KING PRAWNS LTD, MUMBAI v. ITO 9(2)-1, MUMBAI

ITA 60/MUM/2010 | 2004-2005
Pronouncement Date: 14-12-2010 | Result: Allowed

Appeal Details

RSA Number 6019914 RSA 2010
Bench Mumbai
Appeal Number ITA 60/MUM/2010
Duration Of Justice 11 month(s) 9 day(s)
Appellant KING PRAWNS LTD, MUMBAI
Respondent ITO 9(2)-1, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 14-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 14-12-2010
Date Of Final Hearing 24-08-2010
Next Hearing Date 24-08-2010
Assessment Year 2004-2005
Appeal Filed On 04-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI J.SUDHAKAR REDDY AM AND SHRI V.DURGA R AO JM ITA NO.60/MUM/2010 : ASST.YEAR 2004-2005 M/S.KING PRAWNS LIMITED 229/230 ARUN CHAMBERS 2 ND FLOOR TARDEO MUMBAI 400 034. PA NO.AAACK2067J. VS. THE INCOME TAX OFFICER WARD 9(2)-1 MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KISHOR PODDAR RESPONDENT BY : SHRI S.K.PAHWA O R D E R PER J.SUDHAKAR REDDY AM : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) XX MUMBAI D ATED 20.10.2009 FOR ASSESSMENT YEAR 2004-2005. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASS ESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF PRODUCTION OF SALT AND P RAWN FARMING. THE RETURN OF INCOME WAS FILED ON 28.10.2004 DECLARING TOTAL LOSS OF RS.1 22 25 538. THE ASSESSMENT WAS COMPLETED U/S.143(3) ON 26.12.2006. IN THIS ASSESSMENT TWO IMPORTANT ISSUES WERE INVOLVED THE FIRST BEING PU T WAIVER OF LOAN BY STATE BANK OF INDIA AND THE SECOND BEING THE ALLOWABILITY OF EXPE NSES AFTER THE STOPPAGE OF BUSINESS. THE ASSESSING OFFICER DISALLOWED THE CLAI M FOR EXPENSES AND HAS ALSO MADE ADDITION ON ACCOUNT OF WAVER OF THE PRINCIPAL AMOUNT OF LOAN. AS FAR AS THE INTEREST COMPONENT OF THE LOAN IS CONCERNED NO ADD ITION HAS BEEN MADE BY THE ASSESSING OFFICER FOR THE REASON THAT THE ASSESSEE HAS NOT CLAIMED THE INTEREST AS EXPENDITURE IN THE EARLIER YEARS. AGGRIEVED THE AS SESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY FOR VARIOUS R EASONS GIVEN IN HIS ORDER ITA NO.60/MUM/2010 M/S.KING PRAWNS LIMITED. 2 DISMISSED THE APPEAL OF THE ASSESSEE. FURTHER AGGRI EVED THE ASSESSEE IS IN SECOND APPEAL BEFORE US. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS:- 1. THE LEARNED CIT(A) 20 ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ADDITION OF RS.2 75 07 148.00 ON ACC OUNT OF LOAN WAIVER BY BANK. 2. THE LEARNED CIT(A) 20 ERRED IN LAW AND ON FAC TS IN CONFIRMING THE SAID WAIVER OF LOAN BY BANK AS TRADI NG RECEIPT AND TREATING THE SAME AS INCOME U/S.41(1) OF THE ACT. 3. THE LEARNED CIT(A) 20 ERRED IN LAW AND ON FAC TS IN CONFIRMING THAT THE SAID WAIVER OF LOAN WAS ALSO CO VERED UNDER THE PROVISIONS OF SEC.28 OF THE ACT. 4. THE LEARNED CIT(A) 20 ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ADDITION OF RS.1 13 39 531.00 BEING DISALLOWANCE OF BUSINESS EXPENDITURE INCURRED BY THE APPELLANT COMP ANY DURING THE PREVIOUS YEAR 2003-04. 