2015 (9) TMI 486 - AT - Income Tax

Interest disallowance made u/s 36(1)(iii) - CIT(A) restricted disallowance - Held that - There is no dispute that the very interest disallowance had been restricted to the extent of diversion of interest bearing funds @ 15% in the past. It has already come on record that the tribunal has also decided this ground in assessee s favour to the extent indicated hereinabove. No distinction much less a justifiable one on facts is forthcoming. In these circumstances, we uphold the CIT(A) s findings and reject the Revenue s ground. CIT(Appeals) correctly restricts the impugned interest disallowance @ 15% of the interest relatable to diversion of interest bearing funds to ₹ 3.25 Crores - Decided against revenue. Addition u/s 28(iv) arising from waiver of principal amount in one time settlement - CIT(A) deleted addition - Held that - There is no dispute on facts. Undisputedly, purpose of the loan in question is acquisition of capital assets only. The lower appellate order records a finding of fact that one time settlement scheme in question does not give rise to any revenue or trading receipt under Section 28(iv) of the Act in the nature of remission of a corresponding trading liability under Section 41(1) of the Act. It also refers to case law of hon ble jurisdictional high court In the case of CIT v. Tosha International Ltd. (2008 (9) TMI 31 - HIGH COURT DELHI) and Mahindra & Mahindra Ltd. v. CIT 2003 (1) TMI 71 - BOMBAY High Court deciding the very substantial question of law against the Revenue. In the course of hearing, the appellant-Revenue fails to draw any distinction on facts as well as law. Thus, we uphold the finding under challenge. The Revenue s corresponding ground is dismissed.- Decided against revenue.

Summary

Issues:
1. Interest disallowance under Section 36(1)(iii) of the Income-tax Act, 1961.
2. Addition under Section 28(iv) of the Act arising from a one-time settlement scheme.

Analysis:

Issue 1: Interest disallowance under Section 36(1)(iii)
The case involved the appeal by the Revenue regarding interest disallowance for the assessment year 2009-10. The Assessing Officer had disallowed interest of Rs. 6.12 crores under Section 36(1)(iii) due to the utilization of unsecured and secured loan funding for interest-free advances to an associate concern. However, the CIT(A) restricted the disallowance to Rs. 3.25 crores, citing past decisions and the diversion of interest-bearing funds. The Tribunal upheld the CIT(A)'s decision, noting that the disallowance had been restricted to 15% of the diversion of interest-bearing funds in previous assessments, and no justifiable distinction was presented by the Revenue.

Issue 2: Addition under Section 28(iv) of the Act
The second issue involved an addition of Rs. 2,25,13,704 under Section 28(iv) of the Act arising from a one-time settlement scheme for a term loan. The Assessing Officer treated the settlement amount as income under Section 28(iv) due to the loan being obtained for servicing a term loan already granted. However, the CIT(A) accepted the assessee's argument that the remission in liability related to a loan taken for acquiring a capital asset should not be treated as a revenue receipt. Citing judicial decisions, including those by the Madras High Court and Delhi High Court, the CIT(A) directed the deletion of the addition. The Tribunal upheld the CIT(A)'s decision, emphasizing that the loan was for acquiring capital assets and the settlement did not result in a revenue or trading receipt under Section 28(iv) of the Act.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions regarding interest disallowance and the addition under Section 28(iv) of the Income-tax Act, 1961. The judgments were pronounced on March 11, 2015, in Chennai.