3DI Systems India Pvt.Ltd. v. ITO – 10 (3) (4), Mumbai
[Citation -2016-LL-1017-10]

Citation 2016-LL-1017-10
Appellant Name 3DI Systems India Pvt.Ltd.
Respondent Name ITO – 10 (3) (4), Mumbai
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 17/10/2016
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags mistake apparent from record • cessation of liability • remission or cessation • development charges • trading liability • revenue receipt • capital account • capital receipt • stock exchange • capital asset
Bot Summary: The Honourable Tribunal without considering judicial pronouncement as laid down by Bombay High Court in the case of Mahindra Mahindra Ltd. 261 ITR 501 confirmed the action of AO making addition u/s 41(1) in as much as section 41(1) of the Act deals with a case where an allowance or deduction has been made in any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year, the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof. The provisions of section 41(1) do not get triggered when the liability which has not been allowed as a deduction, is written back. 158-2016, ITA No.1746-2012 3DI Systems India Pvt. Ltd., vs ITO-10(3)(4) of Mahindra and Mahindra Ltd., wherein it was held that waiver of loan amount is not taxable under Section 28 nor it amounts to cessation of liability under Section 41(1). While deciding the issue the Tribunal has not considered the judicial pronouncements laid down by the Jurisdictional High Court in the case of Mahindra and Mahindra wherein it was held that waiver of loan liability does not amount to remission cannot be added under Section 41(1) or Section 28. Hon ble Supreme Court in case of Saurashtra Kutch Stock Exchange Ltd.,(supra) has held that non-consideration of decision of Jurisdictional High Court amounts to mistake apparent from record which can be rectified u/s. Accordingly, we rectify the same and direct that remission of liability on capital account should not be treated as income under section 41(1) in so far as it is not on revenue account. Accordingly we hold that AO was not justified in bringing to tax net Rs.1,48,43,395 as remission of liability under Section 41(1) of the IT Act.


IN INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI BEFORE: SHRI R.C.SHARMA, AM & SHRI RAMLAL NEGI, JM M.A.NO.158/MUM/2016 I.T.A.NO.1746/MUM/2012 (Assessment Year : 200 9-2010) 3DI Systems India Pvt.Ltd., Vs. ITO 10 (3) (4), Mumbai 409, Bldg.,no.2, Sector-1, Millenium Business Park, Mahape, Navi Mumbai - 400 710 PAN/GIR No. : AAACZ1972H (Appellant) .. ( Respondent) Revenue by : Shri Rajeev Khandelwal with Neelkanth Khandelwal Assessee by : Shri G. Nanthakumar Date of Hearing : 09/09/2016 Date of Pronouncement : 17/10/2016 ORDER PER R.C.SHARMA (A.M): This M.A arose out of order of Tribunal dated 24/01/2014 in ITA No.1746/Mum/2012. 2. Through this MA, it was contended by learned AR that during year under reference there is reduction in gross block of fixed assets to tune of Rs.1,48,43,395 that is, from Rs.6,79,87,074 to Rs.5,58,74,774 under head product development charges . assessees in earlier years incurred expenses on software licences, operating systems, SQL services, and like which have been debited under head product development charges in 2 M.A.No.158-2016, ITA No.1746-2012 3DI Systems India Pvt. Ltd., vs ITO-10(3)(4) fixed assets schedule. Later, project for which aforesaid expenses incurred got abandoned and assessees decided to write-off expenses incurred, net of unpaid expenses to tune of Rs.1,48,43,395, over period of ten years. Thus, liability which is unpaid is written back to account of fixed assets thereby, reducing gross block of assets by even amount. 