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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B” : HYDERABAD
Before: SHRI S.S.GODARA & SHRI LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B” : HYDERABAD (THROUGH VIDEO CONFERENCE)
BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
I.T.A. No. 1265/HYD/2019 Assessment Year: 2005-06 Jt.Commissioner of M/s.Navabharath Income Tax (OSD), Vs Enterprises Limited, Circle-5(1), HYDERABAD HYDERABAD [PAN: AAACN6936D] (Appellant) (Respondent) For Revenue : Shri Rohit Mujumdar, DR For Assessee : Shri Ramesh Chand Jain, AR
Date of Hearing : 07-04-2021 Date of Pronouncement : 21-05-2021
O R D E R PER S.S.GODARA, J.M. :
This Revenue’s appeal for AY.2005-06 arises from the CIT(A)-4, Hyderabad’s order dated 28-05-2019 passed in appeal No.10380 / DCIT, Cir.16(1) / 18-19 / CIT(A)-4 / Hyd / 19-20 in proceedings u/s.143(3) r.w.s.147of the Income Tax Act, 1961 [in short, ‘the Act’]. Heard both parties. Case file perused.
We notice at the outset that the Revenue’s instant appeal suffers from 01 day’s delay stated to be attributable to the reason(s) beyond the control as per condonation
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petition/affidavit dt.18-02-2021. The impugned delay is condoned therefore.
The Revenue has proposed the following substantive grounds in the instant appeal:
“1. Whether on the facts & in the circumstances of the case, the Ld.CIT(A) was right in deleting the addition of Rs.1,75,91,121/- towards remission of liability u/s.41(1) of the Act neither providing opportunity for AO for verification of facts of case u/s.250(2)(b) of the Act nor forwarding the additional information to AO for verification which are contrary to the provisions of Rule 46A of IT Rules? 2. Whether on facts and in the circumstances of the case, the Ld.CIT(A) was right in deleting the addition of Rs.1,75,91,121 towards remission of liability u/s.41(1) of the Act merely on the grounds that the interest was not claimed as deduction in earlier years? 3. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was right in holding that the amount representing the principal loan amount waived by the bank under the one time settlement scheme which the assessee received during the course of its business is not exigible to tax? 4. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) ought to have seen that the waiver of principal amount would constitute income falling u/s.28(iv) of the IT Act being the benefit arising for the business?”
Both the parties next took us to the CIT(A)’s detailed discussion deleting the impugned Section 41(1) addition towards remission of liability as follows:
“5. Ground no.1 is with regard to addition of Rs.1,75,91,121/- towards remission of liability u/s 41(1) of the Act. While doing this, the AO has observed as under: During the previous year, the assessee benefited by waiver of interest for an amount of Rs.1,75,91,121/- as part of one time settlement with financial institutions. When the assessee was asked why the amount was not offered to tax u/s 41(1) of the Act, the assessee replied that the interest was not claimed as deduction in the earlier years. In this regard, it must be held that the assessee is under obligation to show that the amount has not been claimed as deduction. Since the
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assessee failed to do so, the interest of Rs.1,75,91,121/ - is brought to tax. 5.1 With regard to the above issue, the appellant submitted as under: The AO without verifying the information furnished by us before him passed assessment order by disallowed the gain on one time settlement of loan with Union Bank of India and Vijaya Bank as Remission of Interest and brought to tax u/s. 41(1) of the Act. If we go into the financial statements of previous years, we can find that the Assessee has not provided interest on loans in the previous years and claimed as expenditure. The same has been explained to the Assessing Officer during the assessment proceedings vide letter dated 23.12.2010. The gain raised is of a capital Liability to the assessee. Hence the waiver of capital liability would not be Income u/s.41(1) on the ground of remission or cessation thereof. We are herewith furnishing the annual reports of the Assessee since the financial year 1998-99 to 2004-2005 for your verification. We Appeal your good selves to have a look into "Schedule annexed to and forming part of balance sheet - Schedule C-Secured Loans" where you can observe that, there is no difference between opening & closing Balance of loans. It clearly indicates that the Assessee has not provided any interest on settled loans and claimed as expenditure in the previous years. We also appeal your Hon'ble selves to have a look into profit & loss account "interest column" which is showing "Nil". It is clear cut Evidence that the assessee has not provided interest in the previous years. When the company has not claimed the interest expenditure in the previous years it cannot be treated as trading liability. Hence section 41 (1) of Income tax Act 1961 cannot be applicable. We would like to quote circular 636 and some of the Tribunal Decisions for your reference: a.The Circular no. 636 dated 31.08.1992 is herewith enclosed for your reference. b.Definition of Trading Liability. c.Coastal Corporation Limited Vs JCIT (ITA No. 407/Vizag/2006) d.Accelerated freeze and drying company Ltd Vs DCIT (ITA No.971/Coch/2008). e.Form no: 3CEA. f.Therefore we humbly pray your Hon'ble self to allow our Appeal by consideration the Rs.1,75,91,121/ - as capital Liability.
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5.2 I have carefully considered the facts of the case, assessment order and the submissions of the AR in this regard. In this case, the main issue is with regard to addition of Rs.1,75,91,121/- towards remission of liability u/s 41(1) of the Act. However, the appellant contended that the interest was not claimed as deduction in the earlier years also. In this regard, the AR furnished the Annual Reports of the appellant for the last 07 (seven) years for verification and was verified and found correct. Since the interest was not claimed as deduction by the appellant the AO's action of addition of Rs.1,75,91,121/- u/s 41(1) of the Act is not correct and hence, directed to be deleted and the ground raised in this regard is allowed”.
We have given our thoughtful consideration to rival submissions against and in support of correctness of the CIT(A)’s conclusion deleting the impugned Section 41(1) remission of liability addition. It emerges that the CIT(A)’s sole reason for deleting the same is that the assessee’s annual reports of the preceding seven assessment years had made it clear that the impugned sum of Rs.1,75,91,121/- had never been claimed as ‘business expenditure’ so as to be exigible to Section 41(1)’s remission (supra). There is no rebuttal from the Revenue’s side qua this clinching aspect. We thus uphold the CIT(A)’s conclusion deleting the impugned addition.
This Revenue’s appeal is dismissed.
Order pronounced in the open court on 21st May, 2021
Sd/- Sd/- (LAXMI PRASAD SAHU) (S.S.GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 21-05-2021 TNMM
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Copy to : 1.Jt.Commissioner of Income Tax(OSD), Circle-5(1), Hyderabad. 2.M/s.Navabharath Enterprises Limited, Road No.3, Banjara Hills, Hyderabad. 3.CIT(Appeals)-4, Hyderabad. 4.Pr.CIT-4, Hyderabad. 5.D.R. ITAT, Hyderabad. 6.Guard File.