IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH ‘B’: NEW DELHI
(Through Video Conferencing)

BEFORE,
SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER

AND
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER

ITA No.3817/Del/2019
(ASSESSMENT YEAR 2012-13)

Delhi Call Centre Private Dy.CIT
Circle-7(1),
Limited New Delhi.

1-10 Lajpat Nagar-II Vs. (Respondent)

New Delhi-110 024.

PAN –AABCD 9233C
(Appellant)

Appellant By Dr. Rakesh Gupta, Adv.

Sh. Somil Agarwal, CA

Respondent by Sh. Jagdish Singh, Sr. DR

Date of Hearing 17.12.2020

Date of Pronouncement 16.03.2021

ORDER
PER SUDHANSHU SRIVASTAVA, JM:

This appeal is preferred by the assessee against order

dated 28.02.2019 passed by the Learned Commissioner of Income

Tax (Appeals)-34, New Delhi {CIT(A)} for Assessment Year 2012-13.
2 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

2.0 The brief facts of the case are that the assessee

company was engaged in the business of running a Call Center in

earlier Assessment Years, although the assessee was no longer in

operation during the year under consideration. The return of

income was filed declaring a loss of Rs.47,44,408/-. Subsequently,

the return was revised declaring income at Rs. NIL. The case was

selected for scrutiny and subsequently, the assessment was

completed at an income of Rs.3,17,71,620/- after allowing set off of

brought forward losses amounting to Rs.1,03,64,510/- and after

making the following additions and disallowances:

(i) Disallowance of depreciation: Rs.4,46,250/-

(ii) Notional interest: Rs.5,25,000/-

(iii) Write back of Sundry Creditors: Rs.4,37,38,637/-

(iv) Difference in computation

of short term capital loss: Rs.21,70,651/-

2.1 Aggrieved, the assessee approached the Ld. First

Appellate Authority, who was pleased to adjudicate the appeal of

the assessee as under:
3 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

(i) The disallowance of depreciation on Car amounting to

Rs.4,46,250/- was upheld.

(ii) The Notional interest added to the income of the assessee

amounting to Rs.1,20,000/- was also confirmed.

(iii) The challenge to addition pertaining to writ back of sundry

creditor amounting to Rs.4,37,38,637/- was sustained to the extent

of Rs.2,56,68,848/- and the balance addition of Rs.1,80,69,789/-

was deleted.

(iv) The short term capital gain was confirmed to the extent of

Rs.2,56,68,648/-.

2.1 Aggrieved, the assessee is now before this Tribunal

challenging the order of the Ld. CIT(A). The following grounds have

been raised by the assessee in this regard:

“1. That on the facts and in the circumstances of the case

the learned CIT(A) was not justified in upholding the

disallowance of depreciation on car amounting to Rs.4,46,250/-

2. That on the facts and in the circumstances of the case

the learned CIT(A) was not justified in sustaining the

disallowance of Rs.1,20,000/- on account of notional interest.

3. That the learned CIT(A) has grossly erred in law in

reducing the liability of unpaid creditor of Rs.4,37,38,637/- from
4 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

the opening WDV of Block of Licence of Rs.1,19,78,771/- and
sustaining an addition of Rs.2,56,68,848/- u/s 50 of the Act.

3.1 That the learned CIT(A) ought to have appreciated that

the write back of creditor for licence of Rs.4,37,38,637/- in

books was not taxable under the provisions of the Income Tax

Act.

3.2 That the learned CIT(A) failed to comprehend that write
back of creditor of Rs.4,37,38,637/- for licence and sale of
licence are two unrelated separate transactions.

4. That on the facts and in the circumstances of the case the
learned CIT(A) was not justified in upholding the addition of
Rs.21,70,651/- being the difference in the returned short term
capital loss of Rs.2,02,40,640/- and Rs.1,80,69,989/-, the
revised short term capital loss.”

3.0 The Ld. Authorized Representative (AR) submitted that

ground No.1 of the appeal challenges the action of the Ld. CIT(A) in

upholding the disallowance of depreciation on Car to the extent of

Rs.4,46,250/-, on the ground that the invoice of Car purchase was

not produced for verification. The Ld. AR submitted that although

the invoice could not be produced due to the reason of the relevant

papers having been filed with the financing bank, all the same the

Department had allowed interest on Car loan as deductible

expenditure and no disallowance had been made on account of Car
5 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

running expenses. It was submitted that, accordingly, it was

apparent that the Department had accepted that the car had been

used for the purposes of the business of the assessee company and,

therefore, although the invoice for the car purchase could not be

produced due to the reason of the same being in possession of the

financing bank, no disallowance of depreciation could have been

made.

