9911796707
TMI Blog2016 (9) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... e lock out that took place at the manufacturing unit in Kerala. It is observed that the reason for not continuing the manufacturing activities was due to power supply being cut by KSEB. Further, there is no material to suggest that the manufacturing operation of the assessee were in a stage of more than that of suspension.Section 36(1)(vii) and 36(2) of the Act require the assessee to write off the bad debts which are irrecoverable and that it has been considered as income in any of the previous year if it relates to such previous year. The Assessing Officer cannot insist the assessee to prove the authenticity of circumstances leading to write off the bad debts.The assessee has furnished the details of financial year in which write off of bad debts were taken into account in computation of income. The assessee has also placed reliance upon the decision of Hon'ble Supreme Court in the case of TRF Ltd. Vs CIT reported [2010 (2) TMI 211 - SUPREME COURT ]. Thus the disallowance made by the Ld. Assessing Officer stands deleted. Addition u/s 41 - secured loan from IFCI Ltd - Held that:- Respectfully followings the decision of Hon'ble Jurisdictional High Court in the case of Tosha Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the year as he has allowed deduction for expenses on account of salary paid and also other administrative expenses and therefore it is incorrect not to allow deduction for Old Stock Written off' and Irrecoverable balances written off' on the grounds that the appellant company has not carried out any business activity during the year. 4(a) The Ld. CIT(A) has erred in confirming the additions of a sum of ₹ 22,90,00,000/- to the income of the appellant company representing amount of loan waived by M/s. IFCI Ltd. out of term loan taken by the appellant company in earlier years. The Ld. CIT(A) has failed to appreciate that remission of the principal amount of Term loan do not amount to income under sec. 41 (1) or 28(iv) or 2(24) of Income Tax Act. (b) The Ld. CIT(A) has failed to appreciate that the loan was taken by the appellant company for purchase of fixed assets and out of the total principal outstanding of ₹ 39.40 Crores a sum of ₹ 16.50 Crores was paid to M/s. IFCI Ltd. against one time settlement and the balance sum of ₹ 22.90 Crores was waived by M/s IFCI Ltd. and being a capital receipt the aforesaid amount was transferred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 8.5 lacs was paid on 15.02.2007. The assessee has paid interest @ 12.50% from 01.01.2007 till 15.02.2007 as per the terms of agreement entered into between the assessee and IFCI Ltd. Ld. CIT(A) confirmed the addition made by the A.O. by holding as under: On careful examination of the contract, it is apparent that appellant has violated the specific provision of relevant Act and that impugned interest of ₹ 15,25,685/- is for an action prohibited by the law and hence, the same is clearly note allowable as deducing as per provisions of explanation to section 37(1) of the Act. 4.3 Aggrieved by the order of Ld. CIT(A), assessee is in appeal before us. 4.4 We have perused the orders passed by authorities below and submissions made by both the sides. It is observed that the terms of agreement have been placed by the assessee at page 26A of the Paper Book filed before us wherein, the terms of settlement of dues and the payment schedule has been specified. It is observed that the payment made by the assessee is part of the contract / settlement entered into between the assessee and IFCI Ltd. and interest paid from 01.01.2007 till 15.02.2007 is a part of agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidized rates as a result of which, the company had to stop production temporarily and the manufacturing activities were discontinued. The employees of the manufacturing unit went on strike and the unit was under lock out. Due to the lock out situation that existed, the assessee effaced major financial difficulties in terms of loan and liabilities towards IFCI Ltd., as a result of which, the assessee transferred the stock and plant machinery etc. belonging to the assessee to IFCI Ltd. on as is where is basis. The Ld. A.R. submitted that the sundry debtors which existed in the books of accounts of the assessee were also written off as these were not recoverable from the parties. Ld. A.R. submitted that details of sundry debtors have been placed at pages 27-28 of the Paper Book and the details regarding old stock are at page 29 of the Paper Book. Ld. A.R. submitted that major portion of irrecoverable balance written off represent bad debts and they have been taken into account in computation of income of the assessee in earlier years. Ld. A.R. submitted that bad debts written off amounting to ₹ 50,76,944/- is allowable as business expenses. The assessee has placed relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as income in any of the previous year if it relates to such previous year. The Assessing Officer cannot insist the assessee to prove the authenticity of circumstances leading to write off the bad debts. Reliance has been placed on the decision of Hon'ble High Court in the case of DIT Vs Oman International Bank reported in 100 ITD 285. The assessee has furnished the details of financial year in which write off of bad debts were taken into account in computation of income. The assessee has also placed reliance upon the decision of Hon'ble Supreme Court in the case of TRF Ltd. Vs CIT reported in 323 ITR 397. Respectfully following the ratio laid down in the decisions cited above, the disallowance made by the Ld. Assessing Officer stands deleted. This ground of appeal thus stands allowed. 8. Ground No.4: During the assessment proceedings, Ld. A.O. observed that the assessee has transferred an amount of ₹ 22,90,00,000/- to the capital reserve account for the year under consideration. The assessee has submitted that it had secured loan from IFCI Ltd. in the previous year and the amount of ₹ 39.40 crores on which interest payable was at ₹ 29.65 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed as there is no acquisition of any fixed asset by the assessee. Ld. D.R. emphasized that the loan was taken for trading purposes and thus should not be allowed by placing reliance upon the decision in the case of CIT Vs T V Sundaram Ayangar Sons reported in 222 ITR 344 (S.C.). 8.4 We have perused the details of the orders passed by the authorities below and the arguments advanced by both the parities. We support the contention of the assessee that every receipt in question with the business cannot be said to be a trading receipt. The assessee is engaged in the business of manufacturing Ferro Alloys and term loan was taken from M/s. IFCI Ltd. for setting up a manufacturing unit a Palakkad, Kerala, which is evident from letter dated 07.01.1998 by IFCI at page 44 of the Paper Book. We have also perused the terms and conditions of agreement entered into between the assessee and IFCI Ltd. which is placed at pages 31.-36 of the Paper Book. It is observed from clause (ii) at page 34 that the assessee has received secured loan by mortgaging immovable asset purchased in Kerala for setting up of the manufacturing unit. The clause reads as under: 1. Security: (a) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us, the loan was taken by the assessee for carrying out its manufacturing activities at the unit set up in Palakkad, Kerala. Ld. A.R. has placed his reliance upon the decision of Hon'ble Jurisdictional High Court in the case of DCIT Vs Tosha International Ltd. reported in 116 TTJ 941 wherein, in the identical circumstances, it was held that: As per our considered view, for attracting the provisions of S.41(1), the first requisite condition to be satisfied is that s the assessee should have got deduction or benefit of allowance in respect of loss, expenditure or trading liability incurred by it and subsequently during any previous year, the assessee should have received any amount in respect of such loss, expenditure or trading liability by way of remission or cessation thereof. The remission would become income only if the assessee has claimed deduction in respect of expenditure or trading liability. In Mahindra Mahindra Ltd. vs. CIT (2003) 182 CTR (Bom) 34 : (2003) 261 ITR 501 (Bom) Hon'ble High Court of Bombay, held that no allowance or deduction having been allowed in respect of loan taken by assessee for purchase of capital assets. S.41(1) was not attracte ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
