INCOME TAX ACT, 1961

Section 41(1)

Business income under section 41(1) - Remission or cessation of trading liability - Assessee claimed capital receipt writes back of advance against equity - Amount in question was never converted into equity shares upon occurrence of the financial closure of the project

Assessee showed total income after adding back the pre-operative expenses and against the total income arrived at, assessee reduced the same amount treating the same as 'capital receipt writes back of advance against equity' and declared total income at Nil. AO also observed that during previous year, a company D sold its 20% stake to V and took a decision not to recover the same from the company and received permission from RBI for retaining the monies received From D. AO alleged that amount written back to the statement of profit and loss account of the assessee company was the amount funded additionally by D and same was to be converted into equity shares and same was revenue receipt. Contention of assessee that the amount was capital receipt was not acceptable to AO. Held: At time of receipt of money and at time of written back amount received from D, it was revenue receipt and it never took the character of capital receipt as D took exit from the joint venture agreement before financial closure of the project and D did not claim or exercise any right or privilege against the assessee company regarding amount in question. Amount written back to the statement of profit and loss account of assessee was the amount funded additionally by D and same was never converted into equity shares upon occurrence of the financial closure of the project and thus, amount written back to the statement of profit and loss account by the assessee company was a revenue receipt and the liability against the assessee company stood ceased to exist when the amount was written off by D without any claim in future. Addition made by AO was correct and sustainable.

REFERRED : CIT v. Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392 (SC) : 2008 TaxPub(DT) 2302 (SC), CIT v. Maheshwari Devi Jute Mills Ltd. (1965) 57 ITR 36 (SC) : 1965 TaxPub(DT) 0312 (SC), Pr. CIT v. SICOM Ltd. ITA No. 1692 of 2017 dt. 21-1-2020 : 2020 TaxPub(DT) 0691 (Bom-HC), JSW Steel Ltd., (formerly known as Jindal Vijaynagar Steel Ltd.) v. Asstt. CIT & Vice-Versa 2017 TaxPub(DT) 651 (Mum-Trib) and CIT v. Karnal Co-operative Sugar Mills Ltd. (2000) 243 ITR 2 (SC) : 2000 TaxPub(DT) 625 (SC).

FAVOUR : Against the assessee.

A.Y. : 2013-14

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