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TMI Blog2010 (12) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... also the facts demonstrate that there is revival of business - Therefore, the decision of Hindustan Chemical Works (1979 -TMI - 36807 - BOMBAY High Court) squarely apply to the present case. - Decided in favour of the assessee - ITA No.60/Mum/2010 - - - Dated:- 14-12-2010 - J Sudhakar Reddy, V Durga Rao, JJ. Kishor Poddar for the Appellant S.K. Pahwa for the Respondents ORDER Per: J Sudhakar Reddy: This is an appeal filed by the assessee directed against the order of the Commissioner of Income-tax (Appeals)-XX, Mumbai dated 20.10.2009 for assessment year 2004-2005. 2. The facts of the case in brief, are that the assessee is a company and is engaged in the business of production of salt and prawn farming. The return of income was filed on 28.10.2004 declaring total loss of Rs.1,22,25,538. The assessment was completed u/s.143(3) on 26.12.2006. In this assessment two important issues were involved - the first being put waiver of loan by State Bank of India and the second being the allowability of expenses after the stoppage of business. The Assessing Officer disallowed the claim for expenses and has also made addition on account of waver of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to addition made on account of waiver of loan by bank u/s.41(1) as well as u/s.28. He submitted that ground nos.4 to 8 pertain to allowability of expenses claimed by the assessee. 4. Referring to the first ground, the learned Counsel for the assessee submitted that the company's main object was to do prawn farming and dealing in other seafood products. As per the direction of the Hon'ble Supreme Court of India, restrictions were imposed on prawns farming activity in the entire country and due to that the business of the assessee-company was temporarily suspended. He submitted that there was a hope of revival as the Government of India was considering to frame legislation to regulate and promote the activity of prawn farming in India. Accordingly, the Government came out with the legislation in this regard in the year 1995 and the assessee-company commenced its original activity in the financial year 2005-2006. 5. He submitted that the assessee had taken loans from State Bank of India for its operation and due to circumstances which were beyond its control, it could not repay the loan and the bank came forward with one time settlement and settled the loan. He submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the loan waived by the bank was not a revenue receipt and there was no scope of bringing it to taxation either u/s.28(iv) or u/s.41(1). He also relied on the decision of the jurisdictional High Court in the case of Mahindra and Mahindra Ltd. vs. CIT [(2003) 261 ITR 501 (Bom.)]. He, thus, prayed for the relief. On the second issue of allowability of expenses, which is contained in ground nos. 4 to 9, the learned Counsel for the assessee submitted that the assessee had closed down the business for the limited period, due to certain orders by the Apex Court imposing restriction on prawn farming and it was not the case of a permanent closure of its business. He vehemently contended that there is a temporary lull in the business and the finding of the first appellate authority that the assessee has permanently closed down its business, is not correct. He disputed that the finding of the learned CIT(A) that no material has been placed before him, to show that there is scope of revival of the businesses. He filed papers / documents to demonstrate that the assessee has in the subsequent years, has in fact done business and declared income and filed returns and the assessment orders in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was amounting to Rs.4,06,07,148 out of which an amount of Rs.2,75,07,178 was forfeited due to a settlement arrived at between the assessee and the bank. This bank loans, at the time of receipt, are capital in nature. Remission or reduction of liability, which is created on capital account, cannot to our mind result in a revenue receipt making it taxable u/s.28(i). The jurisdictional High Court in the case of Mahindra and Mahindra Ltd. (supra) held as under:- "Held, (i) that there were two important facts which had been overlooked by the Assessing Officer. Firstly, the assessee continued to pay interest at 6 per cent. for a period of ten years on the loan amount. The agreement for purchase of toolings was entered into much prior to the approval of the loan arrangement given by the Reserve Bank of India. Therefore, the loan agreement, in its entirety, was not obliterated by such waiver. Secondly, the purchase consideration related to capital assets. The toolings were in the nature of dies. The assessee was a manufacturer of heavy vehicles and jeeps. It required these dies for expansion. Therefore, the import was that of plant and machinery. The consideration paid was for such imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time settlement scheme and it held as follows :- "It is a trite law that the nomenclature given by an assessee to a particular account in its books of account is not the sole test to decide the real character of that account. Therefore, the fact that the assessee had credited the loan waiver amount in its general reserve amount would not influence the process of determining the exact nature of the issue. [Para 21] Section 28(iv) seeks to charge the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, as profits and gains of business or profession. Therefore, what is to be examined is whether the waiver of loan would amount to a perquisite so as to be taxable, as such, under section 28. The Bombay High Court in the case of Mahindra and Mahindra Ltd. vs. CIT [2003] 261 ITR 501/128 Taxman 394, has explained that section 28(iv) seeks to charge the value of any benefit or perquisite, meaning thereby that the benefit must be in kind; the Court further held that waiver of loan is in respect of money transaction and, therefore, would not be in nature of any benefit or perquisite as construed in section 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee. 13. Coming to section 28(i), it is a general section, and all receipts cannot be considered as profits and gain of business. If that was the case, there was no necessity of incorporating section 28(iv), section 41(1) etc. When a receipt does not fall under any of the specific sub-section, it cannot by default be brought under the general section. In any event it is a remission of a capital liability and hence not income, much less a revenue receipt. 14. In view of the above discussion, we hold that the reduction of the liability on account of term loan and other loans payable to the bank under one time settlement scheme, does not result into income to the assessee either u/s.28(i) or u/s.28(iv) or u/s.41(1) of the Income-tax Act, 1961. Accordingly, ground nos.1 to 3 of the assessee's appeal are allowed. 15. Coming to ground nos.4 to 9, the learned CIT(A) is factually incorrect in coming to a conclusion that the assessee has closed down its business permanently when the fact is otherwise. If the year ended on 31st March, 2005, the assessee had income of Rs.5,37,000 and for the financial year ended on 31st March, 2006, the assessee had income from sale ..... X X X X Extracts X X X X X X X X Extracts X X X X
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