5. THE LEARNED CIT(A) 20 ERRED IN LAW AND ON FAC TS IN NOT APPRECIATING THE FACT THAT THE APPELLANT HAD CARRIE D ON ITS STATUTORY ACTIVITIES. 6. THE LEARNED CIT(A) 20 ERRED IN LAW AND ON FAC TS IN NOT APPRECIATING THE FACT THAT THE APPELLANTS BUSINESS WAS HAMPERED BY THE OPERATION OF LAW AND DIRECTIONS OF HON. SUPREME COURT OF INDIA. 7. THE LEARNED CIT(A) - 20 ERRED IN LAW AND ON FA CTS IN NOT APPRECIATING THE FACT THERE WAS SUSPENSION OF APPEL LANTS BUSINESS DUE TO GOVT. RESTRICTIONS AND NOT A DISCONTINUATION THE REOF. 8. THE LEARNED CIT(A) 20 ERRED IN LAW AND ON FAC TS IN HOLDING THAT THERE WAS A COMPLETE BREAKDOWN OF APPELLANTS B USINESS AND IT WAS ENGAGED IN THE BUSINESS OF PRAWNS/SALT FORMING WHICH IS BANNED IN VIEW OF CRZ RESTRICTS AND IT CAN NOT CARRY ON AN Y MORE. 9. THE LEARNED CIT(A) 20 ERRED IN LAW AND ON FAC TS ON NOT ALLOWING THE CLAIM FOR DEPRECIATION OF RS.11 17 300 /- FOR THE PREVIOUS YEAR 2003-04. 10. THE APPELLANT CRAVES LEAVE TO ADD AMEND ALTE R OR DELETE ANY OF THE GROUNDS OF APPEAL AS ADVISED FROM TIME TO TIME. ITA NO.60/MUM/2010 M/S.KING PRAWNS LIMITED. 3 3. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI KISHO R PODDAR REFERRING TO GROUND NOS.1 TO 3 SUBMITTED THAT THESE GROUNDS PER TAIN TO ADDITION MADE ON ACCOUNT OF WAIVER OF LOAN BY BANK U/S.41(1) AS WELL AS U/S.28. HE SUBMITTED THAT GROUND NOS.4 TO 8 PERTAIN TO ALLOWABILITY OF EXPENS ES CLAIMED BY THE ASSESSEE. 4. REFERRING TO THE FIRST GROUND THE LEARNED COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE COMPANYS MAIN OBJECT WAS TO DO PRAWN FARM ING AND DEALING IN OTHER SEAFOOD PRODUCTS. AS PER THE DIRECTION OF THE HONB LE SUPREME COURT OF INDIA RESTRICTIONS WERE IMPOSED ON PRAWNS FARMING ACTIVIT Y IN THE ENTIRE COUNTRY AND DUE TO THAT THE BUSINESS OF THE ASSESSEE-COMPANY WAS TE MPORARILY SUSPENDED. HE SUBMITTED THAT THERE WAS A HOPE OF REVIVAL AS THE G OVERNMENT OF INDIA WAS CONSIDERING TO FRAME LEGISLATION TO REGULATE AND PR OMOTE THE ACTIVITY OF PRAWN FARMING IN INDIA. ACCORDINGLY THE GOVERNMENT CAME OUT WITH THE LEGISLATION IN THIS REGARD IN THE YEAR 1995 AND THE ASSESSEE-COMPANY CO MMENCED ITS ORIGINAL ACTIVITY IN THE FINANCIAL YEAR 2005-2006. 5. HE SUBMITTED THAT THE ASSESSEE HAD TAKEN LOANS F ROM STATE BANK OF INDIA FOR ITS OPERATION AND DUE TO CIRCUMSTANCES WHICH WERE B EYOND ITS CONTROL IT COULD NOT REPAY THE LOAN AND THE BANK CAME FORWARD WITH ONE T IME SETTLEMENT AND SETTLED THE LOAN. HE SUBMITTED THAT THE AMOUNTS COMPRISED OF TE RM LOAN OF RS.360.02 LAKHS AND EXPORT PACKING CREDIT AND CASH CREDIT OF RS.46. 