2014 (10) TMI 957 - AT - Income Tax

Taxability relating to conversion of unpaid interest on SBI loan into a fresh term loan - disallowance invoking Explanation 3A of sec. 43B - Held that - We notice that the ld. AR has furnished many factual details, which have not been examined at all by the tax authorities. Further, the ld. AR has rightly pointed out that Explanation 3A shall apply only for those payments for which the deduction had been allowed in assessment year 1996-97 and in the earlier years on accrual basis. However, since the Ld A.R has furnished various factual details and since they have not been examined by the tax authorities, we are of the view that this issue requires fresh consideration at the end of the AO. Accordingly, we set aside the order of the ld. CIT(A) on this issue and restore the same to the file of AO for his fresh examination in the light of discussion made supra. The AO is directed to examine the factual details furnished by the ld. AR and take appropriate decision in accordance with law after providing necessary opportunity of being heard to the assessee. Rejection of claim of set off of brought forward unabsorbed depreciation claimed against Short Term Capital Gain and Long Term Capital Gain - AO disallowed the said claim on the reasoning that unabsorbed depreciation, though gets merged with the current depreciation, can be carried forward indefinitely and can be set off only against profit and gains and not against any other income - Held that - Unabsorbed depreciation can be set off against the Business Income or against the income derived from any other source , on the reasoning that the treatment given to current year depreciation would equally apply to brought forward depreciation also. Thus we set aside the order of ld. CIT(A) and direct the AO to allow the set off of unabsorbed depreciation against capital gains. See Suresh Industries (P) Ltd V/s ACIT (2012 (11) TMI 674 - ITAT MUMBAI) and DCIT V/s Akay Flavours and Aromatics (P) Ltd (2010 (9) TMI 1123 - ITAT COCHIN) - Decided in favour of assessee.

Summary

Issues:
1. Taxability of Rs. 7.22 crores relating to conversion of unpaid interest on SBI loan into a "fresh term loan."
2. Rejection of claim of set off of brought forward unabsorbed depreciation against "Short Term Capital Gain" and "Long Term Capital Gain."

Issue 1: Taxability of Rs. 7.22 crores relating to conversion of unpaid interest on SBI loan into a "fresh term loan."

The Assessee, engaged in manufacturing, availed a loan from State Bank of India, which was restructured after default. The bank converted Rs. 7.22 crores of unpaid interest into a fresh term loan. The Assessee recorded this conversion in its books for the previous year. However, the AO considered the restructuring in the assessment year 2005-06, applying Explanation 3A of Section 43B to disallow the conversion amount. The Assessee argued that the restructuring was accounted for in the previous year and did not claim a deduction under Section 43B. The Tribunal noted that the bank's offer required acceptance after the date of the sanction letter, thus allowing the AO to consider the tax implications in the current year. The Tribunal directed the AO to re-examine the issue based on new factual details provided by the Assessee.

Issue 2: Rejection of claim of set off of brought forward unabsorbed depreciation against "Short Term Capital Gain" and "Long Term Capital Gain."

The AO disallowed the set off of brought forward unabsorbed depreciation against capital gains, stating it could only be set off against "profit and gains." The Assessee cited precedents where unabsorbed depreciation could be set off against business income or income from other sources. Relying on these cases, the Tribunal overturned the AO's decision and directed the allowance of the set off of unabsorbed depreciation against capital gains. Consequently, the appeal filed by the Assessee was allowed.

In conclusion, the Tribunal addressed the issues of taxability concerning the conversion of unpaid interest into a term loan and the set off of unabsorbed depreciation against capital gains. The Tribunal's decision provided clarity on the application of tax laws and precedents in these specific scenarios, ensuring a fair assessment and treatment of the Assessee's financial transactions and claims.