4. Accordingly, it was argued that sum of Rs.1,48,43,395 has not been allowed as deduction to assessees in any of earlier years. Honourable Tribunal without considering judicial pronouncement as laid down by Bombay High Court in case of Mahindra & Mahindra Ltd. 261 ITR 501 confirmed action of AO making addition u/s 41(1) in as much as section 41(1) of Act deals with case where allowance or deduction has been made in any year in respect of loss, expenditure or trading liability incurred by assessee and subsequently during any previous year, assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof. As such, provisions of section 41(1) do not get triggered when liability which has not been allowed as deduction, is written back. 5. It was further contended by learned AR that while deciding issue, Tribunal have not considered decision of jurisdictional High Court in case 3 M.A.No.158-2016, ITA No.1746-2012 3DI Systems India Pvt. Ltd., vs ITO-10(3)(4) of Mahindra and Mahindra Ltd., (261 ITR 501) wherein it was held that waiver of loan amount is not taxable under Section 28 (iv) nor it amounts to cessation of liability under Section 41(1). As per learned AR, non-consideration of decision of Jurisdictional High Court amounts to mistake apparent from record which could be rectified under Section 254 (2). For this purpose reliance was placed on decision of Hon ble Supreme Court in case of Saurashtra Kutch Stock Exchange Ltd., 305 ITR 227 dated 15th September 2005. 6. Reliance was also placed on decision of Bombay High Court in case of Xylon Holdings Pvt. Ltd., 90 DTR 205, wherein it was held that cessation of liability to repay loan taken to purchase capital asset does not result in revenue receipt and concern amount was not taxable u/s 41(1) as same was not expenditure incurred in earlier years. Accordingly, it was held that cessation of loan liability is capital receipt not taxable as income. 7. In view of above, it was submitted that mistake apparent from record should be rectified in so far as Tribunal has confirmed order of AO bringing to tax net u/s 41(1) or disallow u/s 37(1) in respect of remission of liability of Rs.1,48,43,395/-. 8. On other hand contention of learned DR was that there is no mistake much less apparent mistake on order of tribunal. 8. We have considered rival contentions and deliberated on judicial pronouncements cited at bar by learned AR and DR in context of factual 4 M.A.No.158-2016, ITA No.1746-2012 3DI Systems India Pvt. Ltd., vs ITO-10(3)(4) matrix of instant case. We have also carefully gone through miscellaneous application as well as order of Tribunal dated 24/01/2014 where in Tribunal had confirmed action of AO applying provisions of Section 41(1) on account of remission of liability. However, while deciding issue Tribunal has not considered judicial pronouncements laid down by Jurisdictional High Court in case of Mahindra and Mahindra (supra) wherein it was held that waiver of loan liability does not amount to remission, therefore, cannot be added under Section 41(1) or Section 28 (iv). Similar view has been taken by Bombay High Court in case of Xylon Holdings Pvt. Ltd. ,(supra). Hon ble Supreme Court in case of Saurashtra Kutch Stock Exchange Ltd.,(supra) has held that non-consideration of decision of Jurisdictional High Court amounts to mistake apparent from record which can be rectified u/s. 254(2) of I.T.Act. However, in order passed by Tribunal, ratio laid down by jurisdictional High Court have not been considered which amounts to mistake apparent from record u/s. 254(2). Accordingly, we rectify same and direct that remission of liability on capital account should not be treated as income under section 41(1) in so far as it is not on revenue account. Accordingly we hold that AO was not justified in bringing to tax net Rs.1,48,43,395 as remission of liability under Section 41(1) of IT Act. AO is directed to delete addition of Rs.1,48,43,395/-. 9. In result, MA filed by assessee is allowed. 5 M.A.No.158-2016, ITA No.1746-2012 3DI Systems India Pvt. Ltd., vs ITO-10(3)(4) Order pronounced in open court on this 17/10/2016. Sd/- Sd/- (RAMLAL NEGI) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 17/10/2016 Karuna, Sr. PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai BY ORDER, 6. Guard file. //True Copy// (Asstt. Registrar) ITAT, Mumbai 3DI Systems India Pvt.Ltd. v. ITO 10 (3) (4), Mumbai
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