Case Law Details
Luxor Writing Instruments (P) Ltd Vs DCIT (ITAT Delhi)
Introduction: In a landmark judgment, the Income Tax Appellate Tribunal (ITAT) Delhi ruled in favor of Luxor Writing Instruments (P) Ltd against the Deputy Commissioner of Income Tax (DCIT). The ruling centers around the treatment of waived loans under Section 41(1) of the Income Tax Act. The tribunal held that the waiver of a loan does not equate to cessation of trading liability, thereby instructing the Assessing Officer (AO) to delete the impugned addition of Rs.33,485,700.
Background: The grievance initially arose when the Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the addition of Rs.33,485,700 on account of a waiver of liability. The CIT(A) classified this waiver as a cessation of trading liability under Section 41(1) of the Income Tax Act.
First Round of Litigation: In the first round, the tribunal had remanded the case back to the Assessing Officer (AO) for a fresh assessment. The tribunal directed the AO to examine the purpose behind taking the waived loan amount. This was essential to decide whether or not the waived amount should be taxable as income.
Re-assessment by the AO: The AO, while making a fresh assessment, argued that although the loan amount was initially in the nature of a capital receipt, its waiver had turned it into a revenue receipt. As a result, the AO made an addition of Rs.33,485,700, following the order of the Hon’ble High Court in the case of Logitronics Private Limited 333 ITR 386.
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