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TMI Blog2013 (12) TMI 1697X X X X Extracts X X X X X X X X Extracts X X X X ..... (v) Allowing relief of As. 6,31,073/- on account of deduction u/s 80HHC of the Income-tax Act, 1961. 2. It is prayed that the order of the Id. CIT (A) be cancelled and that of assessing officer be restored. 3. 1 (i) After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee has shown income of ₹ 1,34,24,390/- under the head loan written back . However, this amount was reduced from the net profit while determining the assessable income by giving following note: 2.1 (i) During the year, Company has written back a sum of ₹ 1,34,24,319 being the amount of loan payable to M/S Barbour Campbell Textiles Ltd. (BC T L) as the same has been waived by BCTL. The company formerly known as Barbour Vardhman Threads Ltd. (BVTL) was a joint venture between BC TL and Mahavir Spinning Mills Ltd. (MSML). The company was regular supplier of its products to BCTL. In order to cater the additional requirement of BC T L, the Company at the instance of BCTL expanded its production capacity which was partly funded by BC TL through an interest free loan of Pounds Sterling 226500. However the said arra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its investment. iii) Prior of 31.3.2000, 50% shares of M/S BVTL were held by M/S BC T L. Remaining 50% shares were held by M/S MSML and its promoter, Sh. S.P. Oswal. iv) Subsequent to the disengagement of M/S BC T L, the shares held by M/S BCTL wre purchased by M/S MSML (75% of shares ) and the balance by M/S VSGML(a Group company of Sh. S.P. Oswal). Thus, as on IS t April, 2000, the entire Capital holding of M/S BC TL in M/S BVTL came in the hands of the promoter group of the assessee. v) The name of M/S BVTL was changed to M/S Vardhman Threads Limited (present assessee) w.e.f. 27.06.2000. Subsequently, the composition of the Board of Directors of the assessee company was also changed w.e.f. 24.08.2000. The Directors of M/S BC TL namely, Sh. Tudo Davis, Sh. Ceri Marc Jones and Sh. Alex Atkinson ceased to be a Directors of the assessee company w.e.f. this date. vi) In the meantime, vide letter dated 28.10.1998 (i.e. n the beginning of the join venture mentioned above) M/S BCTL expressed its readiness to part finance the proposed expansion of capacity of M/S BVTL, by making an interest free advances of Pounds 2, 26,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee were distinguishable. He ultimately held that the arrangement was contrived and therefore, same was assessed as income of the assessee as income from other sources' 5 On appeal before the Id. CIT (A) it was mainly contended that it was a case of waiver of loan which was taken for acquiring capital assets and therefore, receipt at the time of receiving was in nature of capital receipt and the same cannot be subjected to tax. 6 The Id. CIT (A) found force in the same and observed that the transaction into which the assessee had entered falls squarely within the ambit of category of transactions in the nature of capital field and therefore, same were not taxable. 7 Before us the Id. DR for the revenue carried us through the facts as noted by the Assessing Officer and submitted that the assessee had got benefit of depreciation and therefore, this amount was taxable. In this regard he relied on the order of Hon'ble Delhi High Court in case of Logitronics P Ltd. Vs. CIT, 333 ITR 386 (Delhi) 8 On the other hand, the Id. counsel of the assessee strongly supported the impugned order and emphasized that when the loan was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Sh. Alex Atkinson ceased to be a Directors of the assessee company w.e.f this date. vi) In the meantime, vide letter dated 28.10.1998 (i.e. in the beginning of the joint venture mentioned above) M/S BCTL expressed its readiness to part finance the proposed expansion of capacity of M/S BVTL, by making an interest free advances of Pounds 2, 26,500 which was meant for setting up additional production facility. It was also conveyed by M/S BCTL that the advance amount may be repayed during the period of Six years in quarterly installments of Pounds 9500 starting from 30.06.99. It was further mentioned that the total amount may be repaired not later than 31.12.2005. vii) Based upon this letter, M/S B VT L carried out expansion of the project. Total plant and machinery to the tune of As. 1, 56, 12,645/- (Pound 2, 26,500 x 68.93) was purchased by M/S BVTL. This purchase of machinery was entirely financed by M/S BCTL. The due claim of depreciation has also been made by the assessee company on this machinery. At the same time, this amount has been shown as a non interest bearing loan raised from M/S BC T L, in the books of assessee company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. In February 1976, the American company was taken over and as a term thereof it had been agreed to waive the principal amount of loan advanced to the assessee and to cancel the promissory notes as and when they matured. The assessee filed its return for the Assessment year 1976-77. In Part Ill of the return, the assessee showed an amount of ₹ 57, 74,064 as cessation of its liability towards the American company. The Income-tax Officer came to the conclusion that with the waiver of the loan the credits represented income and not a liability. Accordingly, the Assessing