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TMI Blog2022 (6) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... section 41(1) and other relevant provisions of the Income Tax Act, 1961. Therefore, we are of the considered view that once there is immunity from the provisions of section 41(1) of the Income Tax Act, 1961, whatever amount credited to profit loss account on account of remission / cessation of liability, then same cannot be brought to tax u/s.41(1) of the Income Tax Act, 1961. This view is fortified by the decision of M/s.Kriloskar Oil Engines Ltd. [ 2012 (7) TMI 736 - ITAT, PUNE] where the Tribunal, after considering relevant facts has held that directions given by the BIFR is binding on the Assessing Officer and thus, remission / cessation of liability cannot be brought to tax u/s.41(1) of the Income Tax Act, 1961. Amount credited to profit loss account towards remission of liability by the order of BIFR is capital liability and thus, remission of such liability cannot be brought to tax u/s.41(1) of the Income Tax Act, 1961. This legal principle is supported by the decision of CIT Vs Mahindra Mahindra Ltd [ 2018 (5) TMI 358 - SUPREME COURT] where it has been considered an identical issue and held that waiver of loan for acquiring capital assets cannot be treated as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore unsustainable. 2. The Id AO erred in the ad hoc addition of income of Rs. 3,39,77,243/-. 3. This ground of appeal is about deleting the addition made on account of waive off of the Loan outstanding for capital liability during the relevant year amounting to Rs.3,39,77,243/- as stated in the assessment order by invoking provision of Sec 28 and Sec 41(1)of the Income Tax Act 1961. 4. The Ld. AO had construed that all the cessation of liability claimed by the appellant company into the trading receipts without applying the provision of taxation of book profits of the Income tax Act 1961. 5. The Learned AO had interpreted the provision of Sec 28 and Sec 41(1) Income Tax act 1961 without applying the test of trading activities as envisaged by the statute governing the taxation of revenue receipts. 6. The learned Assessing Officer grossly erred in ignoring several reasonable, plausible objections which had material bearing on the impugned case, ignoring the same is unjustified, bad in law, is in utter violation of principles of natural justice and ought to have been considered. 7. For that the Ld. Assessing Officer has failed to appreciate the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said assets shall be transferred to the sick company. 10.2 From Income Tax Authorities (CBDT) To exempt the company from the applicability of provision of sections 41(1), Section 79, Section 80 read with section 139(3), Section 43B, Section 72(3) and Section 1I5JB of the Income Tax Act, 1961. 10.7 From Unsecured/Sundry Creditors The unsecured liabilities shall be paid only at 10% of the principal amount, over a period of five years on interest free basis. All the penal interest, damages, penalties charged or chargeable on the same and balance of the principal amount shall be waived. From the order of the BIFR, it is noticed that the assessee company was given relief from payment of 90% of principal component owing to loan and other creditors. Further, the BIFR has also directed the income-tax department to exempt the assessee company from application of provisions of section 41(1) of the Income Tax Act, 1961. The Assessing Officer, however, was not convinced with the explanation furnished by the assessee according to him, although, BIFR had granted relief of 90% with respect to secured and unsecured creditors and also granted relief as per section 41(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely quoted the BIFR order (mentioned in the Assessment Order) without giving arty details about the transactions on which addition has been made. DIT recovery has passed on order (as mentioned in the Assessment Order) that the competent authority has not approved the order of BIFR Court dated 17/5/2012. It is mentioned that the case is treated as processed and the file has been closed . In the absence of any details as requested, it is not possible to verify the claim of the appellant. The order of the BIFR court is not explicit on the above and the communication from the DIT (Recovery) indicates that the same has not been accepted. Even otherwise, in order to apply the directions, if any, of the BIFR court, one has to look into its applicability by examining the transactions/ liability. For doing that, the appellant was asked to submit details and the same were not provided, independent inquiries carried out by the AO also did not fetch any results to accept the claim of appellant. This was pointed out to the AR of the appellant during various hearings and no details were provided on the specific queries made during appeal proceedings. The case laws relied on by the appellant are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that scheme sanctioned by the BIFR has not been approved by the Directorate of Income Tax (Recovery), in terms of section 41(1) of the Income Tax Act, 1961, and thus, the Assessing Officer has very rightly brought to tax cessation of liability u/s.41(1) of the Income Tax Act, 1961. The learned CIT(A), after considering relevant facts, has rightly sustained additions made by the Assessing Officer and their orders should be upheld. 7. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The assessee is a sick company under Sick Industrial Companies (Special Provisions) Act. The BIFR vide its order dated 04.05.1999 declared the company as sick industry. Further, the BIFR has allowed certain reliefs and concessions vide its order dated 17.05.2012, as per which, the Board has granted 90% relief with respect to secured and unsecured to creditors and also granted relief under the provisions of Income Tax Act, 1961. Therefore, from the order of the BIFR, it is very clear that reliefs and concessions allowed towards repayment of liability cannot be brought to tax u/s.41(1) of the Income Tax Act, 1961. Further, as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1.-For the purposes of this sub-section, the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first-mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. Explanation 2.-For the purposes of this sub-section, successor in business means,- (i) where there has been an amalgamation of a company with another company, the amalgamated company; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... waived by the financial institutions. We further noted that the assessee had also filed copies of loan agreement and sanction letters from various financial institutions and from perusal of sanction letters, it is noticed that the assessee had availed loans for purchase of various plant machinery. Therefore, from the above, it is very clear that amount credited to profit loss account towards remission of liability by the order of BIFR is capital liability and thus, remission of such liability cannot be brought to tax u/s.41(1) of the Income Tax Act, 1961. This legal principle is supported by the decision of the Hon'ble Supreme Court in the case of CIT Vs Mahindra Mahindra Ltd (2018) 404 ITR 1 (SC), where it has been considered an identical issue and held that waiver of loan for acquiring capital assets cannot be treated as remission of trading liability and brought to tax u/s.41(1) of the Income Tax Act, 1961 or u/s.28(iv) of the Income Tax Act, 1961. Therefore, we are of the considered view that the Assessing Officer has erred in assessing cessation of liability towards unsecured loans availed from financial institutions in terms of order of the BIFR u/s.41(1) of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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