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Issues Involved:
1. Whether the amount of Rs. 1,12,961.80 waived by Andhra Bank Ltd. should be considered as deemed income under section 41(1) of the Income-tax Act, 1961. 2. Whether the amount waived by Andhra Bank Ltd. should be considered as income under section 28(iv) of the Income-tax Act, 1961. 3. Whether the disallowance of Rs. 4,698 towards car expenses and Rs. 345 towards car depreciation by the lower authorities was justified. Detailed Analysis: Issue 1: Deemed Income under Section 41(1) The primary issue was whether the amount of Rs. 1,12,961.80, waived by Andhra Bank Ltd. from the total claim against the assessee-firm, should be considered as deemed income under section 41(1) of the Income-tax Act, 1961. The assessee, a registered firm engaged in shipping and clearing, had borrowed from Andhra Bank Ltd. and enjoyed overdraft facilities. The accrued interest and incidental charges were periodically debited to the assessee's account and allowed as deductions in previous income-tax assessments. Andhra Bank Ltd. filed a suit for recovery of Rs. 2,87,909, which included Rs. 1,31,362.65 as interest. The suit was compromised with the bank agreeing to accept Rs. 1,75,000 in full settlement, waiving Rs. 1,12,961.80. The Income Tax Officer (ITO) treated the waived amount as deemed income under section 41(1), reasoning that the payments made should first be considered towards the principal amount of the loan, with the remaining amount applied towards interest payments. The Commissioner (Appeals) upheld this view, relying on the Delhi High Court's decision in International Imex (Agents) (P.) Ltd. v. CIT and the Supreme Court's decision in Rajputana Trading Co. Ltd. v. CIT. However, the Tribunal disagreed, noting that it was not clear what portion of the waived amount represented principal, interest, or miscellaneous expenses. The Tribunal emphasized that unless the expenditure allowed in earlier years was specifically identified as remitted in the relevant assessment year, the amount could not be considered as deemed income under section 41(1). The Tribunal cited the Gauhati High Court's decision in CIT v. Usha Ranjan Bhadra, which held that without conclusive identification of the remission, no addition could be made as deemed profit. The Tribunal also addressed the burden of proof, stating that the department failed to establish the link between the earlier deductions and the subsequent remission. The Tribunal concluded that the amount of Rs. 1,12,961.80 could not be considered as deemed income under section 41(1). Issue 2: Income under Section 28(iv) The departmental representative argued that the waived amount should be considered as income under section 28(iv) of the Act, as it reduced the necessity to bring in the firm's circulating capital. However, the Tribunal rejected this argument, stating that section 28(iv) applies to benefits or perquisites arising from business or the exercise of a profession. The Tribunal held that the waiver of the bank's claim could not be considered a benefit arising from the assessee's business as a shipping and clearing agent. Therefore, the waived amount could not be taxed under section 28(iv). Issue 3: Disallowance of Car Expenses and Depreciation The final issue was the disallowance of Rs. 4,698 towards car expenses and Rs. 345 towards car depreciation. The ITO had disallowed one-fourth of the total car expenses and depreciation, which was confirmed by the Commissioner (Appeals). The Tribunal noted that in the preceding assessment year, a similar disallowance was made without any appeal. Given the consistency in the treatment of car expenses, the Tribunal found no reason to interfere with the disallowance for the current assessment year and confirmed the disallowance. Conclusion: The appeal was partly allowed. The Tribunal held that the amount of Rs. 1,12,961.80 waived by Andhra Bank Ltd. could not be considered as deemed income under section 41(1) or as income under section 28(iv). However, the disallowance of car expenses and depreciation was upheld.
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