2014 (1) TMI 350 - AT - Income Tax

Applicability of Section 41(1) of the Act Waiver of Interest not allowed as deduction can be taxed u/s 41(1) of the Act or not - Held that - Following Iskraemeco Regent Ltd. v. CIT 2010 (11) TMI 43 - Madras High Court - The assessee has received waiver of interest as OTS during the assessment year 2005-06 - to apply section 41(1), the assessee should have claimed earlier year any benefit and allowed by the Assessing Officer - section 41(1) of the Act cannot be applied. Application of Section 28(iv) of the Act Held that - Following of Ravinder Singh v. CIT 1993 (3) TMI 41 - DELHI High Court - the assessee has received the interest waiver which is payable to bank - This is a cash benefit received by the assessee - Therefore, section 28(iv) has no application to assessee s case Decided against Revenue and in favour of Assessee.

Summary

Issues:
1. Taxability of interest waiver under section 41(1)
2. Application of section 28(iv) regarding interest waiver
3. Interpretation of cash benefit under section 28(iv)

Analysis:
1. The appeal and cross-objection arose from the Commissioner of Income Tax (Appeals) V, Chennai's order concerning the assessment year 2005-06. The assessee, engaged in integrated circuits manufacturing, declared a loss in its return. The Assessing Officer reopened the assessment due to interest waiver received by the assessee, not offered for tax. The issue revolved around whether the waiver of interest under One Time Settlement (OTS) should be taxed as income.

2. The CIT(Appeals) differentiated between interest waived but not allowed as deduction in previous assessments and determined the taxability under section 41(1). The Tribunal directed the Assessing Officer to verify and potentially delete the tax liability. Regarding section 28(iv), it was stated that if loans were for capital assets, the waived interest couldn't be taxed under section 41(1) or 28(iv). However, for working capital loans, the waived interest might be assessed as revenue receipt.

3. The Tribunal considered the arguments of both parties. It noted that the Assessing Officer hadn't allowed the benefit under section 43B previously, so section 41(1) didn't apply. The waiver of interest was viewed as a cash benefit, exempting it from section 28(iv) based on legal precedents like Iskraemeco Regent Ltd. v. CIT and CIT v. Alchemic Pvt. Ltd. The decision in Ravinder Singh v. CIT reinforced that section 28(iv) applies only to non-cash benefits. The Tribunal dismissed the Revenue's grounds and allowed the assessee's Cross Objection, citing the uniqueness of the case compared to M/s. Protex Engineer Company Pvt. Ltd.

This comprehensive analysis of the judgment delves into the taxability of interest waiver under different sections and provides a detailed account of the Tribunal's decision based on legal interpretations and precedents cited during the proceedings.