05 LAKHS. HE SUBMITTED THAT THE ASSESSING OFFICER WAS WRONG IN PLACING RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. T.V.SUNDARAM IYENGAR & SONS [222 ITR 344 (SC)] . IN THAT CASE THE ASSESSEE HAS RECEIVED DEPOSITS I N THE COURSE OF TRADING TRANSACTIONS AND THE ASSESSEE HAD TREATED THEM AS C APITAL RECEIPT AND NOT OFFERED THEM TO TAX IN THE EARLIER YEARS. SUBSEQUENTLY WHEN THE ASSESSEE FORFEITED THE DEPOSITS ON THE GROUND THAT THEY WERE BARRED BY LIM ITATION AND HAD SUO MOTTO WRITTEN BACK TO ITS PROFIT AND LOSS ACCOUNT THE HO NBLE SUPREME COURT HAD HELD THAT IT BECAME BUSINESS INCOME U/S.28 OF THE ACT. H E SUBMITTED THAT THE FACTS OF THE ASSESSEES CASE ARE ENTIRELY DIFFERENT AS IT HAD BO RROWED MONEY FROM THE BANK IN THE ITA NO.60/MUM/2010 M/S.KING PRAWNS LIMITED. 4 FORM OF TERM LOAN AND WORKING CAPITAL LOAN AND THE LOANS WERE NATURALLY OF CAPITAL NATURE AND ALSO EVEN AFTER ITS WAIVER THE NATURE OF THE LOANS DID NOT CHANGE. HE RELIED ON THE DECISION OF THE BANGALORE BENCH OF TH E TRIBUNAL IN THE CASE OF COMFUND FINANCIAL SERVICES (I) LTD. VS. DCIT [(1998 ) 67 ITD (BANG.) 304] WHEREIN IT HAS BEEN HELD THAT THE REMISSION OF LOAN BY THE BANK COULD NOT BE CONSIDERED TO CONSTITUTE A REVENUE INCOME IN THE HA NDS OF THE ASSESSEE. REFERRING TO THE ORDER OF THE CIT(A) WHEREIN THE FIRST APPELLATE AUTHORITY HELD THAT THE AMOUNT IS NOT TAXABLE U/S.41(1) NOR UNDER THE PROVISIONS OF S ECTION 28(IV) AND ARGUED THAT THE FINDING THAT THE AMOUNT IS TAXABLE U/S.28(I) IS ERR ONEOUS. HE CONTENDED THAT THE LEARNED CIT(A) HAS WRONGLY PLACED RELIANCE ON THE D ECISION OF THE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD. DCIT [308 ITR 417] AS IN THE CASE OF SOLID CONTAINERS LTD. (SUPRA) THE ASSESSEE HAD TAKEN LOAN FOR ITS TRADING ACTIVI TIES FROM ITS CUSTOMERS AND THIS LOAN WAS FINALLY ADJUST ED BY THE ASSESSEE AGAINST THE CLAIM OF THE ASSESSEE WHICH AROSE OUT OF TRADING AC TIVITIES. HE RELIED ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE IF CIT VS. CHETAN CHEMICALS (P) LTD. [263 ITR 770] FOR THE PROPOSITION THAT EVEN IN THE CASE OF REMISS ION OF UNSECURED LOANS TAKEN DURING THE COURSE OF BUSINESS DOES NOT CONST ITUTE U/S.28(IV). RELYING ON THE DECISION OF THE COCHIN BENCH OF THE TRIBUNAL IN ACCELERATED FREEZ & DRYING CO. LTD. VS. DCIT [(2009) 31 SOT 442 (COCHIN)] FOR THE PROPOSITION THAT THE LOAN WAIVED BY THE BANK WAS NOT A REVENUE RECEIPT AND T HERE WAS NO SCOPE OF BRINGING IT TO TAXATION EITHER U/S.28(IV) OR U/S.41(1). HE ALSO RELIED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. CIT [(2003) 261 ITR 501 (BOM.)] . HE THUS PRAYED FOR THE RELIEF. ON THE SECOND IS SUE OF ALLOWABILITY OF EXPENSES WHICH IS CONTAINED IN GROUND NOS. 4 TO 9 