2019 (1) TMI 935 - AT - Income Tax

Disallowance in respect of waiver of interest on Government of India Loan - guarantee fee of LIC, u/s 41(1) - consequent tax liability approved by the Cabinet Committee on Economic Affairs, Government of India - the stand of the department in earlier years is that the same is covered u/s 43B and therefore not allowable - Held that - In the present case the assessee company has not claimed waiver of interest on GOI Loan, Guarantee Fee and commitment fee as its expenditure. It is pertinent to note that the waiver of the Interest on loan by the Government of India as well as waiver of LIC guarantee fee along with waiver of Government of India loan has been rightly indicated in the financial statements produced before the AO and the same were reflected in the books of accounts. Therefore, addition on account of Section 41(1) does not sustain. AO as well as the CIT(A) are not correct in making and confirming the additions. Hence, Ground No. 2 is allowed. Adjustment of carry forward of losses and depreciation - Held that - CIT(A) has not given any direction for adjustment of carry forward of losses and depreciation as per appellate order in earlier years, for which, the issue needs to be adjudicated by the CIT(A). Therefore, we are remanding back this issue to the file of the CIT(A). Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Issue allowed for statistical purpose.

Summary

Issues:
- Disallowance of waiver of interest on Government of India Loan and guarantee fee of LIC under section 41(1) of the Income Tax Act, 1961
- Adjustment of carry forward of losses and depreciation as per appellate orders in earlier years

Analysis:
1. Disallowance of Waiver of Interest and Guarantee Fee:
- The assessee, a Government of India undertaking, faced financial difficulties and was referred to BIFR for restructuring. The CCEA approved waivers for the company, including Government of India loan, interest, and LIC guarantee fee. The Assessing Officer disallowed these amounts under section 41(1) of the IT Act, claiming they were taxable benefits. The AR argued that these waivers were not revenue in nature and were not claimed as deductions. The ITAT found that the waivers were part of government policies to revive the industry, not claimed as expenditure, and thus not taxable under section 41(1).

2. Adjustment of Carry Forward of Losses and Depreciation:
- The CIT(A) did not provide directions for adjusting carry forward losses and depreciation as per earlier appellate orders. The ITAT remanded this issue back to the CIT(A) for adjudication, ensuring the principles of natural justice are followed. The assessee is to be given an opportunity for a hearing on this matter. Ground No. 3 was allowed for statistical purposes.

3. Conclusion:
- The appeal was partly allowed for statistical purposes, with the disallowance of waivers under section 41(1) being overturned. The issue of adjusting carry forward losses and depreciation was remanded back to the CIT(A) for further consideration.