The Chandigarh bench of ITAT has held in the case of Sh. Jai Pal Gaba vs ITO, W-III (2) that one-time settlement of debt by the bank cannot be treated as benefit from the business if such loan granted to assessee was a separate transaction.
The assessee took over a dissolved proprietorship concern along with its assets and liabilities. The loan to the firm taken was also taken over by the assessee in his proprietorship concern. The bank waived the principal amount of the loan as a one-time settlement programme. However, during assessment, the Assessing Officer sought to add the entire waived amount to the taxable income of the assessee.
The Assessee claimed that neither the provisions of section 28 (iv) and 41(1) nor of section 56(2)(vi) of the Income Tax Act were applicable. It was also contended that the assessee was not in the business of taking / lending of the loan and, hence, the amount of loan received by the assessee for the business of hosiery was not part of the trading activity of the assessee.
The tribunal held that the liability of loan was not created or incurred in the course of business, rather, it was an independent loan transaction of the assessee with the bank and the assessee was not involved in any business activity with the bank. Therefore, the waiver of a part of loan amount cannot be treated as benefit arising from business or profession to the assessee.
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