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E HAD CLOSED DOWN THE BUSINESS FOR THE LIMITED PERIOD DUE TO CERTAIN ORDERS BY TH E APEX COURT IMPOSING RESTRICTION ON PRAWN FARMING AND IT WAS NOT THE CASE OF A PERMA NENT CLOSURE OF ITS BUSINESS. HE VEHEMENTLY CONTENDED THAT THERE IS A TEMPORARY LULL IN THE BUSINESS AND THE FINDING OF THE FIRST APPELLATE AUTHORITY THAT THE ASSESSEE HAS PERMANENTLY CLOSED DOWN ITS ITA NO.60/MUM/2010 M/S.KING PRAWNS LIMITED. 5 BUSINESS IS NOT CORRECT. HE DISPUTED THAT THE FIND ING OF THE LEARNED CIT(A) THAT NO MATERIAL HAS BEEN PLACED BEFORE HIM TO SHOW THAT T HERE IS SCOPE OF REVIVAL OF THE BUSINESSES. HE FILED PAPERS / DOCUMENTS TO DEMONSTR ATE THAT THE ASSESSEE HAS IN THE SUBSEQUENT YEARS HAS IN FACT DONE BUSINESS AND DEC LARED INCOME AND FILED RETURNS AND THE ASSESSMENT ORDERS IN THIS REGARD WERE PASSE D. HE THEREFORE PRAYED FOR THE RELIEF. HE RELIED ON THE DECISION OF THE HONBLE BO MBAY HIGH COURT IN THE CASE OF HINDUSTAN CHEMICAL WORKS LTD. VS. CIT [124 ITR 561 (BOM.)] FOR THE PROPOSITION THAT REGULAR BUSINESS EXPENDITURE INCURRED DURING T HE TEMPORARY SUSPENSION OF BUSINESS ARE ALLOWABLE EXPENDITURE. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE SHRI S. K.PAHWA ON THE OTHER HAND RELIED HEAVILY ON THE ORDER OF THE CIT(A) AND SPECIFICALLY DREW THE ATTENTION OF THE BENCH AT PAGE 5. HE SUBMITTED THAT THE CIT(A ) HAS AGREED WITH THE CONTENTION OF THE ASSESSEE THAT THE A.O. HAS WRONGL Y APPLIED SECTION 41(1) AND PROVISIONS OF SECTION 28(IV) AND AT THE SAME TIME H E HELD THAT THE WAIVER OF LOAN IS TAXABLE U/S.28(I). HE TOOK THIS BENCH THROUGH THE O RDER OF THE HONBLE BOMBAY HIGH COURT IN SOLID CONTAINERS LTD. (SUPRA) AND SUBMITTED THAT IN THAT CASE THE ASSESSEE HAD TAKEN LOAN OF RS.6 86 071 DURING THE P REVIOUS YEAR FOR BUSINESS PURPOSES WHICH WAS WRITTEN BACK AS A RESULT OF CONS ENT TERMS ARRIVED AT BETWEEN M/S.P.S.JAIN MOTORS ON THE ON HAND AND THE ASSESSEE ON THE OTHER AND IN SUCH A SITUATION THE HONBLE HIGH COURT APPLIED THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF T.V.SUNDARAM IYENGAR AND SONS LTD. (SUPRA) AND HELD THAT THE AMOUNT IS TAXABLE. COMING TO GROUND NO.2 HE SUBMIT TED THAT THE LEARNED CIT(A) HAS HELD THAT THE ASSESSEE HAS PERMANENTLY CLOSED D OWN ITS BUSINESS AND HENCE THE BUSINESS EXPENDITURE CANNOT BE ALLOWED. 7. RIVAL CONTENTIONS HEARD. ON THE CAREFULLY CONSID ERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL THE PAPER BOOK AND ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAW CITED WE HOLD AS FOLLOWS. ITA NO.60/MUM/2010 M/S.KING PRAWNS LIMITED. 