ACIT (OSD) 1 CITY -2, MUMBAI V. APPLE FINANCE LTD, MUMBAI

ITA 880/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56245 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 29-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: BEHARILAL
• Keywords: Depreciation; Opportunity of being heard; Capital receipt
• Section: 43B

Judgement Text

N THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 880 & 5247/MUM/2010. ASSESSMENT YEARS : 2005-06 & 2007-08 ASSTT. COMMISSIONER OF M/S APPLE FINANCE LTD., INCOME TAX 2(1), VS. 11-13, BOTAWALA BLDG.,1 ST FLOOR, MUMBAI. HORNIMAN CIRCLE, FORT, MUMBAI 400 023. PAN AAABCA 1477H. APPELLANT. RESPONDENT APPELLANT BY : SHRI PAVAN VED. RESPONDENT BY : SHRI BEHARI LA L. DATE OF HEARING : 29-11-2011. DATE OF PRONOUNCEMENT : 16-12-2011. O R D E R. PER P.M. JAGTAP, A.M. : THESE TWO APPEALS PREFERRED BY THE REVENUE AGAINST TWO SEPARATE ORDERS PASSED BY THE LEARNED CIT(APPEALS)-4, MUMBAI DATED 13-11-2009 AND 30-04-2010 FOR ASSESSMENT YEARS 2005-06 AND 2007-08 INVOLVE O NE COMMON ISSUE AND THE SAME, THEREFORE, HAVE BEEN HEARD TOGETHER AND ARE B EING DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. GROUND NO. 1 RAISED BY THE REVENUE IN ITS APPEAL FOR ASSESSMENT YEAR 2005- 06 BEING ITA NO. 880/MUM/2010 IS GENERAL SEEKING NO SPECIFIC DECISION FROM US. 2 ITA NO.880/MUM/2010 & ITA NO.5247/MUM/2010 3. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN ALLOWING THE CLAIM OF THE ASSESSEE FOR DEPRECIATION OF RS.4,85,69,466/- ON LEASED ASSETS. 4. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF FINANCIAL SERVICES, INVESTMENT ETC. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 03-10-2005 D ECLARING TOTAL INCOME AT NIL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON LEASED ASSETS FOR THE YEAR UNDER CONSIDERATION INSPITE OF THE FACT THAT THERE WAS NO LEASING BUSIN ESS IN EXISTENCE IN THAT YEAR. HE NOTED IN THIS CONTEXT THAT NO INCOME FROM LEASE REN TAL WAS SHOWN BY THE ASSESSEE EITHER IN THE YEAR UNDER CONSIDERATION OR EVEN IN T HE IMMEDIATELY PRECEDING YEAR. THE ASSESSEE, THEREFORE, WAS CALLED UPON BY THE AO TO EXPLAIN WHY ITS CLAIM FOR DEPRECIATION ON LEASED ASSETS SHOULD NOT BE DISALLO WED. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE LEASING BUSINESS WAS VERY MUCH IN EXISTENCE IN THE FORM OF ACTIVITY CARRIED ON IN THE YEAR UNDER C ONSIDERATION IN THE FORM OF COLLECTION AND RECOVERY OF OUTSTANDING DUES FROM TH E CUSTOMERS, CONDUCTING ONE TIME SETTLEMENT WITH THE BANKS ETC. IT WAS CONTENDE D THAT THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON THE ASSETS USED FOR THE PURPOSE OF LEASING BUSINESS, THEREFORE, COULD NOT BE DISALLOWED. IT WAS ALSO CONTENDED THAT THE LEASED ASSETS ALREADY HAVING FORMED PART OF THE BLOCK OF ASSETS, DEPRECIATION TH EREON COULD NOT BE DISALLOWED ON THE GROUND THAT THEY WERE NOT INDIVIDUALLY PUT TO U SE FOR THE PURPOSE OF BUSINESS. THE AO DID NOT FIND MERIT IN THESE CONTENTIONS RAIS ED ON BEHALF OF THE ASSESSEE AND REJECTING THE SAME, HE PROCEEDED TO DISALLOW THE CL AIM OF THE ASSESSEE FOR DEPRECIATION ON THE LEASED ASSETS FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 4.1 OF THE ASSESSMENT ORDER : 3 ITA NO.880/MUM/2010 & ITA NO.5247/MUM/2010 I HAVE GONE THROUGH THE SUBMISSIONS OF THE ASSESS EE BUT FOUND NOT ACCEPTABLE. THE ASSESSEE HAD SHOWN NO RECEIPTS IN R ESPECT OF RE-PAYMENT OF LEASE RENTAL AS CLAIMED BY IT AND IT WAS POINTED OU T THAT THE ASSESSEE HAD NOT SHOWN ANY INCOME FROM LEASE INCOME IN THE EARLIER Y EAR ALSO. THIS CLEARLY SHOWS THAT THE VERY BUSINESS OF THE ASSESSEE FROM W HICH LEASE RENTAL AND LEASE INCOME WAS RECEIVED IN THE PAST, IS DISCONTIN UED AND LEASE ASSET HAVE NEVER BEEN USED IN THESE TWO YEARS. SECTION 32 REFE RS TO THE USER OF THE ASSETS AND USED DENOTES ACTUALLY USED AND NOT ME RELY READY FOR USE. THE EXPRESSION USED MEANS ACTUALLY USED FOR THE PART OF THE BUSINESS- DINESH KUMAR GULABCHAND AGRAWAL V. CIT (2004) 267 ITR 768/ 141 TAXMAN 62 (BOM.). SINCE THE ASSETS WERE NOT USED FOR THE PURP OSE OF BUSINESS, I THEREFORE DISALLOW THE DEPRECIATION CLAIMED OF RS.4 ,85,69,566/- AND ADDED BACK WITH THE TOTAL INCOME. 5. THE MATTER WAS CARRIED BEFORE THE LEARNED CIT(AP PEALS) IN AN APPEAL FILED BY THE ASSESSEE AND IT WAS SUBMITTED ON BEHALF OF T HE ASSESSEE BEFORE HIM THAT THE CONCERNED ASSETS WERE GIVEN ON LEASE BUT UNFORTUNAT ELY LEASE RENTALS OF THE SAME HAD NOT BEEN RECEIVED IN THE YEAR UNDER CONSIDERATI ON AS WELL AS IN THE IMMEDIATELY PRECEDING YEAR. IT WAS CONTENDED THAT THE SAID ASSE TS, HOWEVER, WERE USED BY THE ASSESSEE FOR THE PURPOSE OF ITS LEASING BUSINESS AN D DEPRECIATION THEREON WAS RIGHTLY CLAIMED. IT WAS ALSO CONTENDED THAT THE LEA SED ASSETS ALREADY HAVING ENTERED THE RELEVANT BLOCK OF ASSETS HAD LOST THEIR INDIVI DUAL IDENTITY AND DEPRECIATION THEREON COULD NOT BE DISALLOWED ON THE GROUND THAT THE SAID ASSETS INDIVIDUALLY WERE NOT PUT TO USE FOR THE PURPOSE OF BUSINESS IN THE YEAR UNDER CONSIDERATION. THE LEARNED CIT(APPEALS) FOUND MERIT IN THE CONTENTIONS RAISED ON BEHALF OF THE ASSESSEE ON THIS ISSUE AND ALLOWED THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON LEASED ASSETS FOR THE FOLLOWING REASONS GIVEN IN PA RAGRAPH NO.4 OF HIS IMPUGNED ORDER : I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A.R . AND I FIND THAT IT IS NOT CORRECT TO SAY THAT THE ASSESSEE HAS NOT USED T HE ASSETS IN ITS BUSINESS OF LEASING. THE ASSETS HAVE BEEN LEASED TO VARIOUS PAR TIES BUT NO LEASE RENTALS 4 ITA NO.880/MUM/2010 & ITA NO.5247/MUM/2010 HAVE BEEN RECEIVED IN PAST TWO YEARS. HENCE, IT CAN BE SAID THAT THERE IS TEMPORARY LULL IN THE BUSINESS OF THE ASSESSEE. IN THE CASE OF NATCO EXPORTS VS. DCIT, ITAT HYDERABAD BENCH HELD IN ITS ORDER AS REPORTED IN 86 ITD 445 (HYD) THAT ONCE AN ASSET FORMS PART OF THE BLOC K, IT LOSES ITS IDENTITY AND THE QUESTION OF ASSIGNING ANY VALUE TO THE PARTICUL AR ASSET FORMING PART OF THE BLOCK DOES NOT ARISE AND CONSEQUENTLY, DEPRECIATION CANNOT BE DISALLOWED ON THAT PART OF THE BLOCK ON THE GROUND THAT, A PARTIC ULAR ASSET FORMING PART OF THE BLOCK HAS BEEN DISCARDED OR NOT OWNED OR USED B Y THE ASSESSEE. IN THIS CASE, THE A.O. AS WELL AS THE CIT(A) HAS DISALLOWED THE DEPRECIATION BY SEPARATELY COMPUTING THE WDV OF A PARTICULAR ASSET FORMING PART OF THE BLOCK I.E., THE PONDS AND SUCH COMPUTATION DONE IND IVIDUALLY TO AN ASSET IS NOT ENVISAGED OR ALLOWED UNDER THE NEW CONCEPT OF B LOCK OF ASSETS. THEREFORE, IN VIEW OF THE INTERPRETATION OF THE CON CEPT OF BLOCK OF ASSETS DEPRECIATION ON PONDS WHICH IS FORMING PART OF THE BLOCK OF ASSETS HAS TO BE ALLOWED AS DEDUCTION EVEN THOUGH THESE PONDS WERE D ISCARDED AND NOT USED AND NOT OWNED BY IT DURING THE ASSESSMENT YEARS IN QUESTION, AS THE ASSESSEE WAS ENTITLED TO SCRAP VALUE WHATSOEVER, CONSEQUENT TO DISCARDING. ACCORDINGLY, I HOLD THAT DEPRECIATION IS ALLOWABLE TO THE APPELLANT WHEN THE ASSET WAS USED FOR GIVING ON LEASE ALTHOUG H NO INCOME WAS RECEIVED. THIS GROUND OF APPEAL IS ALLOWED. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS RIGHTLY SUBMITTED BY THE LEA RNED DR, A NEW STAND WAS TAKEN ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(AP PEALS) BY STATING THAT THE CONCERNED ASSETS WERE GIVEN ON LEASE IN THE YEAR UN DER CONSIDERATION BUT LEASE RENTALS OF THE SAME HAD NOT BEEN RECEIVED. WHEN THI S MATTER WAS CONFRONTED TO THE LEARNED COUNSEL FOR THE ASSESSEE, HE HAS ADMITTED T HAT THE SAID ASSETS WERE NOT GIVEN ON LEASE AND THE SAME WERE LYING IDLE THROUGHOUT TH E YEAR UNDER CONSIDERATION. IT IS THUS CLEAR THAT THE CONCERNED ASSETS WERE NOT ACTUA LLY USED BY THE ASSESSEE FOR THE PURPOSE OF ITS LEASING BUSINESS AND THE FINDING REC ORDED BY THE LEARNED CIT(APPEALS) TO THE CONTRARY WHILE ALLOWING THE CLA IM OF THE ASSESSEE FOR DEPRECIATION ON LEASED ASSETS IS FACTUALLY INCORREC T. WE ALSO FIND IT DIFFICULT TO ACCEPT THE OTHER CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE LEASING 5 ITA NO.880/MUM/2010 & ITA NO.5247/MUM/2010 BUSINESS WAS DISCONTINUED BY THE ASSESSEE TEMPORARI LY DUE TO LULL IN THE MARKET IN THE ABSENCE OF ANY THING BROUGHT ON RECORD TO SUPPO RT AND SUBSTANTIATE THE SAME. HE HAS NOT BEEN ABLE TO SHOW US CONVENIENTLY THAT T HE ASSESSEE HAS ANY INTENTION TO REVIVE ITS LEASING ACTIVITY. MOREOVER, AS ACCEPTED BY HIM IN REPLY TO A QUERY ASKED BY THE BENCH, THE ASSESSEE HAS NOT TAKEN ANY STEP S O FAR EVEN AFTER A LAPSE OF A PERIOD OF SIX YEARS TO REVIVE ITS LEASING ACTIVITY. HOWEVER, WE FIND MERIT IN THE CONTENTION RAISED BY THE LEARNED COUNSEL FOR THE AS SESSEE ON THE BASIS OF THE CONCEPT OF BLOCK OF ASSETS INTRODUCED IN THE STAT UTE WHEREBY THE INDIVIDUAL ASSETS FORMING PART OF THE RELEVANT BLOCK LOOSE THEIR IDEN TITY AND WHAT BECOMES RELEVANT FOR THE PURPOSE OF ALLOWING DEPRECIATION IS THE USE OF BLOCK AND NOT THE USE OF INDIVIDUAL ASSETS. THIS STAND TAKEN BY THE LEARNED COUNSEL FOR THE ASSESSEE IS DULY SUPPORTED BY THE DECISION OF HONBLE DELHI HIGH COU RT IN THE CASE OF CIT VS. BHARAT ALUMINIUM CO. LTD. 187 TAXMAN 111 AS WELL AS THAT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SONAL GUM INDUSTR IES 322 ITR 542. IN THIS REGARD, IT IS HOWEVER OBSERVED THAT ALTHOUGH A SCHE DULE OF DEPRECIATION HAS BEEN PLACED ON RECORD AT PAGE NO.17 OF THE ASSESSEES PA PER BOOK, A PERUSAL OF THE SAME DOES NOT MAKE IT CLEAR AS TO WHETHER THE RELEVANT B LOCKS OF ASSETS ARE CONSISTING OF ONLY THE LEASED ASSETS OR THERE ARE OTHER ASSETS AL SO INCLUDED IN THE SAID BLOCKS WHICH WERE USED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. WE, THEREFORE, CONSIDER IT JUST AND PROPER TO RESTORE THIS MATTER TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF VERIFICATION OF THIS ASPECT AND TO DECID E THE ISSUE ON SUCH VERIFICATION IN THE LIGHT OF THE JUDICIAL PRONOUNCEMENTS MENTIONED HEREIN ABOVE. GROUND NO.2 OF THE REVENUES APPEAL IS ACCORDINGLY TREATED AS ALLO WED FOR STATISTICAL PURPOSES. 7. IN GROUND NO.3, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS.21,06,4 6,022/- MADE BY THE AO U/S 41(1) ON ACCOUNT OF CESSATION OF LIABILITY. 6 ITA NO.880/MUM/2010 & ITA NO.5247/MUM/2010 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT AS A RESULT OF ONE TIME SETTLEMENT WITH BANKS, THE TOTAL LIABILITY OF THE ASSESSEE WAS REDUCED BY RS.21,06,46,022/- DUE TO CONCESSION GIVE N BY THE BANKS. THE ASSESSEE, THEREFORE, WAS CALLED UPON BY THE AO TO EXPLAIN WHY THIS CONCESSION AMOUNT SHOULD NOT BE TREATED AS CESSATION OF LIABILITY AND BROUGHT TO TAX IN ITS HANDS U/S 41(1). IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT ONE TIME SETTLEMENT WITH BANKS WAS TOWARDS PRINCIPAL AMOUNT FOR WHICH N O DEDUCTION WAS CLAIMED EITHER IN THE YEAR UNDER CONSIDERATION OR EVEN IN T HE EARLIER YEARS. IT WAS CONTENDED THAT SECTION 41(1) THUS HAD NO APPLICATION TO THE FACTS OF THE ASSESSEES CASE. THIS CONTENTION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE AO AND THE AMOUNT OF CONCESSION RECEIVED BY THE ASSESSEE FROM BANKS IN O NE TIME SETTLEMENT WAS BROUGHT TO TAX BY HIM IN ITS HANDS U/S 41(1) FOR TH E FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 5.1 OF THE ASSESSMENT ORDER : I HAVE GONE THROUGH THE SUBMISSIONS OF THE ASSESS EE BUT FOUND UNACCEPTABLE. THE ASSESSEE SUBMITTED ACCEPTED OFFE R OF SETTLEMENT WITH THE BANKS AND BANKS ALSO CERTIFIED THE AGREED SETTLEMEN T IN EARLIER YEARS I.E. THE YEARS PRIOR TO F.Y. 2000-01, THE DEDUCTION IN RESPE CT OF INTEREST ON LOAN LIABILITIES WAS ALLOWED TO THE TAX PRAYER. AND DURI NG THE YEAR UNDER SCRUTINY THE ASSESSEE OBTAINED BENEFIT IN RESPECT OF SUCH LI ABILITY BY WAY OF CESSATION THEREOF. MOREOVER, THE FACTUM OF CESSATION HAD TAKE N PLACE DURING THE YEAR UNDER SCRUTINY AND AMOUNT OF CESSATION WAS ALSO QUA NTIFIED DURING THIS YEAR. ACCORDINGLY THE ASSESSEES CASE IS COVERED UNDER TH E PROVISIONS OF SECTION 41(1) OF THE ACT AND AS PER STATEMENT SUBMITTED, TH E LIABILITY W/BACK OF RS.21,06,46,022/- IS TREATED AS DEEMED PROFIT U/S 4 1(1) OF THE ACT AND ADDED BACK WITH THE ASSESSEES INCOME. 9. THE ADDITION MADE BY THE AO BY INVOKING THE PROV ISIONS OF SECTION 41(1) WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED B EFORE THE LEARNED CIT(APPEALS) AND THE FOLLOWING SUBMISSIONS WERE MADE ON ITS BEHA LF IN SUPPORT OF ITS CASE THAT THE PROVISIONS OF SECTION 41(1) HAD NO APPLICATION : 7 ITA NO.880/MUM/2010 & ITA NO.5247/MUM/2010 THE A.R. SUBMITTED THAT DURING THE YEAR UNDER REF ERENCE, THE APPELLANT HAD DONE ONE-TIME SETTLEMENT WITH BANKS IN RESPECT OF THE PRINCIPAL LOAN LIABILITY IT HAD TOWARDS THEM, ON ACCOUNT OF WHICH AN AMOUNT AGGREGATING TO RS.21,06,46,022/- WAS WAIVED OFF BY THE BANKS, WHIC H WAS THUS WRITTEN BACK IN THE BOOKS OF ACCOUNT. DETAILS OF THESE SETTLED L OAN LIABILITIES WITH BANKS WERE SUBMITTED. ALL THESE LIABILITIES REFLECTED IN COMPANYS ACCOUNTS AT THE TIME OF SETTLEMENT REPRESENT ONLY PRINCIPAL AMOUNTS . IN RESPECT OF THESE PRINCIPAL AMOUNTS LIABILITY AS NO DEDUCTION HAS BEE N CLAIMED IN EARLIER YEARS THE QUESTION OF ANY PART OF IT BEING CONSIDERED AS INCOME U/S. 41(2) DOES NOT ARISE. AS FAR AS INTEREST ON THESE LIABILITIES IS C ONCERNED, IT HAS BEEN ALREADY DISCHARGED AND IT IS NOT CARRIED AS LIABILITY IN TH E ACCOUNTS. SINCE COMPANY WAS NOT IN A POSITION TO REPAY LIABILITY IT STOPPED PROVIDING INTEREST IN THE ACCOUNTS FROM F.Y. 2000-01. WHATEVER INTEREST LIABI LITY PROVIDED AND REMAINED UNPAID WERE CONSIDERED FOR DISALLOWANCE U/ S. 43B OF THE INCOME- TAX ACT, 1961, AND THE SAME LIABILITY HAS BEEN WRIT TEN BACK IN THE SUBSEQUENT YEAR AND HENCE IN THE BOOKS OF ACCOUNT NO INTEREST LIABILITY CARRIED IN THE ACCOUNT OF THE COMPANY. AS THERE IS NO LIABILITY PE NDING FOR PAYMENT ON ACCOUNT OF INTEREST, WHATEVER CONCESSION ON ONE-TIM E SETTLEMENT RECEIVED BY THE APPELLANT IS ON ACCOUNT OF PRINCIPAL AMOUNT OF LOAN LIABILITY. UNDER THIS SITUATION THERE IS NO CASE FOR CHARGEABILITY OF CON CESSION RECEIVED AS INCOME U/S. 41 OF THE I.T. ACT, 1961. 10. THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE ON THIS ISSUE FOUND FAVOUR WITH THE LEARNED CIT(APPEALS) AND HE DELETED THE AD DITION MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 41(1) FOR THE FO LLOWING REASONS GIVEN IN PARAGRAPH NO. 7 OF HIS IMPUGNED ORDER : I AGREE WITH THE SUBMISSION OF THE A.R. THAT THE ASSESSEE HAS RECEIVED ONE TIME SETTLEMENT IN RESPECT OF PRINCIPAL AMOUNT OF LOAN LIABILITY. THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION IN RESPECT O F THIS LOAN LIABILITY. HENCE, THE QUESTION OF TAXING THE WAIVED AMOUNT OF LOAN U/S. 41(2) DOES NOT ARISE. THE ASSESSEE HAS ALSO SHOWN THAT INTEREST LI ABILITY WAS NOT AVAILED BY THE ASSESSEE IN ANY OF THE YEARS EARLIER TO THIS AS SESSMENT YEAR. HENCE, NO INCOME IS TO BE ASSESSED U/S. 41(2) WHEN THE ASSESS EE RECEIVED THE LOAN IT WAS CAPITAL RECEIPT NOT TAXABLE. REMISSION OF THIS LIABILITY IS ALSO NOT TAXABLE. THE A.O. HAS NOT BROUGHT ANY INSTANCE TO SHOW THAT ANY EXPENDITURE IN RESPECT OF INTEREST HAS BEEN ALLOWED TO THE ASSESSE E. HENCE, NOTHING IS 8 ITA NO.880/MUM/2010 & ITA NO.5247/MUM/2010 TAXABLE U/S. 41(1) OR 41(2). RELIANCE IS PLACED ON THE DECISION OF CIT VS. TOSHA INTERNATIONAL LTD. AS REPORTED IN 176 TAXMAN 187 (DEL.) WHEREIN IT WAS HELD THAT THE AMOUNT OF LOAN AND INTEREST DUE B Y THE ASSESSEE TO THE BANKS AND FINANCIAL INSTITUTIONS HAVING NEVER BEEN CLAIMED BY THE ASSESSEE AS DEDUCTION WAIVER OF INTEREST AND PART OF PRINCIPAL DID NOT GIVE RISE TO PROFITS CHARGEABLE TO TAX U/S. 41(1). ITAT BOMBAY B BENCH I N THE CASE OF MINDTECH INDIA LTD. VS. ITO AS REPORTED IN ITA NO. 7767/MUM/ 05 DATED 15 TH JULY, 2008 HELD THAT PROVISIONS OF SECTION 41(1) CONTAIN CERTAIN CONDITIONS AND THEY ARE THAT (I) IN THE ASSESSMENT OF AN ASSESSEE, AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF ANY LOSS, EXPENDITURE O R TRADING LIABILITY INCURRED BY HIM; (II) ANY AMOUNT IS OBTAINED IN RES PECT OF SUCH LOSS OR EXPENDITURE, OR (II)(B) ANY BENEFIT IS OBTAINED IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, (III) SUCH AMOUNT OR BENEFIT IS OBTAINED BY THE ASSESSEE; AND (IV) SUCH AMOUNT OR BENEFIT IS OBTAINED IN A SUBSEQUENT YEAR. APPLYING THE ABOVE T O THE FACTS OF THE INSTANT CASE, THE AMOUNT OF LOAN RECEIVED HAS NO CONNECTION TO ANY SUCH ALLOWANCE OR DEDUCTION REFERRED TO ABOVE. IT IS A MERE LOAN U NCONNECTED TO ANY ALLOWANCE OR DEDUCTION MADE IN THE ASSESSEES ASSES SMENT. ALTHOUGH IT IS AN UNDISPUTED FACT THAT THE SAME IS CERTAINLY NOT IN R ESPECT OF ANY TRADING LIABILITY. THE ASSESSEE DID NOT RECEIVE THE SAID AM OUNT IN RESPECT OF ANY SALES OR PURCHASES OR OTHER RELATED DIRECTED OR INDIRECT EXPENSES TO QUALIFY FOR TRADING ACTIVITY. SEC. 41(1) DEALS WITH THE AMOUNTS OR BENEFITS RECEIVED AND NOT THE ONES INPUT. FURTHER, THE PROVISIONS OF SEC. 28(IV) DO NOT COME TO THE RESCUE OF THE REVENUE. RELIANCE IS PLACED ON THE DE CISION OF ITAT, MUMBAI, IN THE CASE OF JEHANGIR GULLABBHAI VS. JT.CIT (2008 ) 21 SOT 603 (MUMBAI) AND HELIOS FOOD IMPROVERS (P) LTD. VS. DCIT (2007) 14 SOT 546 (MUMBAI) FOLLOWED; CIT VS. T.V. SUNDARM IYENGAR & SONS LTD. 91996) 136 CTR (SC) 444, (1996) 222 ITR 344 (SC) AND (2008) 3 DTR (DEL) 247 DISTINGUISHED. ACCORDINGLY, I HOLD THAT THE A.O. IS NOT JUSTIFIED IN TAXING THE WAIVER OF LOAN SIN THE HANDS OF THE APPELLANT WHEN THE ASS ESSEE HAS NOT CLAIMED ANY PRINCIPAL OR INTEREST IN ANY YEAR. THIS GROUND OF A PPEAL IS ALLOWED. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THA T WHILE TREATING THE CONCESSION GIVEN BY THE BANKS AS A RESULT OF ONE TIME SETTLEME NT TO BE CESSATION OF LIABILITY CHARGEABLE TO TAX U/S 41(1), A SPECIFIC FINDING WAS GIVEN BY THE AO IN PARAGRAPH 9 ITA NO.880/MUM/2010 & ITA NO.5247/MUM/2010 NO. 5.1 THAT THE DEDUCTION IN RESPECT OF INTEREST ON LOAN LIABILITIES WAS ALLOWED TO THE ASSESSEE IN THE EARLIER YEARS PRIOR TO FINANCI AL YEAR 2000-01. THE AO, THEREFORE, HELD THAT THE ASSESSEE HAD OBTAINED BENEFIT AS A R ESULT OF CESSATION OF LOAN LIABILITIES BY BANK ON ONE TIME SETTLEMENT. BEFORE THE LEARNED CIT(APPEALS), IT WAS, HOWEVER, SUBMITTED ON BEHALF OF THE ASSESSEE THAT I NTEREST LIABILITY PROVIDED IN THE EARLIER YEARS PRIOR TO FINANCIAL YEAR 2000-01 HAD R EMAINED UNPAID AND THE SAME, THEREFORE, WAS DISALLOWED U/S 43B. THIS SUBMISSION MADE BY THE ASSESSEE, WHICH WAS CONTRARY TO THE FINDING RECORDED BY THE AO, WAS ACCEPTED BY THE LEARNED CIT(APPEALS) WITHOUT GIVING ANY OPPORTUNITY TO THE AO TO VERIFY THE SAME AND THE ADDITION MADE U/S 41(1) WAS DELETED BY HIM. IT IS N O DOUBT WELL SETTLED THAT IF THE CONCESSION GIVEN BY THE BANKS ON ONE TIME SETTLEMEN T IS TOWARDS PRINCIPAL AMOUNT ONLY, THE SAME CANNOT BE TREATED AS CESSATION OF LI ABILITY CHARGEABLE TO TAX U/S 41(1). HOWEVER, KEEPING IN VIEW THE CONTRARY FINDIN G RECORDED BY THE AO IN THE ASSESSMENT ORDER, WE ARE OF THE VIEW THAT THE LEARN ED CIT(APPEALS) OUGHT TO HAVE GIVEN AN OPPORTUNITY TO THE AO TO VERIFY THE STAND OF THE ASSESSEE THAT THE ENTIRE CONCESSION GIVEN BY THE BANK WAS TOWARDS PRINCIPAL AMOUNT. WE, THEREFORE, CONSIDER IT JUST AND PROPER TO RESTORE THIS MATTER TO THE FILE OF THE AO FOR GIVING HIM SUCH OPPORTUNITY. THE AO IS DIRECTED TO ALLOW APPRO PRIATE RELIEF TO THE ASSESSEE ON THIS ISSUE DEPENDING ON THE OUTCOME OF THE VERIFICA TION AFTER GIVING PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. GROUND NO. 3 OF THE REVENUES APPEAL IS TREATED AS ALLOWED FOR STATISTI CAL PURPOSES. 12. AS REGARDS THE APPEAL OF THE REVENUE FOR ASSESS MENT YEAR 2007-08 BEING ITA NO. 5247/MUM/2010, IT IS OBSERVED THAT THE SOLI TARY ISSUE INVOLVED THEREIN RELATING TO THE ASSESSEES CLAIM FOR DEPRECIATION O N LEASED ASSETS IS SIMILAR TO THE ONE INVOLVED IN GROUND NO. 2 OF THE REVENUES APPEA L FOR ASSESSMENT YEAR 2005-06 WHICH HAS ALREADY BEEN DECIDED BY US IN THE FOREGOI NG PORTION OF THIS ORDER. SINCE 10 ITA NO.880/MUM/2010 & ITA NO.5247/MUM/2010 ALL THE FACTS RELEVANT TO THIS ISSUE AS INVOLVED IN ASSESSMENT YEAR 2007-08 AS WELL AS THE SUBMISSIONS MADE BY BOTH THE SIDES ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2005- 06, WE FOLLOW OUR CONCLUSION DRAWN IN ASSESSMENT YE AR 2005-06 AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE SAME DIRECTION AS GIVEN IN ASSESSMENT YEAR 2005-06. 13. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF DEC.,2011. SD/- SD/ - (V. DURGA RAO) (P.M. J AGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 16 TH DEC., 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, G-BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI. WAKODE