Waiver of loan which was never claimed as expenditure couldn’t amount to cessation of trading liability.

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Waiver of loan which was never claimed as expenditure couldn’t amount to cessation of trading liability.

Gujarat State Financial Corporation

[2020] 122 taxmann.com 101 (Gujarat)

 

Short overview of the case:

 

Section 41(1) of the Income-tax Act, 1961

Remission or cessation of trading liability (Loan waiver)

 

Assessment year 2009-10

 

During year, under one time settlement scheme, assessee-company got a waiver of principal amount of loan due to a bank

 

Assessing Officer opined that waiver of loan amount would be considered as cessation of trading liability and such loan amount was income of assessee under section 41(1)

 

Issue before court was, Whether since loan amount was never claimed by assessee as expenditure in its accounts, waiver of same could not amount to cessation of trading liability and was not chargeable to tax under section 41(1)

 

 

Court have held it as “yes”. The matter was decided in favour of assessee.

 

 

It concluded as under :

 

Loan amount which is never claimed by assessee as expenditure, waiver of same could not amount to cessation of trading liability and was not chargeable to tax under section 41(1).

 

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