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Issues involved: Cross appeals by assessee and revenue regarding the treatment of remission of principal loan amount and unexplained expenditure, and the power of CIT(A) to set aside orders for verification.
ITA 154/Chd/2011: The assessee challenged the treatment of remission of principal loan amount and unexplained expenditure. The AO observed that the loan waiver amount was consisting of capital waiver and interest amount. The assessee contended that the interest was never claimed and therefore not taxable u/s 41(1). The AO disagreed, citing provisions of Section 56(2)(vi) and disallowing the set-off of interest. The capital waiver was held taxable based on a decision of the Bombay High Court. ITA 291/CHD/2011: The revenue raised concerns about the CIT(A) directing verification of interest expenditure claimed in earlier years and sought restoration of the AC's order. The CIT(A) confirmed the addition on account of capital waiver but set aside the issue of interest for further verification by the AO. After hearing both parties, the ITAT found that the CIT(A) had exceeded his powers by setting aside the order for verification post the amendment in Section 251(1). The matter was restored to the CIT(A) for a proper determination regarding the interest claimed as expenditure and the nature of the loan for the capital waiver. The ITAT directed the CIT(A) to re-examine the issues in light of relevant court decisions. The appeals of both the assessee and revenue were allowed for statistical purposes. *Order pronounced in the Open Court on 22nd June, 2012.*
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