9911796707
TMI Blog2011 (2) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... ao, JJ. Chetan A. Karia for the Appellant Ashima Gupta for the Respondent ORDER Vijay Pal Rao: This appeal by the assessee is directed against the order dated 23.07.2010 of the CIT(A) for the assessment year 2007-08. 2. The assessee has raised the following effective grounds in this appeal: "1. the ld. CIT(A) erred in confirming addition of Rs.1,78,74,364/- u/s 41/(1)/28(iv) 2. without prejudice, the learned CIT(A) erred in confirming the assessment of he said amount I AY 2007-08." 3. During the course of assessment proceedings, the AO found that the assessee has shown to have issued cheques by way of book entries from 11th March 1998 till 31st March, 2007 of Rs.1.61 crores which has not been encashed. The assessing officer also found that the same relates to payments for various creditors which has been wiped off from its books and has been shown as overdraft from Oriental Bank of Commerce. He has also found that in many cases even the names of parties were not mentioned. Therefore, the AO was of the view that the correct nature is of discharged liabilities and the assessee has merely passed book entries to substantiate that the discharge was by way of repayment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit balances are outstanding for more than 8 to 10 years the same can be reduced from work in progress and in no way be considered as income u/s 41(1) of the IT Act. 8. The AO was of the view that the method of accounting followed by the assessee is merely for recognition of profit and is an allowable method for project lasting over many years due to unpredictability of the extent of profit especially at the stage of commencement of the project. 9. The AO did not accept the explanation of the assessee and held that the discharged liability of Rs.1,78,74,364/- consisting of discharge of liability unilaterally effected by the assessee by book entries for issue of cheques to the extent of Rs.1,60,55,035/- and the creditors outstanding for more than 8 to 10 years of Rs.18,19,329/- (after excluding Rs.92.84 lakhs being interest on loan to HDFC) is taxable under 41(1)/28(iv) on account of discharge of liability or alternatively constituting benefit accrued on account of conducting of the business 10. On appeal, the CIT(A) confirmed the addition made by the AO vide impugned order 11. Before us, the learned AR submitted that all expenses incurred till date are debited to WIP and ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is not completed and therefore the assessee has not recognized any income from the said projects. The assessee has been showing the entire cost of the project as WIP. The main contention of the assessee is that even if there is remission of liability the same cannot be taxed as income but at the most may be reduced from the cost of the WIP. We do not agree with the contention of the learned AR that the income due to remission of liability can be recognized only when the project is completed. The assessee has not disputed the remission of liabilities towards the credit balances for material consumed in the construction of the project. The assessee has not straight way written off the liability but has indirectly wiped out by way of entries in the books of account by issuing the cheques which were not encashed. Thus, the real effect of exercise carried out by the aseseee for making the entries in the books of account of discharging of the liability without actual payment would be the remission of the liability. Undispsutedly, the liability was for the construction of the project which has shown as stockin- trade/WIP, therefore, the remission of the same has become the income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if it was somebody else's money. In fact, as Atkkinson. J Pointed out that what the assessee did was the commonsense way of dealing with the amounts." 4. The present appellant can hardly derive any advantage from the case of Mahindra and Mahindra Ltd V/s CIT (2003) 261 ITR 501 (Bom). As in that case a clear finding was recorded that the assessee continued to pay interest at the rate of 6% for a period of 10 years and the agreement for purchase of tooling was entered into much prior to the approval of loan arrangement given by the RBI. Therefore, the loan agreement, in is entirely, was not obliterated by such waiver. Secondly, the purchase consideration related to capital assets. The tooling were in the nature of dies and the assessee was a manufacturer of heavy vehicles. The import was that of plant and machinery and the waiver could not constitute business. The fact of the present case are entirely different inasmuch as it was a loan taken for trading activity and ultimately, upon waiver the amount was retained in business by the assessee. Thus, the principle stated by the Supreme Court in the case of T V Sundaram Iyengar and Sons ltd (1996) 222 ITR 344 would be squarely applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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