2012 (2) TMI 538 - AT - Income Tax

Summary

Issues involved: Treatment of waived loan amount as income under the head 'income from other sources' u/s 41(1) of the Income Tax Act.

The judgment by the Appellate Tribunal ITAT Mumbai in 2012 involved an appeal by the Revenue against the order of the ld. CIT(A) for the assessment year 2004-05. The case concerned the treatment of a waived loan amount as income under the head 'income from other sources' u/s 41(1) of the Act.

The assessee company, engaged in manufacturing and trading, declared a loss in its return. The AO observed that the assessee credited an amount under 'other income', which included excess liability written back. The assessee claimed reduction for interest provisions disallowed in previous years. The AO added the amount to the income, citing that every income is chargeable to tax, based on the Supreme Court's decision in S.G. Mercantile Corporation P Ltd V/s CIT.

On appeal, the ld. CIT(A) disagreed with the AO's interpretation, stating that the waiver of the loan amount did not fall under sec. 41(1) and no other provision applied to consider it as income. The ld. CIT(A) deleted the addition made by the AO.

The Revenue appealed the CIT(A)'s decision, arguing that the addition made by the AO should not have been deleted. During the hearing, the ld. DR admitted the misplacement of reliance on the S.G. Mercantile Corporation case and cited a different case in support of restoring the AO's order.

The Tribunal analyzed the submissions and found that since sec. 41(1) was not invoked by the AO, the waiver of the loan amount could not be treated as income under 'income from other sources'. Citing relevant case laws, the Tribunal held that the addition made by the AO was not sustainable in law.

The Tribunal distinguished the case relied upon by the ld. DR, stating that there was no evidence that the loan was taken for trading purposes. The Tribunal also noted that the issue in the present case was different from the case cited by the AO.

Ultimately, the Tribunal upheld the decision of the ld. CIT(A) to delete the addition made by the AO, rejecting the grounds taken by the Revenue. The appeal filed by the Revenue was dismissed, and the order was pronounced on 24th Feb., 2012.