DCIT CENTRAL CIRCLE 2(1), PUNE vs. M/S. VEENA INDUSTRIES LTD,, PUNE

आदेश / ORDER

PER R.S. SYAL, VP :

This appeal by the Revenue arises out of the order dated

28-10-2019 passed by the CIT(A)-12, Pune in relation to the

assessment year 2013-14.

deletion of addition of Rs.19.61 crore.

into one time settlement with two banks, namely, HSBC Bank and

Barclays Bank PLC. As per the assessment order, qua HSBC bank total amount due as on 09-10-2012 was Rs.8,50,98,162/-, which

2 IT(SS)A No.02/PUN/2020 M/s. Veena Industries Limited

was settled against payment of Rs.2,25,00,000/-. Anent to Barclays

Bank PLC, the total amount outstanding as on 18-02-2013 was

Rs.23,70,70,277/-, against which settlement was made for Rs.5.00

crore. The AO called upon the assessee to explain as to why the

differential amount, waived by the banks, should not be charged to

tax? The assessee submitted that it was in the nature of capital

receipt and hence not liable to tax. Not convinced, the AO invoked

the provisions of section 41(1) of the Act and held the total amount

of waiver of Rs.24,96,68,439/-, being, the differential amount,

chargeable to tax. The ld. CIT(A) held that only the interest

component, in respect of which deduction was claimed by the

assessee in earlier years amounting to Rs.1,41,20,527/-, was liable

to tax u/s.41(1). Remaining amount of Rs.19.61 crore was held to

be not taxable. This is how, the Revenue has come up in appeal

before the Tribunal.

material on record. The crux of the matter is that the assessee

obtained certain loans from two banks, part of which along with the

interest thereon, was payable. Pursuant to the settlement with the

banks, the assessee was relieved from paying the amount that came

to be added by the AO u/s.41(1) of the Act. This section provides

that where an allowance or deduction has been made in the

3 IT(SS)A No.02/PUN/2020 M/s. Veena Industries Limited

assessment for any year in respect of loss, expenditure or trading

liability incurred by the assessee and subsequently during any

previous year, the assessee obtains some benefit by way of

remission or cessation thereof, such benefit accruing to the assessee,

shall be deemed to be the profits and gains of business and

accordingly chargeable to tax. The nitty gritty of the provision is

that the assessee should have claimed deduction towards any

expenditure or loss or trading liability in an earlier year and, when,

in a later year, the amount ceases to be payable or is remitted, then

the earlier allowed deduction becomes income chargeable to tax

u/s.41(1) of the Act. To put it straight, the condition precedent for

taxability of the remission or cessation under this provision is that

there should be some equivalent deduction in this or on earlier year.

This provision does not talk of the benefit received by way or

remission or cessation etc., which did not enter into the trading or

profit and loss account and was confined only to the balance sheet.

Here is a case in which the assessee received loan from two banks,

which remained in the balance sheet and thereafter such loan was

remitted to some extent. In our considered opinion, section 41(1) is

not attracted on such amount because it was not allowed as

deduction by means of loss or expenditure or trading liability in any

earlier year, which, on remission in the year under consideration,

4 IT(SS)A No.02/PUN/2020 M/s. Veena Industries Limited

could become chargeable to tax u/s.41(1) of the Act. The ld.

CIT(A) has rightly held that only the amount of interest which was

debited to the Profit and loss account of the assessee in the

current/earlier years amounting to Rs.1.41 crore, that was still

payable by the assessee at the time of remission and stood remitted

by the banks, was chargeable to tax and the remaining amount was

capital receipt that could not be covered within the ambit of section

41(1) of the Act. We, therefore, accord our imprimatur to the view

canvassed by the ld. CIT(A) on this score.

Order pronounced in the Open Court on 20th July, 2023.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 20th July, 2023 सतीश आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The respondent 2. 3. The Pr.CIT(Central), Pune 4. DR, ITAT, ‘B’ Bench, Pune गाड� फाईल / Guard file. 5.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

5 IT(SS)A No.02/PUN/2020 M/s. Veena Industries Limited

Date 1. Draft dictated on 18-07-2023 Sr.PS 2. Draft placed before author 19-07-2023 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *