS.19042295/- IN THE BOOKS NOW NOT LIABLE TO BE PAID BY THE COMPANY UNDER THE SETTLEMENT WITH THE SAID BANK TO PROFIT AND LOSS ACCOUNT AND SHOWN UNDER PROVISION FOR BANK INTEREST WRITTEN BACK RESPECTIVELY. THE COMPANY HAS FURTHER CREATED CAPITAL RESERVE OF RS.16055282.00 OUT OF THE AMOUNT REALIZED IN EXCESS OF ORIGINAL COST ON SALE OF LEASEHOLD LAND. FROM THE AFORESAID DETAILS AND NOTES FURNISHED BY T HE ASSESSEE AND ITS AUDITOR, IT IS SEEN THAT TOTAL PRINCIPAL AMOUNT OF LOAN WAS OUTSTANDING IN THE FOLLOWING ACCOUNTS :- A) IN CASH CREDIT ACCOUNT 27942213.00 B) C.T.L. STATE BANK OF INDIA 11900000.00 C) W.C.T.L. STATE BANK OF INDIA 7800000.00 IN THESE DETAILS MENTIONED ABOVE, IT IS ALSO STATED THAT THE LOAN AMOUNT WAS UTILIZED OR APPLIED FOR THE PURPOSE FOR WHICH LOANS WERE RAISED AND THE LOAN WAS SECURED AGAINST HYPOTHECATION OF FINISHED GOODS AND SEMI FINISHED 16 GOODS, RAW MATERIALS, BOOK DEBTS, RECEIVABLE CLAIMS , SECURITIES RIGHTS AND OTHER RIGHTS BY WAY OF FIRST CHARGE. 15. AT THIS STAGE, WE PROCEED TO FIRST CONSIDER THE FACTS OF THE CASE AND THE CONTEXT IN WHICH THE DECISION IN THE CASE OF CIT VS TOSHA INTERNATIONAL LTD. (SUPRA), MAHINDRA & MAHINDRA LTD. VS CIT (SUPRA), S OLID CONTAINERS LTD. VS DCIT (SUPRA) CAME TO BE RENDERED. 16. IN THE CASE OF CIT VS TOSHA INTERNATIONAL LTD. (SUPRA), THE FACTS NOTED BY THE TRIBUNAL AND BY THE HONBLE HIGH COURT ARE T HAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING OF BLACK AND WHITE PIC TURE TUBES. THE ASSESSEE COMPANY RAN INTO HUGE LOSSES AND ULTIMATELY, IT BEC AME A SICK COMPANY AND REGISTERED UNDER BIFR. UNDER THE ONE TIME SETTLEME NT SCHEME, THE FINANCIAL INSTITUTIONS AND BANKS REQUIRED THE ASSESSEE TO PAY 60% OF THE AMOUNT DUE TOWARDS PRINCIPAL AND WAIVED THE ENTIRE INTEREST PA YMENT. THE ONLY OBJECTION RAISED BY THE AO WAS WITH REGARD TO THE P RINCIPAL AMOUNT TO THE EXTENT OF RS.10,47,93,857/-, WHICH THE ASSESSEE HAD DIRECTLY CREDITED TO THE CAPITAL RESERVE ACCOUNT. ACCORDING TO THE AO, SINC E THE LOAN CEASED TO EXIST, IT AMOUNTED TO CESSATION OF LIABILITY AND, THEREFOR E, IT HAS TO BE TREATED AS AN INCOME. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAD BORROWED AMOUNT FROM FINANCIAL INSTITUTIONS AGAINST WORKING CAPITAL AND AGAINST TERM LOANS, AND THESE BORROWED MONIES WERE UTILIZED FOR THE WOR KING CAPITAL OR 17 INDIRECTLY THE BENEFIT WOULD HAVE TRANSLATED INTO T HE TRADING RESULTS OF THE COMPANY. ACCORDING TO THE AO, THE ASSESSEE DEFINIT ELY GAINED IN THE TRADING ACTIVITY ON THE BASIS OF THESE LOANS, AND, SECONDLY , THE ASSESSEE WHEN BOUGHT ASSETS CONSISTING OF PLANT AND MACHINERY, BUILDINGS AND OTHER ASSETS, IT DERIVED BENEFIT OF DEPRECIATION. THE AO OBSERVED T HAT IT CLEARLY INDICATES THAT THE ASSESSEE HAS BEEN DERIVING BENEFIT ON THE BASIS OF EITHER DEPRECIATION OR UTILIZING THE WORKING CAPITAL IN EARLIER YEARS. THE CIT(A) DELETED THE ADDITION BY OBSERVING THAT THE REMISSION OF THE PRI NCIPAL AMOUNT OF LOAN DID NOT AMOUNT TO INCOME U/S 41(1) NOR U/S 28(IV) NOR U /S 2(24) OF THE ACT. ON FURTHER APPEAL BY THE REVENUE, THE TRIBUNAL UPHELD THE ORDER OF LEARNED CIT(A). THE RELEVANT PARA 4 OF THE TRIBUNALS ORD ER RUNS AS UNDER: AGGRIEVED BY THE ABOVE ORDER OF THE COMMISSIONER (APPEALS), THE REVENUE IS IN FURTHER APPEAL BEFORE US. WE HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFULLY, GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND ALSO DELIBERATED ON THE CASE LAWS CITED BY LEARNED AUTHORIZED REPRESENTATIVE IN SUPPORT OF THE PROVISIONS THAT WAIVER OF PRINCIPAL AMOUNT OF LOAN IS NOT INCOME. WE FOUND FROM THE RECORD THAT ASSESSEE BEING A SICK COMPANY, NOT IN A POSITION TO REPAY THE LOAN, THE FINANCIAL INSTITUTION AND BANKS HAVE WAIVED THE INTEREST AND A PART OF PRINCIPAL AMOUNT. SO FAR AS WAIVER OF INTEREST IS CONCERNED, THE ASSESSEE EITHER HAS NOT CLAIMED THE EXPENDITURE OF INTEREST WHICH WAS WAIVED OR HAS SHOWN THE SAME AS INCOME. HOWEVER, IN RESPECT OF THE 18 WAIVER OF PRINCIPAL AMOUNT, THE ASSESSEE HAS DIRECTLY CREDITED THE SAME TO CAPITAL RESERVE ACCOUNT. THE ASSESSING OFFICER HAS NO DISPUTE WITH REGARD TO WAIVER OF INTEREST, HOWEVER, HE HAS TREATED THE WAIVER OF PRINCIPAL AMOUNT AS INCOME OF THE ASSESSEE, AFTER DISCUSSING THE PROVISIONS OF SECTION 41(1)/28(IV)/2(24) OF THE INCOME-TAX ACT, 1961. AS PER OUR CONSIDERED VIEW, FOR ATTRACTING THE PROVISIONS OF SECTION 41(1), THE FIRST REQUISITE CONDITION TO BE SATISFIE D IS THAT THE ASSESSEE SHOULD HAVE GOT DEDUCTION OR BENEFIT OF ALLOWANCE IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY IT AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, THE ASSESSEE SHOULD HAVE RECEIVED ANY AMOUNT IN RESPECT OF SUCH LOSS, EXPENDITURE OR TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. THE REMISSION WOULD BECOME INCOME ONLY IF THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF EXPENDITURE OR TRADING LIABILITY. IN MAHINDRA & MAHINDRA LTD. VS CIT (2003) 261 ITR 501 (BOM) HONBLE 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 ASSET AS THE SAME HAS BEEN REFLECTED IN THE BALANCE SHEET AND NOT IN THE PROFIT & LOSS 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 AS WAIVER OF INTEREST IS CONCERNED, THE ASSESSEE COMPANY ITSELF HAS TREATED THE SAME EITHER AS INCOME OR HAS NOT CLAIMED THE SAME AS EXPENDITURE IN THE COMPUTATION OF INCOME FILED BEFORE THE LOWER AUTHORITIES. THE PROVISION OF 19 SECTION 28(IV) APPLIES TO THE VALUE OF BENEFIT OR PERQUISITES WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS, BUT DOES NOT APPLY FOR BENEFIT RECEIVED IN CASH OR MONEY; AS HELD IN MAHINDRA & MAHINDRA LTD. (SUPRA), THE WAIVER OF PRINCIPAL AMOUNT OF LOAN ALSO DOES NOT COME UNDER THE DEFINITION OF INCOME AS CONTAINED UNDER SECTION 2(24) OF THE ACT. THE DEFINITION OF INCOME AS CONTAINED U/S 2(24) SPEAKS AS TO WHAT ARE THE ITEMS TO BE INCLUDED UNDER THE DEFINITION OF INCOME. IT INCLUDES PROFIT AND GAINS, DIVIDEND, VOLUNTARY CONTRIBUTION RECEIVED BY A TRUST, VALUE OF ANY PERQUISITE OR PROFIT IN LIEU OF SALARY, SPECIAL ALLOWANCE OR BENEFIT GRANTED TO THE ASSESSEE TO MEET HIS PERSONAL EXPENSES, BENEFIT OR PERQUISITE OF DIRECTORS, ANY SUCH CHARGEABLE UNDER CLAUSES (IIIA) (IIIB) (IIIC) (IV) AND (V) OF SECTION 28, CAPITAL GAINS U/S 45, PROFIT AND GAINS OF BUSINESS IN ACCORDANCE WITH SECTION 44, WINNING FROM LOTTERIES, RACES, ETC., AND ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEE AS CONTRIBUTION TO ANY PROVIDENT FUND SO SET UP. WAIVER OF PRINCIPAL AMOUNT OF TAX BY NO STRETCH OF IMAGINATION CAN BE TREATED AS INCOME WITHIN THE MEANING OF SECTION 2(24) OF THE ACT. 17. THE HONBLE HIGH COURT HAS OBSERVED IN PARA 3 OF THEIR ORDER THAT TRIBUNAL HAD EXAMINED THE CASE IN DETAIL AND PARTIC ULARLY FROM THE STANDPOINT OF THE PROVISIONS OF SECTION 41(1) OF THE ACT. THE HONBLE HIGH COURT THEN REPRODUCED THE TRIBUNALS OBSERVATIONS AND DECISION WITH REGARD TO THE APPLICABILITY OF SECTION 41(1) OF THE ACT TO THAT C ASE IN PARA 3 OF THEIR ORDER AS UNDER:- 20 AS PER OUR CONSIDERED VIEW, FOR ATTRACTING THE 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 TRADING LIABILITY INCURRED BY IT AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, THE ASSESSEE SHOULD HAVE RECEIVED ANY AMOUNT IN RESPECT OF SUCH LOSS, EXPENDITURE OR TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. THE REMISSION WOULD BECOME INCOME ONLY IF THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF EXPENDITURE OR TRADING LIABILITY. IN MAHINDRA & MAHINDRA LTD. VS CIT (2003) 261 ITR 501 (BOM) HONBLE 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 ASSET AS THE SAME HAS BEEN REFLECTED IN THE BALANCE SHEET AND NOT IN THE PROFIT & LOSS 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 AS WAIVER OF INTEREST IS CONCERNED, THE ASSESSEE COMPANY ITSELF HAS TREATED THE SAME EITHER AS INCOME OR HAS NOT CLAIMED THE SAME AS EXPENDITURE IN THE COMPUTATION OF INCOME FILED BEFORE THE LOWER AUTHORITIES. THEREAFTER, THEIR LORDSHIPS IN PARA 4 OF THEIR ORDE R HELD THAT THEY DID NOT SEE ANY REASON TO INTERFERE WITH THE CONCLUSIONS OF THE TRIBUNAL AS THE SAME HAVE BEEN RENDERED ON A CORRECT APPRECIATION OF LAW, AND THE PRINCIPLES ENUNCIATED 21 IN MAHINDRA & MAHIDNRA LTD. VS CIT (2003) 261 ITR 5 01 (BOM) ARE FULLY APPLICABLE AND THEY SAW NO REASON TO TAKE A DIFFERE NT VIEW. 18. ON READING THE ABOVE-REFERRED TRIBUNALS ORDER, WE FIND THAT THE TRIBUNAL HAS HELD THAT FOR ATTRACTING THE PROVISION S OF SECTION 41(1), THE FIRST REQUISITE CONDITION TO BE SATISFIED IS THAT THE ASS ESSEE