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TMI Blog2013 (11) TMI 834X X X X Extracts X X X X X X X X Extracts X X X X ..... International [2009 (7) TMI 1149 - SUPREME COURT], on similar issue, held that Assessee had not got any deduction on account of acquisition of capital assets as it has been reflected in the balance sheet and not in the P&L A/c and the remission of principle amount of loan obtained from bank and financial institution had not been claimed as expenditure or trading liability in any of the earlier year, hence, section 41(1) was not applicable. Relying upon the judgment of Hon’ble Supreme Court in the case of Nector Beverages (P) Ltd. [2009 (7) TMI 5 - SUPREME COURT], it has been held that if Assessee has not got any deduction as a trading liability in any of the earlier years, provisions of section 41(1) does not apply - Unless principle amount pertains to any amount received during the course of trading activity, the same cannot be brought to tax as income of Assessee particularly only in those situations as stated by the Hon'ble Supreme Court in the case of TVS Sundaram Iyyengar & Sons [1996 (9) TMI 1 - SUPREME Court] – Decided in favor of Assessee. Jurisdiction u/s 263 of the Income tax Act – CIT directed u/s 263 to treat entire amount of Capital receipt as Income – Held that: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and to the extent of interest of Rs. 6,61,29,562/- has already been credited to P L A/c and the balance has been taken to reserves and provisions of section 41(1) to the extent applicable were already invoked. With reference to provisions of section 115JB, Assessee has filed details of carry forward losses and depreciation as per its annual reports and submitted that profit computed during the year is less than either of carry forward losses or depreciation, therefore, provisions of section 115JB are not applicable and, accordingly, the proceedings should be dropped. Assessee also submitted that these issues have been examined by the AO and since he has examined and accepted in the order u/s 143(3), revision by CIT on the same facts is not permitted. Assessee placed reliance on the judgment of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd., Vs. CIT, 243 ITR 83. The CIT did not agree with the submissions and directed the AO to bring to tax the amount of Rs. 10,44,87,460/- credited to reserves and surplus account as income and further directed the AO to consider only loss of Rs. 62,24,350/- and assess taxable book profit of Rs. 2,24,42,360/- u/s 115JB. Even th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed to annual report and, therefore, the orders of CIT should be upheld. 6. We have considered the issue and examined the facts and documents placed on record. Before dealing with the issue of jurisdiction u/s 263, it is necessary to place the facts on record. Assessee has incurred losses and has obtained waiver of principle as well as interest. The AO vide show cause letter dated 03-12-2009 asked Assessee to explain and furnish break-up of principle and interest waived. Assessee vide annexure-III to the letter given to AO submitted that Assessee company received financial assistance of Rs. 598 lakhs under venture capital fund scheme comprising convertible rupee term loan of Rs. 480 lakhs and subscription of 100 lakhs to the equity share capital and 17.5% redeemable convertible accumulative preferential shares of 98 lakhs. These amounts were disbursed in the year 1999. Further received financial assistance of 104 million under project finance scheme for the expansion cum up- gradation project for the manufacture of smart cards by way of term loan from IDBI. These were disbursed in 2001. Since Assessee ended up in losses, it has entered into one time settlement for the dues. Wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down by the Hon'ble Supreme Court in the above said case does not apply at all. The other decision relied upon by the CIT is the judgment of the Hon'ble Bombay High Court in the case of Solid Containers Ltd. Vs. DCIT, 308 ITR 417 wherein the amount was transferred to P L A/c and the waiver of the loan taken by Assessee was considered taxable. However, the Bombay High court has not followed this case and distinguished in the case of CIT Vs. Modest Marry Times Pvt. Ltd., 338 ITR 64. Further, the Hon'ble Supreme Court in the case of CIT Vs. Tosha International , 319 ITR (ST) 7 SC, on similar issue, held that Assessee had not got any deduction on account of acquisition of capital assets as it has been reflected in the balance sheet and not in the P L A/c and the remission of principle amount of loan obtained from bank and financial institution had not been claimed as expenditure or trading liability in any of the earlier year, hence, section 41(1) was not applicable. 8. The learned DR in the course of arguments relied on the decision of the Hon'ble Bombay High Court's judgment in the case of Nector Beverages (P) Ltd. Vs. DCIT,0 267 ITR 385, which was subsequently reversed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that the order of CIT is erroneous rather than the order of AO. As seen from the statements furnished by Assessee before the CIT and also before the AO at the time of original assessment, carried forward losses or depreciation are more than the profit earned during the year, therefore, the AO finding that provisions of section 115JB are not attracted is correct and there is no error in the finding of the AO. Accordingly, the direction of CIT determining taxable profit at 2,24,42,330/- is erroneous and, therefore, we have no hesitation in cancelling the direction. 10. Before parting with these issues, we would also like to place our observations. As seen from the computation of Assessee and the orders of AO, in fact, the amount of Rs. 6,61,29,562/- could not have been brought to tax under the income-tax provisions, as this interest was a provision made in the books of account. U/s 43B of the Act this interest provision would not have been allowed unless it is paid and as these amounts are not paid, to that extent, provision of interest made in the books of account could not have been claimed as deduction in any of the earlier years. Therefore, bringing the amount to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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