Officer held that the sum of ₹ 57, 74,064 wastaxable u/s 28 of the Income Tax Act, 1961. The Commissioner (Appeals) held that the sum of ₹ 57, 74,064 was taxable as income u/s 28(iv) of the Act as such benefit was obtained in the course of business and the monetary value of that benefit was income. Alternatively, the Commissioner (Appeals) took the view that the waiver of the loan amount of ₹ 57, 74,064 amounted to remission of trading liability and, consequently, the said amount was taxable u/s 41 (1). According to the Tribunal, section 28(iv) was not applicable because benefit of waiver wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 As far as decision of Hon'ble Delhi High Court in case of of Logitronics P Ltd. Vs. CIT is concerned, in that case at page 386 it was observed as under: Under a one-time settlement with the bank, the assessee discharged As. against the principal amount of loan of ₹ 4,76,92,213 and the remaining sum of As. 1,90,42,295 was waived. The Assessing Officer taxed the principal amount of loan waived as income. The Commissioner (Appeals) deleted the addition holding that the provisions of section 2(24), 28(i),(iv) and 41 (1) were not applicable and the Assessing Officer was not justified in making the addition of As. 2,91,42,213 being the principal amount of loan waived. The Tribunal reversed the order of the Commissioner (Appeals). On above facts it was held as under: Held - dismissing the appeal that the Tribunal had found that nothing was brought on record to show that the loan taken by the assessee from the bank was utilized for the purse of acquiring capital assets. On the contrary, the material on record indicated that the assessee had obtained the loan or credit facility by way of hypothecation of finished goods, semi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the moisture in the yarn. The Id. CIT (A) found force in the submissions and deleted the addition. 13 Before us, the Id. DR for the revenue strongly supported the order of the Assessing Officer and on the other hand, the Id. counsel of the assessee supported the impugned order. 14 After considering the rival submissions we find that shortage is very negligible and it is 0.007% in case of raw material and the same has occurred due to wastage. The assessee has also given the justification for shortage on account of finished goods which has been rightly accepted by the Id. CIT (A). Therefore, we find nothing wrong in the order of the Id. CIT (A) and confirm the same. 15 1(iii) After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee has issued 93.4 kg of industrial sewing threads as samples to various parties. Upon enquiries it was submitted that these samples were given to various customers to promote the product and the value of the same has been reduced from the closing stock. However, the Assessing Officer noted that perusal of closing stock details, both value wise and quantitatively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. Before us, the Id. DR for the revenue strongly supported the order of Assessing Officer and he also relied on the decision of Hon'ble Punjab Haryana High Court in case of CIT V. Khemka Container (P) Ltd. 275 ITR 559 PI-IL 22 On the other hand, the Id. counsel of the assessee referred to the details of various items which have been disputed by the Revenue which consist of interest from customers amounting to ₹ 34,400/- claims ₹ 84,753/- (including receipt for Insurance claim of DG Set amounting to ₹ 24,420/-) and rest of the items are on account of various provisions which are written back during the year. As far as interest from customers, is concerned, he submitted that it is a part of income as held by Hon'ble Gujarat High Court in case of Nirma Industries Ltd. Vs. DCIT, 283 ITR 402 (GujaratL Insurance claim was also credited because it was excess of claim over W.D.V of DG Set therefore, same should be treated as profit. Claim of writing back of various provisions are on account of revenue nature and should be treated as profits only. 23 After considering the rival submissions we find force in the submissions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. Profit for this purpose was arrived at without reducing the amount of deduction under sub- section (9) of Section 801A. Therefore, he recalculated the deduction. 27 On appeal the issue was discussed in detail by the Id. CIT (A) and it was held that the Assessing Officer is not justified in excluding the deduction allowable u/s 801B (10) from eligible profits for computing deduction u/s 80HHC. 28 Before us, the Id. DR for the revenue strongly relied on the order of Special Bench in case of A.C.I.T. Vs. Hindustan Mint Agro Products (P) Ltd, 119 ITD 107 29 On the other hand, the Id. counsel of the assessee relied on the decision of CIT and another Vs. Millipore India P. Ltd, 341 ITR 219 (Kar). 30 We have heard the rival submissions carefully and find that this issue has been considered by larger Bench (consisting of Five members of the Tribunal) in case of A.C.I.T. Vs. Hindustan Mint Agro Products (P) Ltd (supra) and head note reads as under: Section 801A of Income Tax Act - Deductions - Profits and gains from Industrial undertaking, etc. after certain dates/infrastructure undertakings - Assessment year 1998-99, 2001-02, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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