2011 (12) TMI 554 - HC - Income Tax

Addition on account of waiver of principal amount of loan - Held that - Counsel for the Revenue was unable to establish that the amount of ₹ 14.12 crores represented any part of interest. From the Assessing Officers order we notice that the amount of ₹ 24.10 crores represented the principal amount an ₹ 14.12 crores and the unpaid interest of 9.98 crores both of which were waived by the Bank. Since we are not concerned with the waiver of unpaid interest, we find that the issue is squarely covered by the decision in the case of Chetan Chemicals Pvt. Ltd 2001 (10) TMI 12 - GUJARAT High Court . We make it clear that we have proceeded on the footing that amount of ₹ 14.12 crores represented the principal amount alone waived by the Bank.

Summary

Issues:
- Whether the Appellate Tribunal was right in reversing the order passed by CIT(A) and deleting the addition of Rs. 14,12,15,000 made on account of waiver of principal amount of loan?

Analysis:
The High Court of Gujarat heard an appeal by the Revenue against a Tribunal's judgment regarding the addition of Rs. 14.12 crores made by the Assessing Officer due to the waiver of a principal sum of a loan. The assessee had claimed a deduction for this amount, which was dismissed by the CIT (Appeal) leading to an appeal to the Tribunal. The Tribunal allowed the appeal based on a previous court decision in the case of C.I.T. v. Chetan Chemicals Pvt. Ltd. The court noted that the issue was similar to the Chetan Chemicals case where a compromise was reached between the assessee and creditors resulting in a waiver of a loan amount. The court held that the Revenue failed to establish that the waived amount represented any part of interest. The court clarified that the waived amount of Rs. 14.12 crores was the principal amount alone. Therefore, the court concluded that the issue was covered by the decision in the Chetan Chemicals case, and the Tax Appeal was dismissed.

In summary, the judgment addressed the issue of whether the Tribunal was correct in reversing the CIT (Appeal) order and deleting the addition of the loan waiver amount. The court relied on a previous decision involving a similar situation to determine that the waived amount was the principal sum alone and not interest. As the Revenue failed to prove otherwise, the court dismissed the Tax Appeal, affirming the Tribunal's decision.