SHOULD HAVE GOT DEDUCTION OR BENEFIT OF ALLOWANCE IN RESPECT OF LOS S, EXPENDITURE, OR TRADING LIABILITY INCURRED BY IT AND SUBSEQUENTLY, DURING A NY PREVIOUS YEAR, THE ASSESSEE SHOULD HAVE RECEIVED ANY AMOUNT IN RESPECT OF SUCH LOSS, EXPENDITURE OR TRADING LIABILITY BY WAY OF REMISSIO N OR CESSATION THEREOF. THE TRIBUNAL FURTHER OBSERVED THAT THE REMISSION WO ULD BECOME INCOME ONLY IF THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF EXPENDITURE OR TRADING LIABILITY. THEN, THE HONBLE TRIBUNAL REFERRED TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD. VS CIT (SUPRA) WHERE HONBLE BOMBAY HIGH COURT HELD THAT A NY DISALLOWANCE OR DEDUCTION HAVING BEEN ALLOWED IN RESPECT OF LOAN TA KEN BY THE ASSESSEE FOR PURCHASE OF CAPITAL ASSET, SECTION 41(1) WAS NOT AT TRACTED TO REMISSION OF PRINCIPAL AMOUNT OF LOAN. IN THAT CASE, THE TRIBUN AL FURTHER FOUND THAT THE ASSESSEE DID NOT GET ANY DEDUCTION ON ACCOUNT OF AC QUISITION OF CAPITAL ASSET AS THE SAME WAS REFLECTED IN THE BALANCE SHEET AND NOT IN THE PROFIT AND LOSS ACCOUNT, AND, ALSO THE REMISSION OF THE PRINCIPAL A MOUNT OF LOAN SO OBTAINED 22 FROM THE BANK AND FINANCIAL INSTITUTION HAD NOT BEE N CLAIMED AS EXPENDITURE OR TRADING LIABILITY IN ANY OF THE EARLIER PREVIOUS YEARS. THE TRIBUNAL FURTHER OBSERVED THAT PROVISIONS OF SECTION 28(IV) WOULD AP PLY TO THE VALUE OF BENEFIT OR PERQUISITES WHETHER CONVERTIBLE INTO MON EY OR NOT, ARISING FROM BUSINESS BUT DOES NOT APPLY FOR BENEFIT RECEIVED IN CASH OR MONEY AS SO HELD IN MAHINDRA & MAHIDNRA LTD. VS CIT (SUPRA). THE T RIBUNAL FURTHER HELD THAT THE WAIVER OF PRINCIPAL AMOUNT OF LOAN ALSO DO ES NOT COME UNDER THE DEFINITION OF INCOME AS CONTAINED IN SECTION 2(24 ) OF THE ACT, AND AS SUCH WAIVER OF PRINCIPAL AMOUNT BY NO STRETCH OF IMAGINA TION CAN BE TREATED AS INCOME WITHIN THE MEANING OF SECTION 2(24) OF THE A CT. HOWEVER, IT SEEMS THAT WHILE DECIDING THE ISSUE, THE HONBLE HIGH COU RT HAS ONLY CONSIDERED THE ISSUE FROM THE STANDPOINT OF SECTION 41(1) OF T HE ACT AS WOULD BE CLEAR FROM THE ORDER ITSELF. FROM THE DECISION OF TRIBUNA L AS WELL AS OF HONBLE HIGH COURT IN THE CASE OF CIT VS TOSHA INTERNATIONA L LTD. (SUPRA), IT IS CLEAR THAT THE PRINCIPLE LAID DOWN BY HONBLE SUPREME COU RT IN THE CASE OF CIT VS T.V. SUNDARAM IYENGAR & SONS (SUPRA) WAS NOT REFERR ED TO NOR CONSIDERED IN THAT CASE. IN OTHER WORDS, THE ISSUE INVOLVED IN T HAT CASE WAS NOT CONSIDERED FROM THE STANDPOINT OF THE PRINCIPLE LAID DOWN BY T HE HONBLE SUPREME COURT IN THE CASE OF CIT VS T.V. SUNDARAM IYENGAR ( SUPRA). IN SO FAR AS THE ASSESSEES CONTENTION RAISED IN THE INSTANT CASE BE FORE US THAT SECTION 41(1) IS 23 NOT APPLICABLE TO THE PRESENT CASE, WE FIND THAT TH E AO HIMSELF HAS ACCEPTED THIS PROPOSITION AND HAS NOT MADE THE ADDITION BY I NVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT. WITH REGARD TO THE APPLIC ABILITY OF SECTION 28(IV) OF THE ACT, THERE IS NO DISPUTE AS TO THE PROPOSITION THAT PROVISIONS OF SECTION 28(IV) APPLIES TO THE VALUE OF BENEFIT OR PERQUISIT ES WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS, BUT DOES NOT A PPLY TO ANY BENEFIT RECEIVED IN CASH OR MONEY AS WAS HELD BY HONBLE BO MBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. CIT (SUPRA ) APPROVING THE INTERPRETATION IN THIS REGARD GIVEN BY THE GUJARAT HIGH COURT IN THE CASE OF CIT VS ALCHEMIC PVT. LTD. (1981) 130 ITR 168 (GUJAR AT), WHICH HAS BEEN APPROVED IN CIT VS NEW INDIA INDUSTRIES LTD. (1993 ) 201 ITR 208 (GUJ): (1993) 203 ITR 933 (GUJ) : (1994) 207 ITR 1010 (GUJ ). THEREFORE, WE HOLD THAT THE PRESENT CASE IS ALSO NOT COVERED BY THE PR OVISIONS OF SECTION 28(IV) OF THE ACT. IN THE CASE OF CIT VS. TOSHA INTERNATI ONAL LTD. (SUPRA), THE TRIBUNAL FURTHER HELD THAT WAIVER OF PRINCIPAL AMOU NT OF LOAN ALSO DOES NOT COME UNDER THE DEFINITION OF INCOME AS CONTAINED U/ S 2(24) OF THE ACT AS THE DEFINITION OF INCOME AS CONTAINED U/S 2(24) SPEAKS AS TO WHAT ARE THE ITEMS TO BE INCLUDED UNDER THE DEFINITION OF INCOME, WHICH I NCLUDES PROFIT AND GAINS, DIVIDEND, VOLUNTARY CONTRIBUTION RECEIVED BY A TRUS T, VALUE OF ANY PERQUISITE OR BENEFIT IN LIEU OF SALARY OR SPECIFICALLY GRANTE D TO THE ASSESSEE TO MEET HIS 24 PERSONAL EXPENSES, BENEFIT OR PERQUISITE OR ANY SUM CHARGEABLE UNDER CLAUSES (IIIA), (IIIB), (IIIC), (IV) AND (V) OF SECTION 28, CAPITAL GAINS CHARGEABLE U/S 45, PROFIT AND GAINS OF BUSINESS IN ACCORDANCE WITH SEC TION 44, WINNING FROM LOTTERIES, RACES ETC., AND ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYER AS CONTRIBUTION TO ANY PROVIDENT FUND SET UP. HOW EVER, THE TRIBUNAL IN THAT CASE HAS NOT CONSIDERED THE ISSUE FROM THE STANDPOI NT OF THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CI T VS T.V. SUNDARAM IYENGAR & SONS (SUPRA). 19. WHILE DECIDING THE ISSUE, THE TRIBUNAL IN THE C ASE OF CIT VS TOSHA INTERNATIONAL LTD. (SUPRA) HAS RECORDED A FINDING OF FACT THAT IN THAT CASE THE ASSESSEE HAS NOT GOT ANY DEDUCTION ON ACCOUNT OF AC QUISITION OF CAPITAL ASSETS AS THE SAME WAS REFLECTED IN THE BALANCE SHEET AND NOT IN THE PROFIT AND LOSS ACCOUNT, AND ALSO THE REMISSION OF PRINCIPAL AMOUNT OF LOAN SO OBTAINED FROM THE BANK WAS NOT CLAIMED AS AN EXPENDITURE OR TRADI NG LIABILITY IN ANY OF THE EARLIER PREVIOUS YEARS. IT IS THUS SEEN THAT THE TR IBUNAL IN THAT CASE PROCEEDED TO DECIDE THE CASE IN THE LIGHT OF THE FACT THAT TH E ASSESSEE HAD ACQUIRED CAPITAL ASSETS AND HAS APPLIED THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. CIT (SUPRA ). THEREFORE, THE DECISION OF TRIBUNAL IN THE CASE OF TOSHA INTERNATI ONAL LTD. VS CIT AS UPHELD 25 BY THE HONBLE HIGH COURT OF DELHI WOULD APPLY TO T HE CASES WHERE THE LOAN OBTAINED BY THE ASSESSEE IS UTILIZED FOR ACQUIRING CAPITAL ASSETS. 20. NOW, WE SHALL COME TO THE DECISION OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS CI T (SUPRA). IN THAT CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFAC TURING JEEPS. IN JUNE, 1964, THE ASSESSEE ENTERED INTO AN AGREEMENT WITH A N AMERICAN COMPANY, WHICH AGREED TO SELL TO THE ASSESSEE DIES, WELDING EQUIPMENTS AND DIE MODELS, TOOLING FOR PRODUCTION OF SPECIAL TYPE OF J EEPS BY THE ASSESSEE IN INDIA. THE PRICE OF THE TOOLING WAS AGREED AT US $ 6,50,000 C.I.F. BOMBAY. SINCE THE ASSESSEE COULD NOT SECURE FOREIGN EXCHANG E, THE AMERICAN COMPANY AGREED TO PROVIDE A LOAN OF US $ 6,50,000/- REPAYABLE AFTER 10 YEARS IN INSTALLMENT WITH INTEREST @ 6% FREE OF INC OME-TAX. CONSEQUENTLY, THE ASSESSEE RECEIVED LOAN FOR SECURING THE TOOLING FROM THE AMERICAN COMPANY. SUBSEQUENTLY, THE AMERICAN COMPANY WAS TA KEN OVER IN 1996 AND IN TURN THEREOF, IT HAD AGREED TO WAIVE THE PRINCIP AL AMOUNT OF LOAN ADVANCED TO THE ASSESSEE. THE AO HELD THAT ON THE WAIVER OF THE LOAN, THE CREDITS REPRESENTED INCOME. HE, THEREFORE, HELD THAT THE A MOUNT WAS TAXABLE U/S 28 OF THE ACT. THE CIT(A) HELD THAT THE SAME WAS TAXA BLE AS INCOME U/S 28(IV) OF THE ACT AS SUCH BENEFIT BY WAY OF WAIVER OF LOAN WAS OBTAINED IN THE COURSE OF BUSINESS AND THE MONETARY VALUE OF THAT B ENEFIT WAS INCOME. 26 ACCORDING TO THE TRIBUNAL, SECTION 28(IV) WAS NOT A PPLICABLE BECAUSE BENEFIT OF WAIVER WAS NOT RECEIVED BY THE ASSESSEE IN CASH. THE TRIBUNAL FURTHER TOOK THE VIEW THAT EVEN SECTION 41(1) OF THE ACT WA S NOT APPLICABLE BECAUSE THERE WAS NO CESSATION OF ANY TRADING LIABILITY. O N REFERENCE, THE HONBLE HIGH COURT HELD THAT THERE WERE TWO IMPORTANT FACTS , WHICH HAD BEEN OVERLOOKED BY THE AO. ONE OF SUCH IMPORTANT FACT RE FERRED TO BY THE HIGH COURT WAS THAT THE PURCHASE CONSIDERATION WAS RELAT ED TO CAPITAL ASSET. THE TOOLING WERE IN THE NATURE OF DIES. THE ASSESSEE W AS MANUFACTURER OF HEAVY VEHICLES AND JEEPS. IT REQUIRED THESE DIES FOR EXPA NSIONS. THEREFORE, THE IMPORT WAS THAT OF PLANT AND MACHINERY. THE CONSID ERATION PAID WAS FOR SUCH IMPORT OF PLANT AND MACHINERY, I.E., CAPITAL A SSETS. IN THESE CIRCUMSTANCES, IT WAS HELD THAT SECTION 28(IV) WAS NOT ATTRACTED. THE HONBLE HIGH COURT FURTHER FOUND THAT THE PRINCIPAL AMOUNT OF LOAN HAD BEEN FOREGONE AS A PART OF TAKE OVER ARRANGEMENT, TO WHI CH THE ASSESSEE WAS NOT A PARTY, AND THE WAIVER OF PRINCIPAL AMOUNT WAS UNEXP ECTED, AND IN THE CIRCUMSTANCES, SUCH WAIVER WOULD NOT CONSTITUTE BUS INESS INCOME. THE HONBLE HIGH COURT FURTHER HELD THAT IN ORDER TO AP PLY SECTION 41(1), THE ASSESSEE SHOULD HAVE OBTAINED A DEDUCTION IN THE AS SESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY I NCURRED BY THE ASSESSEE. THE ASSESSEE HAD NOT OBTAINED SUCH ALLOWANCE OR DEDUCTI ON IN RESPECT OF 27 EXPENDITURE OR TRADING LIABILITY. IN THE CIRCUMSTA NCES, IT WAS HELD THAT SECTION 41(1) OF THE ACT WAS NOT APPLICABLE. THE H ONBLE HIGH COURT FURTHER HOLD THAT EVEN ASSUMING THAT THE ASSESSEE H AD GOT DEDUCTION OF ALLOWANCE, SECTION 41(1) WAS NOT APPLICABLE BECAUSE SUCH DEDUCTION WAS NOT IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILIT Y. IT WAS LASTLY HELD THAT THE TOOLING CONSTITUTES CAPITAL ASSET AND NOT STOCK-IN- TRADE. FROM THE SAID DECISION, IT IS EVIDENT THAT THE LOAN WAS OBTAINED FOR PAYMENT OF CONSIDERATION FOR IMPORT OF PLANT AND MACHINERY, WH ICH CONSTITUTE CAPITAL ASSET AND NOT STOCK-IN-TRADE. IN OTHER WORDS, THE LOAN OBTAINED BY THE ASSESSEE WAS UTILIZED FOR THE ACQUISITION OF CAPITA L ASSET AND NOT FOR ACQUIRING OR PURCHASING ANY STOCK-IN-TRADE OR NOT FOR THE PUR POSE OF ANY TRADING ACTIVITY. IN THE LIGHT OF THESE FACTS, THE HONBLE BOMBAY HIGH COURT HELD THAT THE WAIVER OF THE PRINCIPAL AMOUNT OF LOAN IS NEITHER AN INCOME U/S 28(IV) NOR U/S 41(1) OF THE ACT. 21. IN THE LIGHT OF THE ABOVE DECISION OF HONBLE B OMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS CIT (SUPRA) , IT IS CLEAR THAT IN THE CASE WHERE CAPITAL ASSETS ARE ACQUIRED BY OBTAINING A LOAN, AND SUBSEQUENTLY, THE LOAN AMOUNT IS WAIVED BY THE OTHER PARTY, THE P RINCIPAL AMOUNT OF LOAN WAIVED BY THE OTHER PARTY CANNOT BE BROUGHT TO TAX U/S 28(IV) OF THE ACT OR U/S 41(1) OF THE ACT. 28 22. THE DECISION OF HONBLE SUPREME COURT IN THE CA SE OF CIT VS. T.V. SUNDARAM IYENGAR & SONS (SUPRA) AND HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS CIT (SUPRA) AND HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS ARIES ADVERTISING P. LT D. (SUPRA) HAD BEEN REFERRED TO BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF SOLID CONTAINERS LTD. VS DCIT (SUPRA). IN THAT CASE, THE ASSESSEE HAD TAKEN A LOAN OF RS.6,86,071/- FOR BUSINESS PURPOSES, WHICH WAS W RITTEN BACK, AS A RESULT OF CONSENT TERMS ARRIVED AT BETWEEN M/S P.C. JAIN M OTORS, ON THE ONE HAND, AND THE ASSESSEE, ON THE OTHER. ASSESSEE CLAIMED TH AT THE SAID LOAN WAS THE CAPITAL RECEIPT AND HAS NOT BEEN CLAIMED AS DEDUCTI ON FROM THE TAXABLE INCOME AS EXPENSES AND, THEREFORE, DID NOT COME U/S 41(1) OF THE ACT. THE CREDIT BALANCE WRITTEN BACK WAS TREATED BY THE AO T O BE THE INCOME OF THE ASSESSEE U/S 28 OF THE ACT IN VIEW OF THE FACT THAT THE CREDIT BALANCE WAS DIRECTLY ARISING OUT OF THE BUSINESS ACTIVITY. THE ASSESSEE, RELYING UPON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F MAHINDRA & MAHINDRA LTD. (SUPRA) CONTENDED THAT IN RELATION TO THE TRANSACTION IN QUESTION, SECTION 28(IV) WAS NOT ATTRACTED AND EVEN PROVISIONS OF SECTION 41(1) OF THE ACT COULD NOT BE APPLIED TO TREAT THE SAME AS BUSINESS INCOME OF THE ASSESSEE LIABLE TO TAX. 29 23. ON AN APPEAL, CIT(A) UPHELD THE AOS ACTION. ON FURTHER APPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL SUSTAINED THE VIE W TAKEN BY THE COMMISSIONER RELYING UPON THE JUDGMENT OF THE HONB LE SUPREME COURT IN THE CASE OF CIT VS T.V. SUNDARAM IYENGAR & SONS LTD . (SUPRA). THE TRIBUNAL OBSERVED THAT HONBLE SUPREME COURT IN THE CASE OF CIT VS T.V. SUNDARAM IYENGAR HELD THAT IF THE AMOUNT IS RECEIVE D IN THE COURSE OF TRADING TRANSACTIONS, EVEN THOUGH IT IS NOT TAXABLE IN THE YEAR OF RECEIPT, AS BEING OF CAPITAL CHARACTER, THE AMOUNT CHANGES ITS CHARACTER WHEN THE AMOUNT BECOMES ASSESSEES OWN MONEY BECAUSE OF LIMITATION OR BY ANY OTHER STATUTORY OR CONTRACTUAL RIGHT. WHERE THE ASSESSEE RECEIVED DEPOSITS IN THE COURSE OF TRADING TRANSACTIONS, THE AMOUNT OF SUCH CREDIT BALANCES, WHICH WERE BARRED BY LIMITATION AND WHICH WERE RETURNED B ACK BY THE ASSESSEE TO THE PROFIT AND LOSS ACCOUNT, WERE TO BE ASSESSED AS THE ASSESSEES INCOME. ON FURTHER APPEAL BEFORE THE HONBLE HIGH COURT, TH E HONBLE HIGH COURT HELD THAT THE ASSESSEE CAN HARDLY DERIVE ANY ADVANT AGE FROM THE CASE OF MAHINDRA & MAHINDRA LTD. VS CIT (SUPRA) AS IN THAT CASE, A CLEAR FINDING WAS RECORDED THAT THE PURCHASE CONSIDERATION WAS RE LATED TO CAPITAL ASSETS; THE TOOLINGS WERE IN THE NATURE OF DIES AND THE ASS ESSEE WAS A MANUFACTURER OF HEAVY VEHICLES; THE IMPORT WAS THAT OF PLANT AND MACHINERY AND THE WAIVER COULD NOT CONSTITUTE BUSINESS. THE HONBLE