Principal Commissioner Of Income Tax-O9 Vs. M/s Tinna Finex Ltd.
April, 05th 2016
IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on: 15.02.2016
+ ITA 113/2016
PRINCIPAL COMMISSIONER OF INCOME TAX-O9 ..... Appellant
M/S TINNA FINEX LTD. ..... Respondent
Advocates who appeared in this case:
For the Appellant : Mr Zoheb Hossain and Mr Dileep Shivpuri
For the Respondent : Mr Pranjal Srivastava
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.K. GAUBA
BADAR DURREZ AHMED, J (ORAL)
1. This appeal has been preferred by the revenue against the order dated
26.06.2015 passed by the Income Tax Appellate Tribunal in ITA No.
3584/Del/2012 pertaining to the assessment year 2009-10. The revenue is
aggrieved by the decision of the said Tribunal inasmuch as the Tribunal has
dismissed the appeal filed by the revenue against the order of the Commissioner of
Income Tax (Appeals) who had deleted the addition of Rs 5,64,85,956/- made by
the Assessing Officer under Section 41(1) of the Income-tax Act, 1961.
ITA 113/2016 Page 1 of 6
2. The respondent company is engaged in the business of finance and export.
In the year in question there was no business activity except for the receipt of
interest and some hire charges. Against the gross receipts of Rs 6,54,900/- the
respondent company claimed an expenditure of Rs 10,83,949/- resulting in a loss
of Rs 4,29,049/-.
3. During the assessment proceedings the Assessing Officer noted that an
amount of Rs 5,64,85,956/- shown as secured and unsecured loans as on
31.03.2008 in the balance sheet of the respondent company was reduced to Nil as
on 31.03.2009. The assessee was asked to explain this change and in response the
respondent / assessee indicated that this was based upon a family settlement
between the group members. The respondent / assessee submitted that no trading
transaction was involved in the writing off the said loans and, therefore, the
provisions of Section 41(1) of the Income-tax Act would not be attracted.
However, the Assessing Officer invoked the provisions of Section 41(1) of the said
Act and made an addition of Rs 5,64,85,956/- to the income of the assessee and
completed the assessment under Section 143(3) of the said Act by virtue of his
order dated 28.12.2011.
4. As pointed out above, the Commissioner of Income Tax (Appeals) deleted
the addition made by the Assessing Officer and found that Section 41(1) of the
said Act was not attracted. Against the said decision, the revenue filed an appeal
ITA 113/2016 Page 2 of 6
before the Income Tax Appellate Tribunal which has been dismissed by the said
Tribunal by virtue of the impugned order dated 26.06.2015. The Tribunal placed
reliance on, inter alia, a decision of this court in Commissioner of Income-tax-III
v. Shivali Construction (P) Ltd, 355 ITR 218. The Tribunal after examining the
factual circumstances observed as under:
"8.3 After going through the provisions of section 41(1) of
the Income-tax Act, we find that the same are not applicable
to the facts of the assessee case. We also find that the AO has
made the addition of Rs 5.64 crores by invoking provision of
sec. 41(1) of the Income-tax without stating how the provision
are applicable to the assessee's case. Mere cessation of
liability does not result into fit case of sec. 41(1) of the I.T
Act. Assessee has submitted that assessee was not incurred
any loss/expenditure/trading liability which is subsequently
recovered by him is taxable as income in the year of recovery.
We find that the assessee is squarely covered by the following
judgments wherein it has been held that whenever, an amount
is borrowed towards capital account and the loan is waived
off, the same cannot be brought to tax net either in terms of
sec-41(1) or 28(iv) of the Act. The same observation was
mentioned by the Ld. CIT(A) in his impugned order at page
no. 11 and Ld. CIT(A) also placed reliance on the following
cases of this issue:
(i) CIT vs. Tosha International Ltd. (176
taxman 187) (Del.)
(ii) Govind Bhai C Patel vs. DCIT (ITA No.
1675/AHD/2009) dated 30.10.2009 (ITAT
(iii) CIT vs. Phool Chand Jiwan Ram (131 ITR
ITA 113/2016 Page 3 of 6
(iv) CIT vs. Compaq Electric Ltd. (ITA No. 172
of 2011 dated 18.10.2011) (Karnataka HC)
(v) CIT vs. Chetan Chemicals Pvt. Ltd. (267
ITR 770) (Guj.)
(vi) Mahindra & Mahindra Ltd. vs. CIT (261
ITR 501) (Bom.)
(vii) CIT-3 vs. M/s Cipla Investments Ltd. (ITA
No. 6988 of 2012, dated 07.02.2012) (HC of
8.4 We further note that it is well settled law that where no
deduction / allowance has been made in respect of loss,
exp/liability in the assessment year or in any earlier years,
cessation of such liability cannot be taxed under section 41(1)
of the Income Tax Act. To Support this finding, we place
reliance on the following judgments:-
i. CIT-III vs. Shivali Constructions P. Ltd. 355 ITR
218 dated 01.05.2013, (Delhi High Court)
ii.CIT-II vs. National Diary Development Board
Gujarat HC 49 Taxman.com 316 (ITA Appeal
No. 195 of 2014) dated 06.05.2014.
8.5 In view of the above, we find that the AO has not
disputed the facts brought on record by the assessee company.
In our opinion, the liability of Rs 5,64,85,956/- as on
01.01.2009 in favour of M/s Tinna Overseas Ltd., was no
longer required to be paid in view of the settlement. Similarly
the assessee had foregone the investment in the shares and
loan totalling to Rs. 1,08,41,345/- as per the terms of the
settlement. The net gain to the assessee is Rs 4,56,44,611/-.
The assessee has clearly established that the adjustments are
on capital side and there is no case for invoking provisions of
ITA 113/2016 Page 4 of 6
sec 41(1) since the liability waived by the creditor was never
claimed as revenue expenditure.
8.6 Keeping in view of the facts and circumstances and the
precedents, as explained aforesaid, we find considerable
cogency in the finding of the ld. CIT(A) that the addition
made by the AO cannot be sustained. Therefore, we do not
see any reason to interfere with the finding of the Ld. CIT(A)
on the issue in dispute, hence, we uphold the same."
5. The Tribunal has, in our view, correctly followed the decision of this court
in CIT v. Shivali Construction (supra). The loan transactions were on the capital
account and the writing off the loan was also on capital account and did not find
place in the Profit and Loss Account. Apart from this it has been found as a matter
of fact that the respondent / assessee had not got the benefit of any allowance or
deduction in the assessment for any prior year in respect of loss, expenditure or
trading liability incurred by the respondent / assessee. Thus the cessation of the
liability by itself would not lead to the attraction of the provisions of Section 41(1)
in the subsequent year (i.e., the assessment year in question) when the liability
ceased to exist.
6. The Tribunal having correctly applied the law and followed the decision in
Shivali Construction (supra), cannot be faulted in its decision which is impugned
before us. A similar decision of this court is also reported in Commissioner of
Income-Tax v. Tosha International Ltd, (2011) 331 ITR 440. Since the issue on
ITA 113/2016 Page 5 of 6
law already stands settled by the said decisions of this court, no substantial
question of law arises for our consideration.
7. The appeal is dismissed.
BADAR DURREZ AHMED, J
FEBRUARY 15, 2016 R. K. GAUBA, J
ITA 113/2016 Page 6 of 6