3.1 In ground No.2, the assessee has challenged the addition

of Rs.1,20,000/- on account of notional interest on loan. It was

submitted that the aassessee had given a loan of Rs.10,00,000/- to

M/s Chander Rani Enterprises Ltd. and no interest had been

charged on this loan, but the Assessing Officer had made a notional

addition @ 12% on this loan. It was submitted that the

advance/loan had been given for the purposes of business of the

assessee company and, further, the assessee company had

sufficient reserves and shareholders’ funds to make the loan as

would be evident from the balance of the company. It was

submitted that the advance had not been made from any interest

bearing loan. Reliance was placed on numerous judicial precedents
6 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

for the proposition that if the assessee had sufficient interest free
fund at its disposal, no disallowance/addition can be made towards
notional interest on interest free advance/loan.

3.2 With respect to ground No.3, it was submitted that during

the year under consideration, the assessee had shown loss on sale

of fixed assets grossing to Rs.5,39,16,901/- and the net loss on sale

of assets at Rs.1,01,78,264/-. It was submitted that the Assessing

Officer had required the assessee to explain why the gross loss

should not be added back to the assessee’s income and it had been

submitted during the course of assessment proceedings that it

pertained to purchase of license which was specific to the business

of the assessee and since the assessee company had started

incurring losses, the asset value of the said license had become

redundant and the company was unable to pay for the cost of the

license to the company in United Kindom (UK). It was further

submitted before the Assessing Officer that the assessee company

had written back the amount of creditors at Rs.4,37,38,637/-

which related to the purchase of fixed assets and did not constitute

income of the assessee. It was further submitted that the provisions
7 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

of Section 41(1) of the Income Tax Act, 1961 (hereinafter called ‘the
Act’) would not apply as it was not a trading liability and further the
assessee had not claimed any deduction there from either in this
year or in earlier years. It was submitted that the entire loss on sale
of fixed asset amounting to Rs.5,39,16,901/- had been added back
in the computation of income by the assessee as was evident from
the copy of the computation placed in the Paper Book. It was
further submitted that write back of liability of Rs.4,37,38,637/-
being liability in respect of fixed assets was not taxable and only the
net sum of Rs.1,01,78,264/- has been added back. It was further
submitted that both the loss on sale of fixed assets as well as write
back of creditors has been duly reflected in Schedule 17 of the
Annual Accounts. The Ld. AR also submitted that what is the
taxable under the Income Tax Act is only Revenue receipts and that
receipts of capital nature are not taxed under the scheme of the Act.
Reliance was placed on numerous case laws on this issue also. The
Ld. AR also submitted that provisions of section 50 (1) & (2) of the
Act were not applicable in this case and, therefore, both the Lower
Authorities were incorrect in invoking the provisions in this regard.
8 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

3.3 With respect to Ground No.4, the Ld. AR submitted

that this ground challenged the action of the Ld. CIT(A) in

upholding the addition of Rs.21,70,651/- being the difference in

returned short term capital loss of Rs.2,02,40,640/- and

Rs.1,80,69,989/- i.e., revised short term capital loss. It was

submitted that in effect the assessee had not been allowed the

benefit of set off of brought forward loss.

4.0 Per contra, the Ld. Sr. Departmental Representative (DR)

placed reliance on the concurrent findings of both the Lower

Authorities and vehemently argued that the

disallowances/additions had been rightly made.

5.0 We have heard the rival submissions and have also

perused the material on record.

5.1 As far as Ground No.1 regarding disallowance on

depreciation is concerned, the only objection to the allowance of

depreciation by the Lower Authorities is that the assessee could not

produce copy of purchase invoice of the vehicle. It is undisputed
9 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

that the Department has allowed interest on vehicle loan as well as
has also allowed the expenditure towards car running. Thus, in
fact, it is accepted by the Department that the assessee has a
vehicle which is used for the business purposes. Although, the
assessee could have made efforts to obtain a copy of the purchase
invoice from the hypothecating bank and produced it before the
Lower Authorities, all the same, it is our considered opinion that
the assessee should not be penalized for his failure to produce the
purchase invoice, specially, when the Department has in principle
accepted the assessee’s claim of interest on car loan as well as
claim of Car running expenditure. Therefore, in view of the facts of
the case, we delete this disallowance.

5.2 As far as ground No.2 is concerned, it challenges the

addition on account of notional interest added to the income of the

assessee in respect of an amount of Rs.10,00,000/- advanced to

M/s Chander Rani Enterprises Pvt. Ltd.. We have gone through the

audited financial statements of the assessee and it is seen that the

share holders’ funds (Share Capital and Reserves & Surplus) as on
10 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

31st March, 2012 stood at Rs.4,88,60,427/- whereas the long term
borrowing stood only at Rs.11,84,274/- and the short term
borrowing stood at Rs.4,05,944/-. Thus, it can be safely concluded
that the advance of Rs.10,00,000/- given by the assessee was given
from interest free funds/reserves of the assessee. In such a
situation, we are unable to uphold the addition on account of
notional interest to the income of the assessee and we direct the
deletion of the same.

5.3 As far as the ground No.3 of the appeal is concerned,

the same challenges the action of the Ld. CIT(A) in reducing the

liability of unpaid creditors of Rs.4,37,38,637/- from the opening

written down value of block of license of Rs.1,19,78,771/- and

sustaining an addition of Rs.2,56,68,848/- u/s 50 of the Act. The

facts leading to this controversy are that during the year under

consideration, the assessee had shown loss on sale of fixed assets

grossing to Rs.5,39,16,901/- and the net loss on sale of assets at

Rs.1,01,78,264/-. The Assessing Officer had required the assessee

to explain why the gross loss should not be added back to the
11 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

assessee’s income and it had been submitted during the course of
assessment proceedings that it pertained to purchase of license
which was specific to the business of the assessee and since the
assessee company had started incurring losses, the asset value of
the said license had become redundant and the company was
unable to pay for the cost of the license to the company in United
Kindom (UK). It was further submitted before the Assessing Officer
that the assessee company had written back the amount of
creditors at Rs.4,37,38,637/- which related to the purchase of
fixed assets and the same did not constitute income of the assessee.
It has been argued that the provisions of Section 41(1) of the Act
would not apply as it is not a trading liability and further the
assessee has not claimed any deduction therefrom either in this
year or in earlier years. It has been submitted that the entire loss
on sale of fixed assets amounting to Rs.5,39,16,901/- has been
duly reflected in the audited financial statements (Schedule 17) and
that write back of liability of Rs.4,37,38,637/-, being liability in
respect of fixed assets was deducted therefrom and only the net
sum of Rs.1,01,78,264/- has been added back in the computation.
12 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

As far as the contention of the assessee regarding non-applicability
of Section 41(1) of the Act is concerned, we are in full agreement
with the same. The Hon’ble Apex Court in the case of CIT vs.
Mahindra And Mahindra Ltd. reported in [2018] 404 ITR 01 (SC)
has laid down that waiver on loan amounts to cessation of liability
other than the trading liability and it is neither taxable as perquisite
u/s 28 (iv) of the Act nor taxable as a remission of liability u/s 41(1)
of the Act. On similar reasoning the write back of sundry creditors
pertaining to purchase of assets would not constitute income of the
assessee. We have also gone through Note No.17 in Notes to the
Financial Statements and it is seen that in the audited financial
statements, the assessee has declared loss on sale of fixed assets of
Rs.5,39,16,901/- and has, thereafter, deducted the unpaid
creditors for license amounting to Rs.4,37,38,637/- and has thus
declared a net loss of Rs.1,01,78,264/- only. It is this, amount of
Rs.1,01,78,264/- which has been reflected in the computation of
income filed by the assessee. This, in our considered opinion, is not
correct. The fact remains that the assessee has finally paid an
amount which is much less than the agreed/ invoiced amount
13 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

towards the purchase of fixed assets. The amount less paid is
Rs.4,37,38,637/-. Thus, in fact, the actual cost of the fixed assets
to the assessee has been reduced by Rs.4,37,38,637/- and to this
extent the stand of the Department is correct that the assessee
should have reduced the cost of assets by the amount of
Rs.4,37,38,637/-. Further, we are in agreement with the contention
of the Ld. Authorized Representative that provisions of Section 50
(1) & (2) of the Act are not attracted in this case. As there has been
no transfer of assets in the present case, short term capital gains
cannot be computed in this case. Accordingly, this issue will have
to be re-examined by the Assessing Officer after duly taking into
account our directions that provisions of Section 41(1) and Section
50(1) & 50(2) are not attracted in this case. However, the amount of
sundry creditors written back i.e. Rs.4,37,38,637/- will have to be
reduced from the cost of fixed assets and Written Down Value
would have to be adjusted accordingly. Thus, Ground Nos.3, 3.1 &
3.2 have to be reconsidered and reexamined by the Assessing
officer. We direct that the same be done after giving adequate
opportunity to the assessee to present its case.
14 ITA No.3817/Del/2019

Delhi Call Centre Pvt. Ltd. vs. DCIT

5.4 Since, Ground No.4 is related to Ground No.3 of the

assessee appeal, the same is also restored to the file of the

Assessing Officer. The Assessing Officer is directed to allow set off

of brought forward losses as per law thereafter.

6.0 In the final result, the appeal of the assessee stands

allowed for statistical purposes.

Order pronounced on 16th March, 2021.

[

Sd/- Sd/-
(ANIL CHATURVEDI) (SUDHANSHU SRIVASTAVA)
ACCOUNTANT MEMBER
Dated: 16/03/2021 JUDICIAL MEMBER
PK/Ps
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT

ASSISTANT REGISTRAR
ITAT NEW DELHI