9911796707
TMI Blog2006 (2) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... ued thereon as on 31st March, 2000 was Rs. 8,81.97,482 which comprised of principal loan amount of Rs. 5.20 crores and the balance amount of Rs. 3,61,97,482 represented unpaid but accrued interest thereon. 3. Since the assessee-company had been consistently incurring operating losses since the year 1995-96 and had accumulated losses to the extent of Rs. 6,80,97,003 along with preliminary expenses of Rs. 42,62,447 against a share capital of Rs. 9,99,80,000 thereby erasing the paid-up capital of the assessee-company by more than 70 per cent, the lender company M/s IFB Industries Ltd. (in short IFBI) vide an agreement dt. 9th Aug., 2000 assigned its unsecured loan together with interest due from the assessee-company to Nurpur Gases Ltd. (in short NGL). After such assignment of unsecured loan by IFBI, M/s NGL approached the assessee-company for a compromise and settlement of the dues which finalized on 10th Nov., 2000. The said compromise and one-time settlement finalised between the assessee-company and M/s NGL stipulated that the assessee-company shall pay a sum of Rs. 352.45 lakhs only towards outstanding interest of Rs. 3,61,97,482 and M/s NGL shall waive the entire principal amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded before the learned CIT(A) that the AO while making the addition has basically doubted the compromise between the assessee-company and M/s NGL observing that the same has been made just to accommodate the assessee. The assessee contended that the legality of the position would have not been different at all even if the assessee-company would have entered into compromise/settlement with IFBI. It was, therefore, pleaded by the assessee before the CIT(A) that the entire waiver of unsecured loan of Rs. 5.20 crores was an item of capital receipt which was not liable to tax under s. 41(1) of the IT Act, 1961. The assessee also submitted the opinion report from M/s Price Water House Co. before the CIT(A) in support of its above contention. 7. The learned CIT(A) after considering the above submission of the assessee and the opinion report of M/s Price Water House Co. has observed that the above submission of the assessee and the opinion basically relates to a situation where one-time settlement had been made between the two parties, i.e., loan debtors and creditors and relates to outstanding principal loan amount including interest which had been written off from the accounts of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest outstanding, the action of learned CIT(A) in upholding the action of AO by first adjusting the payment towards the principal amount is highly unjustified and against the terms of settlement agreement between the parties. 10. The learned counsel for the assessee has stated that M/s NGL has agreed to accept a sum of Rs. 352.45 lakhs towards one-time settlement of the entirety of such loan and interest as per cl. 1 sub-s. (a) of the settlement agreement between the assessee and M/s NGL. It was further contended by the learned Authorised Representative that above clause clearly speaks about the fact that such payment of Rs. 352.45 lakhs will be adjusted towards outstanding interest and, therefore, the action of AO and learned CIT(A) in first adjusting the payment towards the principal amount is without any basis and against the contents of settlement agreement between the parties. The learned counsel for the assessee has also filed paper book wherein the balance sheet of the assessee-company, deed of agreement between the assessee and M/s NGL and other document has been filed. 11. The learned counsel for the assessee has vehemently argued that once the agreement is on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in case of Gopi Ram Govinda Ram, In re (1936) 4 ITR 157 (Cal). 13. The learned counsel for the assessee has thereafter contended that waiver of loan by the creditors cannot be taxed under s. 41(1) of the Act as the same is outside the scope of this section. The learned counsel has submitted that remission of liability in case of loan cannot be taxed in the hands of the assessee as evident from the plain reading of the said section and as also decided by this Tribunal in case of Nisha Singhania Ors. vs. ITO in ITA No. 538/Kol/2001, dt. 28th Jan., 2005. The learned counsel has pleaded that though the assessee has cited various judgments before the learned CIT(A). Same have been rejected by CIT(A) holding that waiver of loan by M/s NGL is trading receipt in the hands of the assessee which is liable to be taxed under s. 41(1). It has been vehemently argued by the learned counsel that there cannot be any trading receipt on account of waiver of loan, hence finding of AO and learned CIT(A) while assuming the above waiver of loan as trading receipt in the hands of the assessee is wrong. In support of his contention, he has relied on the decision of the Hon'ble Bombay High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified. In support of his argument, he has relied on the following judgments: (i) In case of Express Newspapers (P) Ltd. vs. CIT (1997) 138 CTR (Mad) 12 : (1997) 227 ITR 325 (Mad); (ii) In case of CIT vs. Manohar Bandhu (1983) 37 CTR (Bom) 184 : (1984) 148 ITR 108 (Bom); (iii) In case of CIT vs. T. V Sundaram Iyengar Sons Ltd. (1996) 136 CTR (SC) 444 : (1996) 222 ITR 344 (SC); (iv) In case of CIT vs. Aries Advertising (P) Ltd. (2002) 175 CTR (Mad) 630 : (2002) 255 ITR 510 (Mad). It has, therefore, been submitted by the learned Departmental Representative that the order of learned CIT(A) be upheld. 16. In his rejoinder, the learned counsel for the assessee has submitted that the case laws relied by the learned Departmental Representative are not identical to the fact involved in this case. It has further been submitted by the learned counsel for the assessee that so far as the trading transaction is concerned, the same may be the trading transaction for M/s NGL but certainly not for the assessee. 17. We have given our careful consideration to the rival submission made before us and have perused the orders of tax authorities. We. have also considered the case laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof. the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in, that year or not; or (b) the 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 cl. (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le wherein it was held by their Lordships as under: "The assessee-company had an option to allocate the amount received back from the debtors either towards the capital or towards the interest. In this case, it was allocated towards the capital. It is not the case that the law does not permit such adjustment when the amount is received from the debtors towards the capital and the creditors also want to do so. It is only where neither the debtor nor the creditor makes any appropriation either to capital or interest! that it would be open to the Revenue to treat the payment as applicable to outstanding interest. This is the settled position of law in case of CIT vs. Maharajadhiraja Kameshwar Singh of Darbhanga (1933) 1 ITR 94 (PC). In the instant case, the payment is not an open one and the assessee as the creditor had appropriated it to principal. leaving no room for controversy. The principle laid down by the judicial committee has been explained and reiterated by the Supreme Court in CIT vs. T. S. PL. P. Chidambaram Chettiar (1971) 80 ITR 467 (SC)." Apart from above, we also find that the identical case came before the Hon'ble Calcutta High Court in case of Gopiram Gobindram w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uspicion and without bringing any material, evidence on record to controvert such settlement deed entered by the assessee with M/s NGL, the above action of learned CIT(A) in confirming the addition of Rs. 520 lakhs was unjustified, since the assessee in this case has disclosed all the relevant facts and material available on record and has accordingly maintained the books of account as per agreement and the objection raised by the AO and CIT(A) on such agreement between the parties considering the same as a tool of tax evasion was not at all justified as the assessee is at liberty to manage its affairs in a manner of tax planning and if the tax planning is lawful then it would be incorrect to allege the deliberate intention and device of the income, as also observed by the Hon'ble Calcutta High Court in case of Modest Enterprises vide para 9 of its order. 23. We, therefore, after perusing the facts, considering the argument and also after going through the various decisions of Tribunals and High Courts including that of Hon'ble Calcutta High Court find that there is no dispute to the fact that the assessee has passed various entries in its books of account as per settlement agree ..... X X X X Extracts X X X X X X X X Extracts X X X X
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