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TMI Blog2008 (7) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Further, giving loans and the write off of the same by SDD CPL happened in the time span of only 5 months. Applying the provisions of section 41(1) to the facts of the instant case, we find that the amount of loan received has no connection to any such allowance or deduction. It is a mere loan unconnected to any allowance or deduction made in the assessee s assessment. Although it is an undisputed fact that the assessee received benefit by way of remission or cessation of liability, the same is certainly not in respect of any trading liability. We find that the assessee did not receive the said amount in respect of any sales or purchases or other related direct or indirect expenses to qualify for trading activity. The said amount was given by the M/s. SDD CPL for the purpose of making the assessee-company fit for takeover and for shaping up a presentable Balance Sheet for the incoming group. In this regard, we have also examined if the AO has made out any case against assessee for the proposition that if the amounts given by M/s. SDD CPL are given to assessee on behalf of other trade debtors in order to be covered by the provisions of section 41(1) of the Act, that is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 7,70,000. Your appellants submit that the same is allowable and ought to be allowed. 3. The learned Commissioner of Income-tax (Appeals) erred in not allowing deduction for depreciation amounting to ₹ 12,64,420 in respect of fixed assets scrap during the year. Your appellants submit that the same is allowable and ought to have been allowed. 4. The learned Commissioner of Income-Tax (Appeals) erred in confirming the addition of ₹ 5,95,591 being the provision made for doubtful deposits. Your appellants submit that the same is allowable and ought to be allowed as claimed. 5. The learned Commissioner of Income-Tax (Appeals) erred in confirming disallowance of ₹ 5,77,950 in respect of filing fees and stamp duty expenses incurred for increase in share capital. Your appellants submit that the same is allowable and ought to have been allowed. Without prejudice to the above, your appellants submit that in any event, the learned Commissioner of Income-tax (Appeals) ought to have allowed ₹ 50,200 as expenses in connection with the issue of shares. Without prejudice to the above, your appellants submit that in any event, the learned Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the existing promoters were to fulfil the obligations of the employees and the shareholders. The existing promoters had to keep the assessee-company going on by meeting the company s day-to-day expenses, current liabilities and providing the funds for running the company. Further, the assessee was under obligation to fulfil another condition that the old liabilities should be cleared and the new management should be left with the relatively clean balance sheet. In view of the above, in order to keep the company in running condition, to discharging the old loans/liabilities and fulfil the obligations of the employees and the shareholders, etc., assessee borrowed ₹ 3,51,34,000 from M/s. Saurabh Digital Devices Circuits Private Limited (SDD CPL), a concern belonging to the assessee s promoter group, over a period of 4 months from September 1998 to January 1999 as per the details in the table given below : Date of payment Particulars Debit amount in Rs. 23-9-1998 To Bank 3,25,000 23-9-1998 To Bank 8,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee filed an appeal before the CIT(A). Before CIT(A), the assessee submitted that the provisions of section 41(1) were wrongly invoked without appreciating the provisions of the said section. Assessee submitted that he never claimed any deduction or allowance of losses or expenditure involving M/s. SDD CPL in respect of the amounts written-off. In this regard, the assessee submitted that the provisions of section 41(1) are inapplicable to the loans and in this regard, the assessee relied on the judgments in the case of CIT v. Lal Textiles Finishing Mills (P.) Ltd. [1989] 180 ITR 45 1 (Punj. Har.), CIT v. Phoolchand Jeevan Ram [1980] 131 ITR 37 2 (Delhi) and Mahindra Mahindra Ltd. v. CIT [2003] 261 ITR 501 3 (Bom.). Assessee also mentioned the Apex Court s judgments in the cases of CIT v. T.V. Sundaram Iyengar Sons Ltd. [1996] 222 ITR 3444 and Sawhney Steel Press Works Ltd. v. CIT [1997] 228 ITR 2535, which were considered by the Commissioner (Appeals) in the impugned order. Commissioner (Appeals) made use of the judgment in the case of Sawhney Steel Press Works Ltd. (supra) for the proposition that the any central subsidy under certain conditions must be treated as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned decisions and reiterated that the provisions of section 41(1) do not apply to the assessee s case. Contending on the Commissioner (Appeals) s reliance on the Apex Court s judgment in the case of T.V. Sundaram Iyengar Sons Ltd. (supra), the ld. AR argued that the loan amount in question is not a trading transaction and, therefore, the judgments of the said Apex Court decision is out of place. In this regard, the AR mentioned that forfeiture of trade deposits as in the case of T.V. Sundaran Iyengar Sons Ltd. (supra) by way of limitation of time makes the said case inapplicable to the instant case where there is no involvement of trade deposits but only loans. In the context of the applicability of the provisions of section 28(iv), relying on the decision of the Tribunal in the case of Helios Food Improvers (P.) Ltd. v. Dy. CIT [2007] 14 SOT 546 (Mum.), the ld. AR argued that the loan waived by the lender, when the same is written off by crediting the same to the capital reserve account, is not chargeable to tax as income of the assessee under the said provisions of the Income-tax Act. Ld. AR mentioned that the Hon ble Tribunal held the same in that case after considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is that the provisions of section 10(3), 41(1) or 28(iv) of the Act apply to the assessee s case in addition to the Apex Court s judgment in the case of T.V. Sundaram Iyengar Sons Ltd. (supra). On the other hand, the case of the ld. AR for assessee is that the said provisions are inapplicability to the loans and relied on various judicial pronouncement in this regard. His arguments revolve around the inapplicability of sections 41(1) and 28(iv) on one side and inapplicability of the Apex Court s judgement in the case of T.V. Sundaram Iyengar Sons Ltd. (supra) on the other side. Now we proceed to deal with the departmental arguments one by one. 10. First, we have examined the provisions of section 41(1) and their applicability to the instant case. The relevant extracts of section 41(1) reads as under :- 41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first mentioned person) and subsequently during any previous year,- (a)the first mentioned person has obtained, whether in cash or in any other manner whatsoever, any a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, we have also examined if the Assessing Officer has made out any case against assessee for the proposition that if the amounts given by M/s. SDD CPL are given to assessee on behalf of other trade debtors in order to be covered by the provisions of section 41(1) of the Act, that is also not the case here. Provisions of section 41(1) could be applied only where he had obtained in cash or in any other manner a benefit in respect of loss, expenditure or trading liability, which was allowed as a deduction or allowance in any earlier previous years as held in the case of Jahangir Gullabbhai v. Jt. CIT [2008] 21 SOT 603(Mum.). In the context of the benefits received by the assessee in respect of trading liabilities, we have examined, if the spending of loans/amounts for meeting the trading liabilities entitles such amounts are covered by the provisions of section 41(1) and found that the same are not covered by the said provisions. But section 41(1) deals with the amounts or benefits received and not the ones input. 12. In the light of the above, we are of the considered opinion that the Assessing Officer action of linking the loss of the assessee to the loans given by lender (SDD CP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee s case, the losses are not incurred on account of trading liabilities and the loan of ₹ 351.34 lakhs received by the assessee is not a reimbursement comparable to the reimburse- ment by the Government in the said case. Therefore, the facts of the case are distinguishable. 15. In view of the above, the transaction between assessee and SDD CPL are aimed at making the company eligible for take over by the income group and are consequential to the contractual agreement. The transactions in the books of account are not found bogus or collusive by the Assessing Officer. The loans of ₹ 351.34 lakhs has nothing to do with the assessee s claims of deduction or allowances in that assessment as assessee within the meaning of section 41(1) as held by the co-ordinate Bench in the case of Jahangir Gullabbhai (supra). Further, the judgment in the case of T.V. Sundaram Iyengar Sons Ltd. (supra) does not help the revenue either. Further, the provisions of section 28(iv) of the Act does not come to the rescue of the revenue in the view of the co-ordinate Bench decision in the case of Hellios Food Improvers (P.) Ltd. (supra). Therefore, assessee s ground is allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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