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TMI Blog2014 (11) TMI 715X X X X Extracts X X X X X X X X Extracts X X X X ..... the assesse - To that extent, CIT(A) has been correct in bifurcating the loan into 'Term Loan' and 'Working Capital Loan' - the onetime settlement of outstanding loan was to the tune of ₹ 941.27 lacs and it comprised of the term loan of ₹ 401.08 lacs and working capital loan of ₹ 540.19 lacs and the assessee infused payment of ₹ 300.72 lacs to the banks - Though there was waiver of ₹ 640.55 lacs comprising of the term loan and working capital loan, the AO had erroneously added the entire amount of ₹ 640.55 lacs as the income of the assessee. When a loan which is the term loan is waived by a financial institution, then, that amount pertaining to the term loan shall not treated as income in the hands of the assessee; whereas if the loan which is waived is the working capital loan which is used for day to day operations of the assessee, then that loan amount which is waived will be treated as 'income' in the hands of the assesse – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for verification – Decided in favour of assessee. - ITA No.5263 /Del/2011 - - - Dated:- 30-6-2014 - SHRI B.C. MEENA AND SHRI A. T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he main ground addition of waiver of loans granted to its as a one time settlement by order of BIFR. 7. Brief facts of the case is as follows:-the assessee company is engaged in business of manufacturing; job work and sale of yarn and sale of fabric. During the assessment proceedings, the Assessing Officer observed that as per Notes to Account (Point No. 14(v) attached with the appellant's annual statements, the appellant had a one-time settlement with financial institutions namely State Bank of Patiala and Kotak Mahindra Bank. As a part of this settlement, the appellant got a waiver of secured loans to the extent of ₹ 640.55 lacs. The Assessing Officer treated this sum as income under Section 28(iv) of the Act and made an addition of the same. Aggrieved by the above additions, the appellant preferred an appeal before the ld CIT(A), who was pleased to give partial relief and pass the following order:- In view of the above discussion and settled position of law and by relying on the decision of the Delhi High Court in the case of Rollatainers (supra), I hold that ₹ 540.19 lacs is a revenue item and is taxable under the head Income from Profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - wherein the Hon'ble SC has held:- Trading receipt- assessee receiving deposits (not being in the nature of security deposits held by the assessee for performance of contract by its constituents) from its customers in the course of his business, which depleted by adjustment from time to time, unclaimed balances transferred by the assessee to his P L Account are trading receipts, even though the deposit were initially treated as capital receipts, the claim of depositors having become barred by time. It was held by the Hon ble Supreme Court that unclaimed balances transferred to P L Account is a trading receipt as the income changes its character when amount become the assessee s own money because no other person can claim by reason of limitation or by any other statutory or contractual right. 10. However, according to the ld AR in the present case neither loan has become time barred nor assessee owns the waived money as the loan account itself has been lost in business operations. Therefore, according to ld AR, it cannot be said that assessee has gained any amount out of waiver except that book liability has been settled. The ld AR pointed out that in assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y infusing fresh funds brought in by the promoters as per directions of BIFR. Since proceeds of loan availed has already been eroded in operational losses, company gained no financial health by amount waived and same has been set off against cumulative negative balance of profit and loss account. The ld AR pointed out that the assessee has also been granted exemption under Section 41 of the Income Tax Act (relief by Central Government) as per BIFR order. On the other hand the ld DR relied on the order of the AO and the ld CIT(A) and does not want us to interfere in the impugned order. 13. We have heard both the parties and carefully perused the records and the case laws cited by both the sides. It is an undisputed fact that the appellant company was declared a sick company which was registered under BIFR and in terms of BIFR order, there was a one time settlement of outstanding loan of ₹ 941.27 lacs, which was settled for payment of ₹ 300.72 lakhs. Thus there was a waiver of ₹ 640.55 lacs . The Assessing Officer added the entire amount of ₹ 6,40,55,000/- as the income of the assessee. Thereafter the appellate authority has confirmed the addition of an amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the amount is not covered by the provision contained in s.41(1). It was also mentioned that the principles enunciated in the case of Mahindra Mahindra Ltd. (2003) 182 CTR (Bom) 34: (2003) 261 ITR 501 (Bom) are fully applicable. Again, it was a case where the term loans are concerned, waiver thereof by the financial institutions has not been treated as income at the hands of the assessee. In Rollatainer Vs. CIT (2011) 339 ITR 54 (Del) the Hon'ble Delhi High Court held that writing off loans on cash credit account which was received for carrying out the day to day operates of the assessee which is treated as 'income' in the hands of the assessee. The same view was taken by the Bombay High Court in 'Solid Containers' (supra) and that of Madras High Court in 'Aries Advertising' (supra) are directly on this issue. 17. We find that the ld CIT(A) ignored the fact that the amount was ₹ 3,00,72,095/- was paid by the assessee and so the balance amount comes to ₹ 2,39,46,429/-) and erroneously held that ₹ 5,40,60,301/- is taxable. And in effect ultimately waiver of loans amounted to ₹ 2,39,46,429/- and therefore addition on this accou ..... 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