COMMISSIONER OF INCOME TAX vs. SADEN VIKAS INDIA LTD.

Whether Reporters of local papers may be allowed to see the judgment?

To be referred to the Reporter or not?

Whether the judgment should be reported in Digest?

It appears that the assessee had received an order from Premier Automobiles Limited (PAL) for supply of components for Fiat Automobiles manufactured by the latter. PAL advanced a sum of Rs 50 lacs to the assessee towards capital cost to be incurred by the assessee for development/ procurement of tools, jigs, dies, fixtures and moulds required for manufacture of products by the assessee to be supplied by them to PAL. Immediately after the said order was placed and the said sum of money was advanced by PAL, a strike took place in the plant of PAL at Kurla, as a result of which PAL had to suspend production and all transactions. Consequently, PAL requested the assessee to subscribe the amount of Rs 50 lacs advanced by the former to the latter in debentures of PAL‟s sister concern, namely, PAL Enterprises Private Limited (hereinafter referred to as „Enterprises‟). Consequent to the said request by PAL, the assessee invested the said sum of Rs 50 lacs in 12% optionally convertible debentures of Enterprises. However, both PAL and Enterprises ran into difficulties and the assessee never received any interest from Enterprises and even the prospect of recovery of the maturity value of the debentures became uncertain. In this context, the Board of Directors of the assessee company considered the question of writing off the said amount of Rs 50 lacs and it was decided that the said amount be written off both in the debit and credit side of the balance sheet. The assessee‟s stand throughout has 2010:DHC:209-DB

The Assessing Officer, however, did not agree with the explanation given by the assessee and made the addition of Rs 50 lacs, invoking the provisions of Section 41(1) of the said Act. The Commissioner of Income Tax (Appeals) decided in favour of the assessee and deleted the addition. It was held that as no income ever accrued nor any benefit was obtained by the assessee in the said transaction, no income in the form of cessation of liabilities arose in the present case. The Commissioner of Income Tax (Appeals) also returned a finding that there was no indication or material on the basis of which the assessee could be said to have derived any income or benefit from the sum of Rs 50 lacs received from PAL. It was concluded that there was no finding by the Assessing Officer that the assessee was allowed any deduction or allowance in respect of the said sum of Rs 50 lacs in the past assessment years so as to tax it under the provisions of Section 41(1) of the said Act and, therefore, it was concluded that the assessee was entitled to write off the said amount.

The said view was accepted by the Income Tax Appellate Tribunal also. We have examined the impugned order and we find that the Tribunal has set out the facts in detail and also examined the relevant terms in respect of the advance of Rs 50 lacs which are mentioned in the letter dated 22.05.1996. The said terms have been set out in the impugned order itself. The Tribunal noted that from the said terms it was clear that the assessee had received the sum of Rs 50 lacs only on the capital account for 2010:DHC:209-DB

We are of the view that the Tribunal has arrived at a correct conclusion and has correctly appreciated the provisions of Section 41(1) of the said Act. No error can be discerned from either the order of the Commissioner of Income Tax (Appeals) or that of the Income Tax Appellate Tribunal. In any event, no substantial question of law arises for our consideration.