6 8. COMING TO THE FIRST ISSUE OF ADDITION MADE U/S. 28(I) ON WAIVER OF TERM LOAN RAISED FROM STATE BANK OF INDIA WE ARE UNABLE TO A PPRECIATE THE FINDING OF THE FIRST APPELLATE AUTHORITY THAT SECTION 28(I) WOULD APPLY IN THIS CASE. BEFORE WE DEAL WITH THIS ISSUE THE UNDISPUTED FACT THAT IS AGREED BETW EEN BOTH THE PARTIES IS THAT NEITHER SECTION 28(IV) NOR SECTION 41(1) APPLIES IN THIS CASE. SECTION 28(I) READS AS FOLLOWS:- THE PROFITS AND GAINS OF ANY BUSINESS OR PROFESSIO N WHICH WAS CARRIED ON BY THE ASSESSEE AT ANY TIME DURING THE P REVIOUS YEAR. 9. IN THE CASE ON HAND THE PRINCIPAL AMOUNT RECEI VED FROM THE BANK TOWARDS TERM LOAN EXPORT PACKING CREDIT AND CASH CREDIT W AS AMOUNTING TO RS.4 06 07 148 OUT OF WHICH AN AMOUNT OF RS.2 75 07 178 WAS FORFEI TED DUE TO A SETTLEMENT ARRIVED AT BETWEEN THE ASSESSEE AND THE BANK. THIS BANK LOA NS AT THE TIME OF RECEIPT ARE CAPITAL IN NATURE. REMISSION OR REDUCTION OF LIABIL ITY WHICH IS CREATED ON CAPITAL ACCOUNT CANNOT TO OUR MIND RESULT IN A REVENUE REC EIPT MAKING IT TAXABLE U/S.28(I). THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. (SUPRA) HELD AS UNDER:- HELD (I) THAT THERE WERE TWO IMPORTANT FACTS WHIC H HAD BEEN OVERLOOKED BY THE ASSESSING OFFICER. FIRSTLY THE A SSESSEE CONTINUED TO PAY INTEREST AT 6 PER CENT. FOR A PERIOD OF TEN YEARS ON THE LOAN AMOUNT. THE AGREEMENT FOR PURCHASE OF TOOLINGS WAS ENTERED INTO MUCH PRIOR TO THE APPROVAL OF THE LOAN ARRANGEMENT GIVEN BY THE RESERVE BANK OF INDIA. THEREFORE THE LOAN AGREEMEN T IN ITS ENTIRETY WAS NOT OBLITERATED BY SUCH WAIVER. SECONDLY THE P URCHASE CONSIDERATION RELATED TO CAPITAL ASSETS. THE TOOLIN GS WERE IN THE NATURE OF DIES. THE ASSESSEE WAS A MANUFACTURER OF HEAVY VEHICLES AND JEEPS. IT REQUIRED THESE DIES FOR EXPANSION. TH EREFORE THE IMPORT WAS THAT OF PLANT AND MACHINERY. THE CONSIDERATION PAID WAS FOR SUCH IMPORT. IN THE CIRCUMSTANCES SECTION 28(IV) W AS NOT ATTRACTED. LASTLY THE PRINCIPAL AMOUNT OF LOAN HAD BEEN FORGO NE AS A PART OF TAKEOVER ARRANGEMENT TO WHICH THE ASSESSEE WAS NOT A PARTY. THE WAIVER OF THE PRINCIPAL AMOUNT WAS UNEXPECTED. IN T HE CIRCUMSTANCES SUCH WAIVER WOULD NOT CONSTITUTE BUS INESS INCOME. ITA NO.60/MUM/2010 M/S.KING PRAWNS LIMITED. 7 (II) THAT IN ORDER TO APPLY SECTION 41(1) AN ASSE SSEE SHOULD HAVE OBTAINED A DEDUCTION IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE. THE ASSESSEE HAD NOT OBTAINED SUCH ALLOWANCE OR DEDUCTI ON IN RESPECT OF EXPENDITURE OR TRADING LIABILITY. THE ASSESSEE HAD PAID INTEREST AT 6 PER CENT OVER A PERIOD OF TEN YEARS ON RS.57 74 064 . IN RESPECT OF THAT INTEREST THE ASSESSEE NEVER GOT DEDUCTION UND ER SECTION 36(1)(III) OR SECTION 37. IN THE CIRCUMSTANCES SEC TION 41(1) OF THE ACT WAS NOT APPLICABLE SECONDLY EVEN ASSUMING THAT THE ASSESSEE HAD GOT DEDUCTION ON ALLOWANCE SECTION 41(1) WAS NOT AP PLICABLE BECAUSE SUCH DEDUCTION WAS NOT IN RESPECT OF LOSS EXPENDITURE OR TRADING LIABILITY. LASTLY THE TOOLINGS CONSTITUTED CAPITAL ASSETS AND NOT STOCK-IN-TRADE. THEREFORE TAKING INTO ACCOUNT ALL THE ABOVE FACTS SECTION 41(1) OF THE ACT WAS NOT APPLICABLE. HELD ALSO (I) THAT FOR THE PURPOSES OF DEPRECIATI ON ROADS ARE BUILDINGS AND NOT PLANT. 