2015 (5) TMI 1056 - AT - Income Tax

Addition towards interest waived by the financial institution - AO disallowed the claim of the assessee on the ground that there was no actual payment of interest - Held that - CIT(Appeals) found that the above sum which was debited in the Profit & Loss account in the assessment years 1994-95 to 2002-03 was disallowed and the same was taken as income of the assessee. Therefore there is no question of any disallowance once again during the year under consideration. It is not in dispute that the claim made by the assessee with regard to waiver of interest was taken as income in the earlier assessment years by disallowing the claim of the assessee under Section 40A(3) of the Act. Therefore as rightly pointed out by the CIT(Appeals) there is no need for disallowing the very same amount once again. - Decided in favour of assessee Addition being the principal amount waived by the financial institution - Held that - The purpose for which the loan borrowed is capital purpose therefore when the loan was waived by the financial institution it will remain as capital in nature. It cannot be treated as benefit arising in the course of business under Section 28(iv) of the Act. In the case before us it is not known whether the loan was borrowed for the purpose of investing in the capital asset or for the purpose of meeting the revenue expenditure. In the absence of any details on record this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. The Assessing Officer also shall examine the purpose for which the loan was borrowed and its utilization thereof. Thereafter the Assessing Officer has to reconsider the matter. Accordingly the orders of the lower authorities are set aside on this issue and the same is remitted back to the Assessing Officer. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Addition of interest waived by financial institution under Section 43B of the Income-tax Act, 1961.
2. Addition of principal amount waived by financial institution under Section 43B of the Act.
3. Reopening of assessment under Section 148 of the Act challenged by the assessee.

Issue 1: Addition of interest waived by financial institution under Section 43B of the Income-tax Act, 1961:

The Revenue appealed against the addition of Rs. 6,63,48,983 towards interest waived by a financial institution. The Departmental Representative argued that since the interest was waived by the bank, no actual payment was made, and thus, deduction under Section 43B was not permissible. However, the assessee contended that the interest had been treated as income in previous years and was now claimed as a deduction. The Tribunal found that the interest had been disallowed in earlier assessments, taken as income, and therefore, disallowing it again was unnecessary. The Tribunal upheld the CIT(Appeals) decision, confirming the deduction.

Issue 2: Addition of principal amount waived by financial institution under Section 43B of the Act:

The dispute revolved around the disallowance of Rs. 1,98,92,271 as the principal amount waived by a financial institution. The assessee argued that since the principal amount was not claimed in the Profit & Loss account, the disallowance was incorrect. The Counsel referred to a Madras High Court judgment stating that the waived principal amount should not be disallowed. The Departmental Representative contended that the purpose of the loan was unclear and cited relevant case laws. The Tribunal noted the lack of clarity regarding the loan's purpose and directed the Assessing Officer to re-examine the issue, considering the loan's utilization and purpose. The matter was remitted back for fresh examination.

Issue 3: Reopening of assessment under Section 148 of the Act challenged by the assessee:

The assessee challenged the reopening of the assessment under Section 148. The Tribunal found that the conditions for reopening under Section 147 were met within the limitation period, as no assessment had been made under Section 143(3) earlier. Referring to relevant case law, the Tribunal upheld the CIT(Appeals) decision, confirming the validity of the assessment reopening. The appeal of the Revenue was partly allowed for statistical purposes, and the cross-objection of the assessee was dismissed.

In conclusion, the Tribunal addressed the issues related to the addition of waived interest and principal amounts by financial institutions under Section 43B of the Income-tax Act, 1961. The Tribunal upheld the deduction of interest but directed a re-examination of the principal amount issue due to the unclear purpose of the loan. The assessment reopening under Section 148 was deemed valid by the Tribunal, resulting in the partial allowance of the Revenue's appeal and the dismissal of the assessee's cross-objection.