2016 (7) TMI 916 - HC - Income Tax

Addition towards interest waived by the financial institution - Entitlement to deduction u/s 43B - Held that - Tribunal was right in holding that the assessee is entitled for deduction under Section 43B, with respect to the interest on loan waived by the Bank in one time settlement and thus, answered the first substantial question of law against the revenue.

Summary

Issues:
Challenge to order by Income Tax Appellate Tribunal regarding addition of interest and principal waived by financial institution. Interpretation of Section 43B of the Income-tax Act, 1961.

Analysis:
The Tax Case Appeal challenged an order by the Income Tax Appellate Tribunal dismissing the appeal by the revenue against the Commissioner of Income-Tax's order. The Tribunal confirmed disallowance of interest amount debited in the Profit & Loss Account in previous assessment years and taken as income. However, the Tribunal directed the Assessing Officer to reconsider the addition of the principal amount waived by the financial institution. The appeal raised substantial questions of law regarding deduction under Section 43B for interest waived and the remittance of the principal issue back to the assessing authority.

The appellant argued against the Tribunal's decision to allow deduction under Section 43B for the interest waived by the bank, emphasizing that no deduction should be granted as the interest was not actually paid. The Assistant Commissioner contended that since the interest was waived by the bank and not paid, it should not be allowed as a deduction under Section 43B. On the contrary, the assessee claimed that the interest amount had been treated as income in previous years and thus should be deductible in the current year after being waived by the bank.

The Tribunal held that the interest disallowed under Section 43B in previous assessment years, which was taken as income, did not need to be disallowed again in the current year due to the waiver by the bank. The Tribunal confirmed that the assessee was entitled to deduction under Section 43B for the interest waived by the bank. The Court agreed with the Tribunal's decision, stating that the assessee was eligible for the deduction under Section 43B for the interest waived in a one-time settlement. As no valid grounds were presented to reverse the order, the Tax Case Appeal was dismissed without costs.