The Commissioner of Income Tax vs M/s. Innvol Medical India Limited

T.S. Sivagnanam, J.—This Tax Case (Appeal) filed by the Revenue seeking admission is directed against the order of the Income Tax

Appellate Tribunal dated 14.02.2013 relating to the assessment year 2006-07 raising the following questions of law:--

Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the addition made on account of cessation of

liability u/s. 41(1) of the I.T. Act is not proper?

Whether on the facts and in the circumstances of the case the Tribunal was right in upholding the order of CIT(A) who held that cessation of

liability on account of one time settlement with IFCI and other creditors amounting to Rs. 4.93 crores cannot be subjected to tax u/s 28(iv) or u/s

41(1) of the I.T. Act?

The respondent/assessee is engaged in the manufacture of medical devices. On 02.02.2007, the assessee filed its return of income disclosing its

income as ''Nil''. Thereafter, summary assessment followed by scrutiny assessment was finalized on 19.12.2008 u/s 143(3) of the Income Tax Act,

1961 (hereinafter called as the ""Act""). On 15.03.2011, the Commissioner of Income Tax-I directed the Assessing Officer to decide about the

taxability of Rs. 4,93,97,793/- in the light of Section 41(1) read with Section 28(iv) of the Act. The Assessing Officer noticed from the assessee''s

annual report that the company operations were suspended during May 2002 and the factory was taken over by IFCI for unpaid dues; who sold

its equity shares of Rs. 61,20,478/-, which were pledged by the share holders; thereafter, the assessee opted for one time settlement and settled

for Rs. 185 lakhs against outstanding balance of Rs. 564.29 lakhs. Thereafter, the assessee wrote back an amount of Rs. 9,93,97,793/- in its

notes on account under the head ''debtors and creditors, loan balances and others''. The assessee had also adjusted the amount of Rs. 4.93 crores

against current year expenditure. The assessee explained to the Assessing Officer that the provisions of Section 28(iv) and Section 41(1) of the

Act are not attracted. The contention raised by the assessee was rejected by the Assessing Officer and therefore, he made addition of the above

said amount in assessee''s total income. Aggrieved by the same, the assessee filed appeal before the Commissioner of Income Tax (Appeals), who

deleted the addition.

Challenging the same, the Revenue preferred appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal, after

considering the entire facts as well as the grounds raised before it, in paragraph 8, held that Rs. 4.93 crores stand waived off in furtherance to One

Time Settlement resulting in cessation of liability could not be treated as revenue receipt u/s 41(1) of the Act; in the absence of any factual dispute

and noting that the assessee not disputed regarding the factual position, the Income Tax Appellate Tribunal took note of decision of this Court in

the case of Iskraemeco Regent Ltd. Vs. Commissioner of Income Tax wherein, it was held that the assessee had taken loan for purchase of capital

asset and later on the loan was waived off by the Bank, it does not amount to a benefit arising out of business and it is also not even remission of

the liability, which could attract Section 41(1) of the Act. In the light of the above finding, we find that the issue involved herein is squarely covered

by the decision in the case of Iskraemeco Regent Ltd. Vs. Commissioner of Income Tax and we find no question of law arising in this Tax Case

(Appeal). Accordingly, the Tax Case (Appeal) stands dismissed. No costs.