10. THE CASE ON HAND ALSO THE TERM LOANS RECEIVED WERE DEFINITELY ON CAPITAL ACCOUNT AND RELATED TO CAPITAL ASSETS. THE WAIVER O F SUCH TERM LOAN DOES NOT CONSTITUTE BUSINESS AND THE WAIVER CANNOT BE HELD A S INCOME U/S.28(I). 11. COMING TO THE DECISION OF SOLID CONTAINERS LTD. (SUPRA) THE FACTS ARE ENTIRELY DIFFERENT AND THE LOAN THEREIN WAS TAKEN F OR TRADING ACTIVITY AND ULTIMATELY ON WAIVER OF THE AMOUNT WAS TERMED AS BUSINESS INCO ME OF THE ASSESSEE. IF AT ALL THE RATIO OF THE DECISION OF THE JURISDICTIONAL HIG H COURT IN THE CASE OF SOLID CONTAINERS LTD. (SUPRA) IS TO BE APPLIED AT BEST IT CAN BE RESTRICTED TO WAIVER IN CONNECTION WITH EXPORT PACKING CREDIT AND CASH LOAN GIVEN ON ACCOUNT OF CURRENT ACCOUNT. UNDER NO CIRCUMSTANCES THE RATIO OF THIS D ECISION IN THE CASE OF SOLID CONTAINERS LTD. (SUPRA) CAN BE APPLIED TO TERM LOANS WHEREIN MONEY WAS BOR ROWED AND UTILIZED FOR ACQUISITION OF CAPITAL ASSETS. THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF ACCELERATED FREEZ & DRYING CO. LTD. (SUPRA) HAS CONSIDERED A SIMILAR ISSUE OF WAIVER UNDER ONE TIME SETTLEMENT SCHEME AN D IT HELD AS FOLLOWS :- ITA NO.60/MUM/2010 M/S.KING PRAWNS LIMITED. 8 IT IS A TRITE LAW THAT THE NOMENCLATURE GIVEN BY A N ASSESSEE TO A PARTICULAR ACCOUNT IN ITS BOOKS OF ACCOUNT IS NOT T HE SOLE TEST TO DECIDE THE REAL CHARACTER OF THAT ACCOUNT. THEREFOR E THE FACT THAT THE ASSESSEE HAD CREDITED THE LOAN WAIVER AMOUNT IN ITS GENERAL RESERVE AMOUNT WOULD NOT INFLUENCE THE PROCESS OF DETERMINI NG THE EXACT NATURE OF THE ISSUE. [PARA 21] SECTION 28(IV) SEEKS TO CHARGE THE VALUE OF ANY BE NEFIT OR PERQUISITE WHETHER CONVERTIBLE INTO MONEY OR NOT ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION AS PROFITS AND GAINS OF B USINESS OR PROFESSION. THEREFORE WHAT IS TO BE EXAMINED IS WH ETHER THE WAIVER OF LOAN WOULD AMOUNT TO A PERQUISITE SO AS TO BE TA XABLE AS SUCH UNDER SECTION 28. THE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. CIT [2003] 261 ITR 501/128 TAXM AN 394 HAS EXPLAINED THAT SECTION 28(IV) SEEKS TO CHARGE THE V ALUE OF ANY BENEFIT OR PERQUISITE MEANING THEREBY THAT THE BENEFIT MUS T BE IN KIND; THE COURT FURTHER HELD THAT WAIVER OF LOAN IS IN RESPEC T OF MONEY TRANSACTION AND THEREFORE WOULD NOT BE IN NATURE OF ANY BENEFIT OR PERQUISITE AS CONSTRUED IN SECTION 28(IV) [PARA 23] FOR THE PURPOSE OF SECTION 28(IV) THE LOAN WAIVER AMOUNT CREDITED BY THE ASSESSEE IN ITS GENERAL RESERVE ACCOUNT WAS COVERED BY THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF MA HINDRA & MAHINDRA LTD. (SUPRA) AND THEREFORE THE SAID WAIV ER AMOUNT COULD NOT BE HELD AS TAXABLE [PARA 29] THE SUPREME COURT IN THE CASE OF POLYFLEX (INDIA) (P.) LTD. V. CIT [2002] 257 ITR 343/124 TAXMAN 374 HAS EXAMINED THE CONSTITUTION OF SECTION 41(1). THE COURT HAS POINTED OUT THAT SE CTION 41(1) CONSISTS OF TWO MAIN INGREDIENTS: (A) LOSS OR EXPEN DITURE AND (B) TRADING LIABILITY. THE TWO INGREDIENTS OF SECTION 4 1(1) HAVE TO BE READ INDEPENDENTLY. AS THE FIRST INGREDIENT RELATES TO L OSS OR EXPENDITURE AND THE SECOND INGREDIENT RELATES TO REMISSION OR C ESSATION OF TRADING LIABILITY THE COURT HAS CATEGORICALLY RULE D THAT THE WORDS `REMISSION OR CESSATION THEREOF SHALL APPLY ONLY T O A TRADING LIABILITY. [PARA 30] THERE WAS NO DOUBT THAT THE TERM LOANS AVAILED BY THE ASSESSEE FROM THREE BANKS WERE NOT IN NATURE OF TRADING LIABILITY BUT WERE IN NATURE OF CAPITAL LIABILITY. THEREFORE WAIVER OF LOAN LIA BILITY WAS NOT WAIVER OF ANY TRADING LIABILITY. THE WAIVER OF CAPITAL LIA BILITY WOULD NOT BECOME INCOME UNDER SECTION 41(1) ON THE GROUND OF REMISSION OR CESSATION THEREOF. [PARA 31] ITA NO.60/MUM/2010 M/S.KING PRAWNS LIMITED. 9 THE TERM LOANS AVAILED BY THE ASSESSEE ON CAPITAL ACCOUNT WERE ALSO NOT IN THE NATURE OF ANY LOSS OR EXPENDITURE. THERE WAS NO DOUBT IN THE INSTANT CASE THAT THE ASSESSEE NEVER HAD THE BE NEFIT OF DEDUCTION OF THE TERM LOANS AVAILED BY IT FROM THE BANKS ON C APITAL ACCOUNT. THEREFORE SECTION 41(1) HAD NO APPLICABLE TO THE F ACTS OF THE INSTANT CASE. [PARA 32] IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE WA IVER AMOUNT OF TERM LOANS AVAILED BY THE ASSESSEE DID NOT PARTAKE THE C HARACTER OF ASSESSABLE INCOME EITHER UNDER SECTION 28(IV) OR UN DER SECTION 41(1). [PARA 35] ACCORDINGLY THE ASSESSING OFFICER WAS TO BE DIREC TED TO EXCLUDE THE WAIVER AMOUNT IN COMPUTING THE ASSESSABLE INCOME OF THE ASSESSEE. [PARA 37]. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE WA S TO BE ALLOWED. [PARA 38] 12. THIS DECISION APPLIES ON ALL FOURS OF THE FACTS OF THE CASE. THE JUDGEMENT IN THE CASE OF T.V.SUNDARAM IYENGAR AND SONS LTD. (SUPRA) ALSO DOES NOT APPLY TO THE FACTS OF THE CASE AS IN THAT CASE DEPOSITS WERE REC EIVED IN THE COURSE OF CARRYING ON OF TRADING AND BUSINESS OF THE ASSESSEE. 13. COMING TO SECTION 28(I) IT IS A GENERAL SECTIO N AND ALL RECEIPTS CANNOT BE CONSIDERED AS PROFITS AND GAIN OF BUSINESS. IF THAT WAS THE CASE THERE WAS NO NECESSITY OF INCORPORATING SECTION 28(IV) SECTION 41(1) ETC. WHEN A RECEIPT DOES NOT FALL UNDER ANY OF THE SPECIFIC SUB-SECTION IT CANNOT BY DEFAULT BE BROUGHT UNDER THE GENERAL SECTION. IN ANY EVENT IT IS A REMISSION OF A CAPITAL LIABILITY AND HENCE NOT INCOME MUCH LESS A REVENUE RECEIPT. 