HIGH CO URT FURTHER OBSERVED THAT 30 THE FACTS OF THE CASE IN THE CASE OF SOLID CONTAINE RS LTD. (SUPRA) WERE ENTIRELY DIFFERENT INASMUCH AS IT WAS A LOAN TAKEN FOR TRADI NG ACTIVITY AND ULTIMATELY, UPON WAIVER, THE AMOUNT WAS RETAINED IN THE BUSINES S BY THE ASSESSEE. THUS, THE HONBLE BOMBAY HIGH COURT IN THAT CASE OF SOLID CONTAINERS LTD. VS DCIT (SUPRA) HELD THAT THE PRINCIPLE STATED BY THE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS (SUPRA) WOULD BE SQ UARELY APPLICABLE TO THE FACTS OF THAT CASE AND, THEREFORE, THE AMOUNT, WHICH WAS INITIALLY DID NOT FALL WITHIN THE SCOPE OF THE PROVISIONS RENDERING I T LIABLE TO TAX, SUBSEQUENTLY HAVE BECOME THE ASSESSEES INCOME BEING PART OF THE TRADING OF THE ASSESSEE. THE HONBLE BOMBAY HIGH COURT IN THIS CASE HAS ALSO OBSERVED THAT A SIMILAR VIEW WAS ALSO TAKEN BY THE BENCH OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS ARIES ADVERTISING P. LTD. (SUPRA ) WHERE THE COURT TOOK THE VIEW THAT THE ASSESSEE BECAUSE OF TRADING OPERA TION BECAME RICHER BY THE AMOUNT, WHICH HAD BEEN TRANSFERRED AND/OR RETAINED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. THE FOLLOWING OBSERVATION OF HONBLE APEX COURT IN T.V. SUNDARAM IYENGAR & SONS LTD.S CASE HAS BEE N NOTED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS L TD. VS DCIT (BOM) : 22. THE PRINCIPLE LAID DOWN BY ATKINSON J. APPLIES IN FULL FORCE TO THE FACTS OF THIS CASE. I F A COMMON SENSE VIEW OF THE MATTER IS TAKEN, THE ASSESSEE BECAUSE OF THE TRADING OPERATION HAD BECOME RICHER BY THE AMOUNT, WHICH IS TRANSFERRED 31 TO ITS PROFIT AND LOSS ACCOUNT. THE MONEYS HAD ARISEN OUT OF ORDINARY TRADING TRANSACTIONS. ALTHOUGH THE AMOUNTS RECEIVED ORIGINALLY WERE NOT OF INCOME NATURE, THE AMOUNTS REMAINED WITH THE ASSESSEE FOR A LONG PERIOD UNCLAIMED BY THE TRADE PARTIES. BY LAPSE OF TIME, THE CLAIM OF DEPOSIT BECAME TIME BARRED AND THE AMOUNT ATTAINED A TOTALLY DIFFERENT QUALITY. IT BECAME A DEFINITE TR ADE SURPLUS, ATKINSON J. POINTED OUT THAT IN MORLEYS CASE (SUPRA) 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 OPERATION OF LAW, COMMON SENSE DEMANDED THAT THE AMOUNT SHOULD BE ENTERED IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR AND BE TREATED AS TAXABLE INCOME. IN OTHER WORDS, THE PRINCIPLE APPEARS TO BE THAT IF AN AMOUNT IS RECEIVED IN COURSE OF A TRADING TRANSACTION, EVEN THOUGH IT IS NOT TAXABLE IN THE YEAR OF RECEIPT AS BEING OF REVENUE CHARACTER, THE AMOUNT CHANGES ITS CHARACTER WHEN THE AMOUNT BECOMES IF ASSESEES OWN MONEY BECAUSE OF LIMITATION OR BY ANY OTHER STATUTORY OR CONTRACTUAL RIGHT. WHEN SUCH A THING HAPPENS, COMMON SENSE DEMANDS THAT THE AMOUNT SHOULD BE TREATED AS INCOME OF THE ASSESSEE. 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 EH POINT OF TIME, IT WAS RECEIVE D BY EFFLUX OF TIME THE MONEY HAS BECOME THE ASSESSEES OWN MONEY. WHAT REMAINS AFTER ADJUSTMENT OF THE DEPOSITS HAD NOT BEEN CLAIMED BY THE CUSTOMERS. THE CLAIMS OF THE CUSTOMERS HAVE BECOME BARRED BY LIMITATION. THE ASSESSEE ITSELF HAS TREATED THE MONEY AS ITS OWN MONEY AND TAKEN THE AMOUNT TO ITS PROFIT AND LOSS ACCOUNT. THERE I S NO EXPLANATION FROM THE ASSESSEE WHY THE SURPLUS MONEY WAS TAKEN TO ITS PROFIT AND LOSS ACCOUNT EVEN IF IT WAS SOMEBODY ELSES MONEY. IN FACT, AS 32 ATKINSON J. POINTED OUT THAT WHAT THE ASSESSEE DID WAS THE COMMON SENSE WAY OF DEALING WITH THE AMOUNTS. THE OPERATIVE PORTION OF DECISION IN THE CASE OF SO LID CONTAINERS LTD. VS DCIT (SUPRA) IS AS UNDER: 3. THE PRESENT APPELLANT CAN HARDLY DRIVE ANY ADVANTAGE FROM THE CASE OF MAHINDRA & MAHINDRA LTD. (UPRA). AS IN THAT CASE, A CLEAR FINDING WAS RECORDED THAT THE ASSESSEE CONTINUED TO PAY INTEREST AT THE RATE OF 6 PER CENT FOR A PERIOD OF 10 YEARS AND THE AGREEMENT FOR PURCHASE OF TOOLINGS WAS ENTERED INTO MUCH PRIOR TO THE APPROVAL OF LOAN ARRANGEMENT GIVEN BY THE RESERVE BANK OF INDIA. THEREFORE, THE LOAN AGREEMENT, IN ITS ENTIRELY, WAS NOT OBLITERATED BY SUCH WAIVER. SECONDLY, THE PURCHASE CONSIDERATION RELATED TO CAPITAL ASSETS. THE TOOLINGS WERE IN THE NATURE OF DIES AND THE ASSESSEE WAS A MANUFACTURER OF HEAVY VEHICLES. THE IMPORT WAS THAT OF PLANT AND MACHINERY AND THE WAIVER COULD NOT CONSTITUTE BUSINESS. THE FACTS OF THE PRESENT CASE ARE ENTIRELY DIFFERENT INASMUCH AS IT WAS A LOAN TAKEN FOR TRADING ACTIVITY AND ULTIMATELY, UPON WAIVER THE AMOUNT WAS RETAINED IN BUSINESS BY THE ASSESSEE. THUS, THE PRINCIPLE STATED BY THE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA) WOULD BE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE AMOUNT WHICH INITIALLY DID NOT FALL WITHIN THE SCOPE OF THE PROVISIONS RENDERING IT LIABLE TO TAX SUBSEQUENTLY HAVE BECOME THE ASSESSEES INCOME BEING PART OF THE TRADING OF THE ASSESSEE. SIMILAR VIEW WAS ALSO TAKEN BY A BENCH OF MADRAS HIGH COURT IN THE CASE OF CIT VS ARIES ADVERTISING (P) LTD. (2002) 255 ITR 510. THE COURT TOOK THE VIEW THAT THE ASSESSEE BECAUSE OF 33 TRADING OPERATION BECAME RICHER BY THE AMOUNT WHICH HAD BEEN TRANSFERRED AND OR RETAINED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. 24. IN THE CASE OF CIT VS ARIES ADVERTISING P. LTD. , 255 ITR 510 (MAD), AN AMOUNT OF RS.1,77,886/-, BEING THE BALANCE DUE T O PRINTERS; BLOCK MAKERS AND SOUVENIR PUBLISHERS BY THE ERSTWHILE FIRM OF AN OUTSTANDING MORE THAN THREE YEARS HAD BEEN TRANSFERRED TO GENERAL RESERVE SINCE THESE AMOUNTS HAD REMAINED UNCLAIMED FOR A LONG PERIOD OF TIME. IT W AS HELD BY THE HONBLE HIGH COURT THAT IN THE CASE OF UNCLAIMED BALANCE WR ITTEN BACK, IF A COMMON SENSE VIEW OF THE MATTER IS TAKEN, THE ASSESSEE, BE CAUSE OF THE TRADING OPERATION, BECOMES RICHER BY THE AMOUNT, WHICH IT H AS TRANSFERRED TO ITS GENERAL RESERVE ACCOUNT. THE MONEY HAD ARISEN OUT OF ORDINARY TRADING TRANSACTIONS. ALTHOUGH THE AMOUNTS RECEIVED ORIGIN ALLY WERE NOT OF INCOME NATURE, BUT SUBSEQUENTLY, IT BECOMES THE ASSESSEES INCOME WHEN THE AMOUNT WAS WRITTEN OFF IN THE ACCOUNTS. IN THIS CASE, THE HONBLE MADRAS HIGH COURT HAS ALSO OBSERVED THAT ONCE THE ASSESSEE TRANSFERRE D ANY AMOUNT TO THE GENERAL RESERVE, IT TREATED THE SAME AS THE PROFIT. IN THIS CONNECTION, REFERENCE WAS MADE TO THE DECISION OF HONBLE APEX COURT IN THE CASE OF WAZIR SULTAN TOBACCO LTD. (1981) 132 ITR 559, WHERE IT HAS BEEN HELD THAT A RESERVE IS APPROPRIATION OF PROFITS. 34 25. IN THE LIGHT OF THE DISCUSSION MADE ABOVE, AND FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID C ONTAINERS LTD. VS DCIT (SUPRA) WHERE THE PRINCIPLE ENUNCIATED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA) HAS BEEN APPLIED, WE HELD THAT THE PRINCIPAL AMOUNT OF LOAN , WHICH IS TAKEN FOR THE PURPOSE OF BUSINESS OR TRADING ACTIVITY, ON ITS WAI VER BY THE CREDITOR, WOULD CONSTITUTE INCOME CHARGEABLE TO TAX UNDER THE ACT. HOWEVER, IF THE LOAN IS UTILIZED FOR THE PURPOSE OF ACQUIRING ANY CAPITAL A SSET, THE SAME, ON ITS WAIVER, WOULD NOT CONSTITUTE INCOME CHARGEABLE TO T AX AS HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD. VS CIT (SUPRA) AND HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. TOSHA INTERNATIONAL LTD. (SUPRA) EITHER UNDER SECTION 41( 1) OR 28(IV) OR 2(24) OF THE ACT. 26. FURTHER, THE ASSESSEE CAN HARDLY DRIVE ANY ADVA NTAGE FROM THE DECISIONS IN THE CASE OF (I) CIT VS. P. GANESHA CHE TTIAR, 133 ITR 103 (MAD) AND (II) CIT VS PHOOL CHAND JIWAN RAM, 131 ITR 37 ( DEL) INASMUCH AS THESE TWO DECISIONS HAVE BEEN RENDERED IN ALTOGETHER A DI FFERENT CONTEXT. IN THE CASE OF CIT VS. PHOOL CHAND JIWAN RAM (SUPRA), THE ISSUE WAS DECIDED FROM THE STANDPOINT OF SECTION 10(2A) OF INDIAN INCOME-T AX ACT, 1999 (SECTION 41(1) OF INCOME-TAX ACT, 1961) IN RESPECT OF REMISS ION OF TRADING LIABILITY OF 35 A FIRM CREDITED TO PARTNERS ACCOUNT. IN THE CASE OF CIT VS. P. GANESHA CHETTIAR (SUPRA), THE ISSUE WAS WITH REGARD TO THE WAIVER OF AMOUNT STANDING OUTSTANDING IN THE PARTNERS ACCOUNT ON THE DISSOLU TION OF FIRM. MOREOVER, THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F CIT VS T.V. SUNDARAM IYENGAR LTD. (SUPRA) WAS NOT AVAILABLE AT THAT RELEVANT POINT OF TIME. THUS, THE ABOVE TWO REFERRED DECISIONS ARE O F NO ASSISTANCE TO THE ASSESSEES CASE. 27. HAVING SAID SO, WE NOW REVERT BACK TO THE FACTS OF THE PRESENT CASE. IN THE INSTANT CASE, THE ASSESSEE HAS NOT BROUGHT ANY MATERIAL OR EVIDENCES ON RECORD TO SHOW THAT THE LOAN TAKEN BY THE ASSESSEE FROM BANK IN CASH CREDIT ACCOUNT, CTL ACCOUNT AND WCTL ACCOUNT WAS UTILIZED FOR THE PURPOSE OF ACQUIRING ANY CAPITAL ASSET. ON THE OTHER HAND, TH E MATERIAL AVAILABLE ON RECORD INCLUDING THE NOTES TO THE ACCOUNTS INDICATE S THAT THE ASSESSEE HAS OBTAINED THE LOAN OR CREDIT FACILITY BY WAY OF HYPO THECATION OF FINISHED GOODS, SEMI FINISHED GOODS, RAW MATERIAL, BOOK DEBT S, RECEIVABLE CLAIMS, SECURITIES, AND RIGHTS BY WAY OF FIRST CHARGE, WHIC H INDICATES THAT THE ASSESSEE HAVE OBTAINED THE LOAN FACILITY FOR ITS BUSINESS AC TIVITY OR TRADING OPERATIONS. HOWEVER, THIS ASPECT OF THE MATTER, WHETHER THE WHO LE OF THE LOAN AMOUNT HAS BEEN UTILIZED EITHER FOR THE PURPOSE OF ACQUIRI NG CAPITAL ASSET OR FOR THE PURPOSE OF BUSINESS ACTIVITY OR TRADING ACTIVITY, H AS NOT BEEN LOOKED INTO OR 36 EXAMINED BY THE AUTHORITIES BELOW NOR THE ASSESSEE HAS ESTABLISHED THAT THE LOAN AMOUNT WAS UTILIZED ONLY FOR THE PURPOSE OF AC QUIRING CAPITAL ASSET. THE ASSESSEE HAS MERELY RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. TOSHA INTERNATIONAL LT D. (SUPRA), AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F MAHINDRA & MAHIDNRA LTD. VS CIT (SUPRA) WITHOUT GIVING DETAILS ABOUT THE PURPOSE FOR WHICH THE LOAN AMOUNT WAS UTILIZED. THE LEARNED CI T(A) HAS DECIDED THE MATTER BY RELYING UPON THE AFORESAID TWO DECISIONS I.E. DECISION OF DELHI HIGH COURT IN THE CASE OF TOSHA INTERNATIONAL LTD. (SUPRA) AND DECISION OF BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD. VS CIT (SUPRA) BESIDES THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS P. GANESHA CHETTIAR (1979) 133 ITR 103(MAD), WITHOUT EXAMINING AND APPRECIATING THE NATURE AND PURPOSE FOR WHICH T HE LOAN WAS TAKEN. WE, THEREFORE, RESTORE THIS ISSUE BACK TO THE FILE OF T HE AO FOR HIS FRESH ADJUDICATION WITH A DIRECTION TO THE ASSESSEE TO FU RNISH ALL THE DETAILS AND PARTICULARS OF LOAN, AND THE PURPOSE FOR WHICH THE LOAN TAKEN FROM BANK WAS UTILIZED. ALL THESE INFORMATION ARE WITHIN THE CONT ROL AND SPECIFIC KNOWLEDGE OF THE ASSESSEE AND, THEREFORE, IT WOULD BE THE DUT Y OF THE ASSESSEE TO PROVE AND ESTABLISH THAT THE AMOUNT OF LOAN TAKEN FROM TH E BANK WAS UTILIZED FOR THE PURPOSE OF ACQUIRING CAPITAL ASSETS IN CASE THE ASSESSEE WANTS TO HAVE THE 37 BENEFIT OF DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF TOSHA INTERNATIONAL LTD. (SUPRA) AS WELL AS THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS CI T (SUPRA). IF ON AN ENQUIRY AND VERIFICATION, IT TRANSPIRES THAT THE AS SESSEE HAS UTILIZED THE LOAN FOR THE PURPOSE OF ITS BUSINESS ACTIVITY OR TRADING ACTIVITY, THE AMOUNT OF LOAN TO THE EXTENT IT HAS BEEN WAIVED BY THE BANK SHALL BE DEEMED TO BE THE ASSESSEES INCOME CHARGEABLE TO TAX AS PER THE DECI SION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD. VS DCIT (SUPRA), WHERE THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA) HAS BEEN APPLIED AND FOLLOWED. IN THE PRESENT CASE, THE TOTAL AMOUNT OF LOAN PAYAB LE BY THE ASSESSEE WAS RS.4,76,42,213/-, WHICH WAS SETTLED AT RS.1.85 CROR ES GIVING BENEFIT OF RS.2,91,42,213/- TO THE ASSESSEE BY WAY OF WAIVER. THEREFORE, THE PROPORTIONATE AMOUNT OF LOAN WAIVED BY THE BANK SHA LL BE WORKED OUT BY THE ASSESSING OFFICER WITH REFERENCE TO THE PURPOSE FOR WHICH THE LOAN AMOUNT WAS UTILIZED. THE AO SHALL PROVIDE REASONABLE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. BE IT MENTIONED HERE THAT IN CASE TH E ASSESSEE FAILS TO PRODUCE OR FURNISH DETAILS OR PARTICULARS ABOUT THE PURPOSE FOR WHICH THE LOAN AMOUNT WAS UTILIZED, THE AO SHALL DRAW ADVERSE INFERENCE A GAINST THE ASSESSEE, AND SHALL DECIDE THE ISSUE IN THE LIGHT OF THE FACT THA T THE LOAN AMOUNT WAS 38 OBTAINED BY THE ASSESSEE IN CASH CREDIT ACCOUNT, CT L AND WCTL ACCOUNT BY WAY OF HYPOTHECATION OF FINISHED, SEMI FINISHED GOODS, BOOK DEBTS, RECEIVABLE CLAIMS, SECURITIES, RIGHTS BY WAY OF FIR ST CHARGE IMPLYING THEREBY THAT THE AMOUNT WAS UTILIZED FOR THE PURPOSE OF BUS INESS OR TRADING ACTIVITY OF THE ASSESSEE. WE ORDER ACCORDINGLY. 28. IN THE RESULT, THIS APPEAL FILED BY THE REVENUE IS TREATED TO BE ALLOWED FOR A STATISTICAL PURPOSE IN THE MANNER AS INDICAT ED ABOVE. 29. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL, 2010. (SHAMIM YAHYA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 TH APRIL , 2010 VIJAY COPY TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A)-VII, NEW DELHI 5. DR ASSISTANT REGISTRAR