2009 (5) TMI 562 - AT - Income Tax

Addition of income Waiver of interest - It was submitted that in the returns where assessee did claim interest were treated as non est returns. - when the return has been treated as defective by the AO and despite giving an opportunity the assessee has not rectified the defect, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return. - the authorities below had treated such invalid returns as having the effect of meaning that assessee has been allowed the interest claim. In our opinion, this view is not sustainable. It is settled law that when the language of the Act is plain and unambiguous, no interpolation therein is called for - High Court in the case of CIT vs. Ancherry Pavoo Kakku (1985 -TMI - 26598 - KERALA High Court) and Hon ble apex Court decision in Saraswati Industrial Syndicate Ltd. vs. CIT (1990 -TMI - 5304 - SUPREME Court)clearly accentuates that unless an allowance or deduction has been made as per IT Act and records, the same will not come under the sweep of s. 41(1) Interest - The provisions of s. 234D are substantive and these provisions will have application only w.e.f. asst. yr. 2004-05 - Adhering to the doctrine of stare decisis Appeal is partly allowed

Issues Involved:
1. Confirmation of addition under Section 41(1) due to interest waiver by Canara Bank.
2. Disallowance of claim of carry forward of loss as the return was treated as non est.
3. Levying of interest under Section 234D.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 41(1) due to Interest Waiver by Canara Bank:

The primary issue raised by the assessee was the CIT(A)'s confirmation of an addition of Rs. 1,88,04,422 under Section 41(1) of the Income Tax Act, attributed to the interest waived by Canara Bank under a one-time settlement scheme. The assessee company, deriving income from leasing properties, had the interest waiver brought to tax by the AO amounting to Rs. 3.81 crores. On appeal, CIT(A) provided partial relief but confirmed the balance disallowance of Rs. 2,43,62,803. The Tribunal had previously directed the AO to re-examine the issue, but the AO reaffirmed the addition.

The CIT(A) noted that Rs. 55,58,381 of the addition related to interest waived for the assessment years 1988-89 to 1993-94, where assessments were completed, and such interest was allowed. No appeal was filed for this portion. The balance Rs. 1,88,04,422 pertained to assessment years 1994-95 to 1998-99, where returns were found defective and declared non est by the AO. The AO concluded that since the returns were treated as non est, the interest cost claimed was deemed allowed, making the waiver taxable under Section 41(1).

The assessee contended that the CIT(A) erred in holding that the interest cost claimed in the books for the years with non est returns constituted an allowance or deduction. The assessee relied on the Madras High Court decision in Narayanan Chettiar Industries vs. ITO and the Supreme Court decision in Saraswati Industrial Syndicate Ltd. vs. CIT, arguing that the authorities below exceeded their jurisdiction by disregarding Tribunal directions.

The Tribunal examined the provisions of Section 41(1) and previous judgments, concluding that unless an allowance or deduction was made in an earlier year, no addition under Section 41(1) could be justified. The Tribunal found that treating non est returns as valid for deduction purposes was incorrect. Consequently, the addition of Rs. 1,88,04,422 under Section 41(1) was deemed unjustified and deleted.

2. Disallowance of Claim of Carry Forward of Loss:

The second issue involved the CIT(A)'s refusal to consider the ground relating to the disallowance of the carry forward of loss because the return was treated as non est. The learned counsel for the assessee chose not to press this ground, and hence it was treated as not pressed.

3. Levying of Interest under Section 234D:

The final issue raised was the levy of interest under Section 234D by the AO. The assessee argued that Section 234D, inserted with effect from 1st June 2003, was applicable only from the assessment year 2004-05. The Tribunal admitted this additional ground based on the Supreme Court decision in National Thermal Power Co. Ltd. vs. CIT, which allows raising purely legal issues for the first time before the Tribunal.

The Tribunal found the issue covered in favor of the assessee by the Special Bench decision in ITO vs. Ekta Promoters (P) Ltd., which held that Section 234D provisions are substantive and not retrospective. Therefore, these provisions apply only from the assessment year 2004-05. The Tribunal decided this issue in favor of the assessee.

Conclusion:

The appeal filed by the assessee was partly allowed. The addition under Section 41(1) was deleted, the ground regarding carry forward of loss was not pressed, and the issue of interest under Section 234D was decided in favor of the assessee.

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