M/s Sri Kanya Cables P Ltd, Rajam v. The ACIT, Circle-4(1)., Visakhapatnam

ITA 511/VIZ/2007 | 2004-2005
Pronouncement Date: 24-09-2010 | Result: Allowed

Appeal Details

RSA Number 51125314 RSA 2007
Assessee PAN AADCS1169E
Bench Visakhapatnam
Appeal Number ITA 511/VIZ/2007
Duration Of Justice 2 year(s) 9 month(s) 4 day(s)
Appellant M/s Sri Kanya Cables P Ltd, Rajam
Respondent The ACIT, Circle-4(1)., Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 24-09-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 24-09-2010
Date Of Final Hearing 06-09-2010
Next Hearing Date 06-09-2010
Assessment Year 2004-2005
Appeal Filed On 20-12-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 511 /VIZAG/ 20 07 ASSESSMENT YEAR : 2004 - 05 SRI KANYA CABLES P VT. LTD. RAJAM ACIT CIRCLE - IV(1) VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO. AADCS 1169E ITA NO.512/VIZAG/2007 ASSESSMENT YEAR : 2004 - 05 SRI KANYA BOARDS PVT. LTD. RAJAM ACIT CIRCLE - 4(1) VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO. AA E CS 9660F APPELLANT BY: SHRI Y.A. RAO CA RESPONDENT BY: SHRI J. SIRI KUMAR DR ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER : - THESE APPEALS ARE PREFERRED BY THE ASSESSEES AGAINST THE RESPECTIVE ORDER OF THE CIT(A) ON COMMON GROUNDS THAT CIT( A) IS NOT JUSTIFIED IN SUSTAINING THE ADDITION MADE BY THE A.O. AFTER INVOKING THE PROVISIONS OF SECTION 41(1) OF THE I.T. ACT SINCE CESSATION OF LIABILITY TO BANKER REPRESENTING WAIVER OF PART OF PRINCIPAL AMOUNT OF LOAN CANNOT BE CONSIDERED AS CESSATION OF TRADE LIABILITY. 2. IN ITA NO.511 OF 2007 THE ADDITION WAS MADE FOR RS.28 04 062/ - AND IN ITA NO.512 OF 2007 IT WAS MADE OF RS.3 42 394/ - . SINCE FACTS OF BOTH THE CASES ARE COMMON WE THEREFORE DISCUSS THE FACTS OF THE CASE IN ITA NO.511 OF 2007. IN BOTH THE CASES THE ASSESSEES HAVE DECLARED LOSS. ON A SCRUTINY THE A.O. NOTICED THAT THE ASSESSEE TOOK A LOAN FROM THE BANK BUT IT WAS NOT REPAID IN TIME AND ON ITS ONE TIME SETTLEMENT THE ASSESSEE HAS PAID AN AMOUNT WHICH IS LESSER THAN THE PRINC IPAL AMOUNT. IN ITA NO.511 OF 2007 2 THE ASSESSEE OWED A TOTAL AMOUNT OF RS.1 87 64 028/ - COMPRISING OF PRINCIPAL AMOUNT OF RS.1 66 04 062/ - AND ACCRUED INTEREST OF RS.21 59 965/ - AND UNDER THE OTS (ONE TIME SETTLEMENT) THE ASSESSEE HAD AGREED TO SETTLE TH E AMOUNT DUE AT RS.1 38 00 000/ - . AS A RESULT THE ASSESSEE GOT THE INTEREST WAIVER BENEFIT OF RS.21 59 965/ - AND PRINCIPAL WAIVER OF RS.28 04 062/ - . THE ASSESSEE TREATED THE INTEREST WAIVED AS INCOME FROM OTHER SOURCES AND OFFERED THE SAME IN THE PROFIT AND LOSS ACCOUNT IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 41(1) OF THE ACT. HOWEVER THE BENEFIT DERIVED TOWARDS WAIVER OF PRINCIPAL AMOUNT OF LOAN WAS CONSIDERED AS A CAPITAL RECEIPT AND IT WAS SHOWN AS A CAPITAL RESERVE IN THE BALANCE SHEET. HOWE VER ASSESSING OFFICER TREATED THE BENEFIT DERIVED OUT OF WAIVER THE PRINCIPAL AMOUNT AS CESSATION OF LIABILITY FOR THE PURPOSE OF SECTION 41(1) OF THE ACT AND TREATED THE SAME AS TRADE LIABILITY WHICH WAS UTILIZED FOR THE PURPOSE OF BUSINESS. HE ACCORDIN GLY TREATED THE WAIVER OF THIS PRINCIPAL AMOUNT OF RS.28 04 062/ - AS INCOME OF THE ASSESSEE U/S 41(1) OF THE ACT. 3 . SIMILAR WAS THE POSITION IN ITA NO.512 OF 2007 IN WHICH A.O. HAS MADE AN ADDITION OF RS.3 42 394/ - AS AN INCOME OF THE ASSESSEE U/S 41(1) OF THE ACT ON ACCOUNT OF WAIVER OF PRINCIPAL AMOUNT. 4 . APPEALS WERE PREFERRED BEFORE THE CIT(A) WITH THE CONTENTION THAT ONLY A LIABILITY WHICH ARISE S ON ACCOUNT OF TRADING LIABILITY ALONE CAN BE CONSIDERED AS A TRADING LIABILITY U/S 41(1) OF THE ACT AN D THE BENEFIT OBTAINED FROM THE BANK CONSTITUTES CAPITAL RECEIPT AND THEREFORE SAME IS NOT LIABLE FOR TAXATION. CIT (A) WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES AND HE CONFIRMED THE ADDITIONS. 5 . NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT U/S 41(1) ONLY THOSE LIABILITIES CAN BECOME AN INCOME OF THE ASSESSEES ON ITS CESSATION WHICH WERE EITHER ALLOWED OR DEDUCTED IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE. IN THE INSTANT CASE ASSESSEE HAS TOOK A LOAN AND THE PRINCIPAL AMOUNT WAS NEVER CLAIMED AS AN EXPENDITURE OR A TRADING 3 LIABILITY IN THE P&L ACCOUNTS. THEREFORE CESSATION OF LIABILITY ON ACCOUNT OF PRINCIPAL AMOUNT CANNOT BE TE RMED TO BE AN INCOME U/S 41(1) OF THE ACT. 6 . THE LD. D.R. SIMPLY PLACED A RELIANCE UPON THE ORDER OF THE CIT(A). 7 . HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDER OF THE LOWER AUTHORITIES AND THE RELEVANT PROVISIONS OF THE AC T AND WE FIND THAT AS PER PROVISIONS OF SECTION 41(1) OF THE ACT ONLY THOSE LIABILITIES CAN BE TERMED TO BE THE INCOME OF THE ASSESSEES ON ITS CESSATION WHICH WERE EITHER ALLOWED OR DEDUCTED IN THE ASSESSMENT FOR AN YEAR AS LOSS EXPENDITURE OR TRADING LI ABILITY INCURRED BY THE ASSESSEES. FOR THE SAKE OF REFERENCE WE REPRODUCE THE RELEVANT PROVISIONS OF SECTION 41(1) OF THE ACT AS UNDER: - PROFITS CHARGEABLE TO TAX. 41. [(1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO AS THE FIRST - MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR -- (A) THE FIRST - MENTIONED PERSON HAS OBTAINED WHETHER IN CASH OR IN ANY OTHER MA NNER WHATSOEVER ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME - TAX AS THE INCOME OF THAT PREVIOUS YEAR WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT ; OR (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER ANY AMOUNT IN RESPECT OF WHICH LOSS OR EXPENDITURE WAS INCURRED BY THE FIRST - MENTIONED PERSON OR SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY REFERRED TO IN CLAUSE (A) BY WAY OF REMISSION OR CESSATION THEREOF THE AMOUNT OBTAINED BY THE SUCCESSOR IN BUSINESS OR THE VALUE OF BENEFIT ACCRUING TO THE SUCCESSOR IN BUSINESS SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME - TAX AS THE INCOME OF THAT PREVIOUS YEAR. [EXPLANATION 1 FOR THE PURPOSES OF THIS SUB - SECTION THE EXPRESSION LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF SHAL L INCLUDE THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILATERAL ACT BY THE FIRST MENTIONED PERSON UNDER CLAUSE (A) OR THE SUCCESSOR IN BUSINESS UNDER 4 CLAUSE (B) OF THAT SUB - SECTION BY WAY OF WRITING OFF SUCH LIABILITY IN HIS ACCOUNTS]. [EXPLANATION 2] FOR THE PURPOSES OF THIS SUB - SECTION SUCCESSOR IN BUSINESS MEANS -- (I) WHERE THERE HAS BEEN AN AMALGAMATION OF A COMPANY WITH ANOTHER COMPANY THE AMALGAMATED COMPANY; (II) WHERE THE FIRST - MENTIONED PERSON IS SUCCEEDED BY ANY OTHER PERSON IN THAT BUSINESS OR PROFESSION THE OTHER PERSON; (III) WHERE A FIRM CARRYING ON A BUSINESS OR PROFESSION IS SUCCEEDED BY ANOTHER FIRM THE OTHER FIRM;] (IV) WHERE THERE HAS BEEN A DEMERGER THE RESULTING COMPANY.] 8 . UNDISPUTEDLY THE ASSESSEE HAS TOOK A LOAN FROM THE BANK BUT LA TER ON IT COULD NOT BE PAID AND THERE WAS ONE TIME SETTLEMENT IN WHICH BANKER HAS AGREED TO GIVE A SUBSTANTIAL BENEFIT . N OT ONLY THE INTEREST PORTION WAS WAIVED BUT S O ME PORTION OF THE PRINCIPAL WAS ALSO WAIVED. SO FAR AS INTEREST BENEFIT IS CONCERNED T HERE WAS NO DISPUTE AS IT IS CHARGEABLE TO TAX. BENEFIT ON ACCOUNT OF WAIVER OF PRINCIPAL THE REVENUE HAS INVOKED PROVISIONS OF SECTION 41(1) OF THE ACT WHICH WAS OBJECTED BY THE ASSESSEES FOR THE REASON THAT PRINCIPAL WAS NEVER CLAIMED IN EARLIER YEARS EITHER AS LOSS EXPENDITURE OR A TRADING LIABILITY. WE HAVE ALSO CAREFULLY EXAMINED THE AFORESAID RELEVANT PROVISIONS OF SECTION 41(1) AND WE FIND FORCE IN THE CONTENTION OF THE ASSESSEES THAT UNLESS AND UNTIL THE LIABILITY IS CLAIMED AS LOSS EXPENDITUR E OR AS A TRADE LIABILITY IN EARLIER YEARS IT CANNOT ASSUME A CHARACTER OF AN INCOME ON ITS CESSATION IN SUCCEEDING YEARS. WE THEREFORE OF THE VIEW THAT LOWER AUTHORITIES HAVE WRONGLY TAKEN THE BENEFIT OF WAIVER OF PRINCIPAL AMOUNT AS AN INCOME U/S 41(1) OF THE ACT. WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THE ADDITIONS MADE ON THIS ACCOUNT IN BOTH THE APPEALS. 9 . IN THE RESULT THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24.9 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 24 TH SEPTEMBER 20 10 5 COPY TO 1 M/S. ROWE AND PAL CHARTERED ACCOUNTANTS 4/3/40 KOTTAGRAHARAM VIZIANAGARAM 2 A CIT CIRCLE - IV(1) VISAKHAPATNAM 3 THE CI T 4 THE CIT (A) 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM