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TMI Blog2012 (2) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment was completed u/s 143(3) of the Act. The assessee had borrowed term loan from IDBI and working capital from State Bank of Hyderabad. Since the figures are not clear in assessment order as well as in CIT(A) s order, the same are not mentioned here. Since the assessee was unable to repay the said loans borrowed, both the said banks had come forward for One Time Settlement with the assessee. Accordingly, the assessee had entered into One Time Settlement for full and final settlement of the said loans. The AO had observed that writing off the loans payable by the assessee for one time settlement with the Banks amounting to benefit arises out of the business and, therefore, such income becomes income of the assessee by virtue of the provisions of section 28(iv) read with section 41(1) of the Act. He further observed that the loans were availed from the banks for the purpose of business and, therefore, when there is remission and whereby the assessee has received a benefit by way of extinguishment of liability, such benefit has arisen out of business and, hence, the same is taxable under the provisions of section 28(iv) of the Act and also attracts the provisions of section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon ble Jurisdictional High Court in the case of Mahindra and Mahindra Ltd. Vs. CIT, 261 ITR 501 and submitted that this case squarely applies to the case of the assessee. He also relied on the decision of the Cochin Bench of ITAT in the case of Accelerated Freez Drying Co. Ltd., Vs. DCIT, 31 SOT 442 (Cochin.). The learned counsel submitted that the decisions relied upon by the CIT in the case of CIT Vs. T.V. Sunderam Iyengar Sons, and in the case of Solid Containers Ltd. Vs. DCIT Others (supra) have no application to the facts of the case. 5. On the other hand, the learned DR submitted that the facts are not clear and that the purpose for which the loans were taken and how the loans were utilized, therefore, the matter may be remitted to the file of the AO for fresh decision. He supported the orders of the authorities below. 6. We have heard both the parties, perused the record and gone through the orders of the authorities below as well as the decisions cited. The assessee had borrowed the loans from two banks namely IDBI and State Bank of Hyderabad. 7. As far as the term loan from IDBI is concerned, the assessee had borrowed the said term loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not in respect of loss, expenditure or trading liability. Lastly the toolings constituted capital assets and not stock-in-trade. Therefore, taking into account all the above facts, section 41(1) of the Act was not applicable. Held also, (i) that for the purposes of depreciation roads are buildings and not plant. 9. In the present case, the term loans received by the assessee from the IDBI Bank is to acquire capital asset and, therefore, the waiver of such term loan does not constitute business and the waiver cannot be held as income u/s.28(iv) or cessation of liability u/s 41(1). 10. Coming to the decision of Solid Containers Ltd. (supra), the facts are entirely different and the loan therein was taken for trading activity and ultimately on waiver of the amount was termed as business income of the assessee. 11. In this connection, the Cochin Bench of the Tribunal in the case of Accelerated Freez Drying Co. Ltd. (supra) has considered a similar issue of waiver under one time settlement scheme and it held as follows :- It is a trite law that the nomenclature given by an assessee to a particular account in its books of account is not the sole test to decide the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any loss or expenditure. There was no doubt in the instant case that the assessee never had the benefit of deduction of the term loans availed by it from the banks on capital account. Therefore, section 41(1) had no applicable to the facts of the instant case. [Para 32] In the facts and circumstances of the case, the waiver amount of term loans availed by the assessee did not partake the character of assessable income either under section 28(iv) or under section 41(1).[Para 35] Accordingly, the Assessing Officer was to be directed to exclude the waiver amount in computing the assessable income of the assessee. [Para 37]. In the result, the appeal filed by the assessee was to be allowed. [Para 38] 12. The order of Cochin Bench in the case of Accelerated Freez Dying Company Ltd. (supra) squarely applies to the facts of the case under consideration. The judgment in the case of T.V. Sundaram Iyengar and Sons Ltd. (supra) also does not apply to the facts of the case as in that case deposits were received in the course of carrying on of trading and business of the assessee. 13. Coming to section 28(iv), it is a general section, and all receipts cannot be consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground No. 2 raised by the assessee in respect of the addition of Rs. 2,00,000/-on account of bad debts u/s 36(vii) of the Act, the AO disallowed the claim of the assessee on the ground that the assessee had not established that the debt have become bad and that the amount claimed as bad debts had not been offered to tax in the earlier years. On appeal, before the CIT(A) the learned AR of the assessee contended that the bad debts written off were included in the sales of earlier years and offered to tax. He further submitted that the matter was remanded to the AO for verification and in his remand report dated 17/03/10, after considering the ledger a/c of the respective debtors and the respective sales invoices, the AO had reported that the bad debts written off were in fact offered to tax in earlier years. It was submitted that however the AO had raised an objection that out of Rs. 28,98,326/-, amount of Rs. 2 lakhs was paid on account of tender deposit and that no evidence or confirmation letter had been filed to evidence the said claim. After considering the submissions of the assessee and the remand report of the AO as well as the decision of the Hon ble High Court of Mumba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WDV of the assets by the principal amount of loan waived without appreciating the facts that the AO had rightly reduced the principal amount of loan written off of Rs. 4,91,16,833/- from the WDV of building, plant and machinery by invoking explanation (1) to section 43(1) of the Act. 21. The AO reduced the principal amount of loan written off of Rs. 4,91,16,833/- from WDV of building, Plant Machinery and thereby arriving at the closing WDV at Rs. Nil by invoking explanation (10) to s. 43(1) of the Act, observing that cost of assets is reimbursed by IDBI and SBH to the extent of the waiver of the loan amount. On appeal, before the CIT(A) the learned AR of the assessee submitted that it had obtained loan from financial institution and bank which are repayable with interest as per the terms of such loan arrangement. He further submitted that these loans are neither a subsidy nor a grant nor a reimbursement and hence explanation (10) to s. 43(1) of the Act, is not applicable. It was submitted that reimbursement of such loan liability under an agreed scheme/arrangement could not be termed as subsidy or grant meant for meeting cost of part of plant machinery. The learned AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced by the amount of loan waived by the banks., is in consonance with the judgment of the Hon ble High Court of Kerala in the case of CIT Vs. Kochin Co. P. Ltd. (supra). The relevant portion of the said judgment is extracted below: The short question that arises for consideration I whether, on the facts of this case, section 43(1) of the Income Tax Act is attracted. The said section provides that actual cost means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. Counsel for the Revenue stressed the fact that when Atlanta Corporation wrote off the amounts due from the assessee, which included at least a portion of the liability of the assessee, towards the purchase of the machinery in 1968, it should be considered that Atlanta Corporation met either directly or indirectly the cost of such machinery and so the ITO was justified in his view that in working out the written down value for the assessment year, he should reduce from the original cost the sum of Rs. 2,56,757 and also the depreciation actually allowed to the assessee in the past. We are unabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, therefore, the above Explanation is not applicable to the case of the asssesee. In view of the above, we do not find any infirmity in the order of the CIT(A) and the same is hereby upheld and the ground of revenue is dismissed. 28. Ground No. 3 is of the revenue is directed against the action of the CIT(A) in directing the AO to delete the disallowance of Rs. 1,93,28,886/-. 29. The AO observed that the assessee had written of stock of finished goods of Rs. 1,93,28,886/-. The AO had referred to the technical report furnished by the assessee as per its letter dated 11/11/2008 wherein it was reported that trial production of high value added caster oil was of substandard quality with respect to its colour content. The AO held that the defect appears to be nearly one of colour therefore the assessee could have very well sold the goods at discounted rates. He also held that no evidence was furnished to prove that the said goods had been rejected by customers. Therefore, on the ground that the stock of goods had been written off on its own volition and that the said goods cannot be treated as unsaleable for the reasons as mentioned, the AO declined to allow the write off o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the fact that the said products were rejected by the buyers thereby running up a bad debt of Rs. 28,98,326/-. These facts prove that the goods are not of required quality and standard. Under the circumstances, it is held that the appellant was compelled by commercial considerations to write off the stock of Rs. 1.93 crore and therefore, the addition made of Rs. 1.93,28,886/- on account of finished goods written off is hereby deleted. This ground is allowed . Aggrieved, the revenue is in appeal before us. 31. Before us, the learned DR besides relying on the order of AO submitted that before the AO the assessee has not filed any evidence to prove that the goods has been rejected by customers. He, therefore, submitted that the AO has rightly made the addition. 32. The learned counsel for the assessee, on the other hand, relied upon the order of the CIT(A). 33. After considering the submissions of the parties and perusing the record, we find that the CIT(A) before deleting the addition examined the facts of the issue on record and considered the technical report of the director submitted by the assessee and held that it is worthwhile to refer to the report of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise than revised return of income . 36. Before the CIT(A), the AR of the assessee submitted that the assessee had filed its return income for AY 2005-06 on 27/11/2006 and claimed carry forward of losses for set off in subsequent years. On the very next day i.e. on 28/11/06, the assessee had filed revised return of income and that the reasons for revising the return had been discussed and communicated to the AO during the assessment proceedings vide its letter dated 11/11/2008. He contended that the AO had refused to given set off of brought forward losses on the decision of Hon ble Supreme Court in the case of Goetz India Ltd. in support of the refusal to allow the set off of brought forward losses. The learned AR submitted that the assessee had claimed brought forward losses in the original return of income filed and, therefore, the set off of brought forward losses or unabsorbed depreciation has to be allowed as per assessment records irrespective of the assessee s claim in the return of income since it is consequential in nature. After considering the submissions of the assessee, the CIT(A) held as under:- 8.3 I have considered the submissions, the remand report of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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