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2023 (8) TMI 224 - AT - Income TaxAddition on account of waiver of liability treating the same as cessation of liability u/s 41 (1) - assessee contended that the waiver of loan basically constituted capital receipts and that the waiver was by the holding company of the shareholder, hence section 41(1) is inapplicable irrespective of the manner of utilization of loan - HELD THAT - The impugned quarrel has now been well settled by the Hon ble Supreme Court in the case of Mahindra and Mahindra 2018 (5) TMI 358 - SUPREME COURT held Section 41 (1) does not apply since waiver of loan does not amount to cessation of trading liability. It is a matter of record that the Respondent has not claimed any deduction under Section 36 (1) (iii) of the IT Act qua the payment of interest in any previous year. Thus we direct the AO to delete the impugned addition. The appeal of the assessee is accordingly allowed.
Issues:
The judgment involves the issue of addition of Rs. 33,48,570 on account of waiver of liability treated as cessation of liability under section 41(1) of the Income Tax Act. Details of Judgment: The appeal was filed against the order of the CIT(A)-5, New Delhi dated 26.06.2019 for the assessment year 2002-03. The Tribunal had earlier remanded the matter to the Assessing Officer (AO) for fresh adjudication as the purpose of taking the loan amount which was waived needed examination before determining the taxability of the waived amount. The AO observed that the nature of the loan changed to revenue receipt upon waiver, leading to the addition. Following the order of the Hon'ble High Court, the AO made the addition once again. However, the Hon'ble Supreme Court in the case of Mahindra and Mahindra held that waiver of loan does not amount to cessation of trading liability under section 41(1) of the IT Act. Consequently, the Tribunal directed the AO to delete the impugned addition, thereby allowing the appeal of the assessee. Separate Judgment: The judgment was pronounced by Sh. N. K. Billaiya, Accountant Member, and Ms. Astha Chandra, Judicial Member.
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