14. IN VIEW OF THE ABOVE DISCUSSION WE HOLD THAT T HE REDUCTION OF THE LIABILITY ON ACCOUNT OF TERM LOAN AND OTHER LOANS PAYABLE TO THE BANK UNDER ONE TIME SETTLEMENT SCHEME DOES NOT RESULT INTO INCOME TO THE ASSESSEE EITHER U/S.28(I) OR U/S.28(IV) OR ITA NO.60/MUM/2010 M/S.KING PRAWNS LIMITED. 10 U/S.41(1) OF THE INCOME-TAX ACT 1961. ACCORDINGLY GROUND NOS.1 TO 3 OF THE ASSESSEES APPEAL ARE ALLOWED. 15. COMING TO GROUND NOS.4 TO 9 THE LEARNED CIT(A) IS FACTUALLY INCORRECT IN COMING TO A CONCLUSION THAT THE ASSESSEE HAS CLOSED DOWN ITS BUSINESS PERMANENTLY WHEN THE FACT IS OTHERWISE. IF THE YEAR ENDED ON 31 ST MARCH 2005 THE ASSESSEE HAD INCOME OF RS.5 37 000 AND FOR THE FINANCIAL YEAR EN DED ON 31 ST MARCH 2006 THE ASSESSEE HAD INCOME FROM SALE TO THE EXTENT OF RS.2 7.68 LAKHS AND OTHER INCOME TO THE TUNE OF RS.23.71 LAKHS. THIS IS CLEAR FROM THE ANNUAL ACCOUNTS OF THE ASSESSEE AND THE RETURNS FILED BY IT. WHEN THE ASSESSEE FILE D RETURNS OF INCOME BEFORE THE DEPARTMENT WHEREIN IT IS CLEAR THAT THE ASSESSEE H AD REVIVED ITS BUSINESS THE REVENUE CANNOT OVERLOOK THE EVIDENCES AND HOLD THAT THE BUSINESS CAN NEVER BE REVIVED. THE FOLLOWING FINDING OF THE LEARNED CIT(A ) AT PARA 3.3.3 THAT : NO MATERIAL HAS BEEN PLACED BEFORE ME TO SHOW THAT THE RE IS ANY SCOPE OF REVIVAL OF THESE BUSINESSES. THERE IS COMPLETE BREAKDOWN OF TH E BUSINESS OF THE APPELLANT. THERE CANNOT BE ANY QUESTION OF ALLOWING THE IMPUGN ED EXPENSES. IN OUR CONSIDERED OPINION IS AGAINST THE FACTS OF THE CAS E. 16. IN VIEW OF THE FACTS AND CIRCUMSTANCES AS WELL AS THE FACTUAL POSITION OF THE CASE WE HAVE TO NECESSARILY ALLOW THE CLAIM OF THE ASSESSEE BY APPLYING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN HINDUSTAN CHEMICAL WORKS VS. CIT [124 ITR 561 (BOM.)]. IN THAT CASE THE FACTS AS RECORDED BY THE TRIBUNAL WERE THAT THE ASSESSEE HAD COMPLETE BREAKDOWN OF BUSINESS AND IT WAS MERELY NOT A CASE OF LULL IN BUSINESS. IN THE CASE ON HAND AS ALREADY S TATED THE FACTS DEMONSTRATED THAT IT WAS NOT A COMPLETE BREAKDOWN OF BUSINESS BUT IT WAS A CASE OF MERE LULL IN BUSINESS DUE TO SOME RESTRICTIONS OF PRAWN FARMING BY THE HONBLE SUPREME COURT AND ALSO THE FACTS DEMONSTRATE THAT THERE IS REVIVA L OF BUSINESS. THEREFORE THE DECISION OF HINDUSTAN CHEMICAL WORKS (SUPRA) SQUARELY APPLY TO THE PRESENT CASE. ITA NO.60/MUM/2010 M/S.KING PRAWNS LIMITED. 11 17. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED ON THIS 14 TH DAY OF DECEMBER 2010. SD/- SD/- ( V.DURGA RAO ) ( J.SUDHAKAR REDDY ) JUDICIAL MEMBER ACCOUNTANT MEM BER MUMBAI : 14 TH DECEMBER 2010. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) XX MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI.