2017 (6) TMI 1082 - AT - Income Tax

Addition on account of waiver of loan - Held that - It is not in dispute that assessee had taken loan from the bank at the interest of 9.5% per annum. Since assessee was incurring losses and some payments were not made to the bank on time therefore the banks started debiting higher rate of interest in their books of accounts. However, the assessee continued to provide interest in its books of accounts as were provided on the sanctioned loan. The assessee filed complete details to show that when the matter was settled with the bank and lumpsum payment of ₹ 2.50 crore was paid to the bank, there was a waiver of interest. The assessee therefore rightly contended that merely because bank was making a claim of higher amount of interest, it would not become waiver to the assessee. It is also admitted fact that assessee has never claimed a waiver of interest as expenditure in its books of accounts and return of income. Therefore, there is no question of considering it to cessation of liability or any benefit arises from the business. Ld. CIT(A), therefore, on proper appreciation of facts and material on record rightly deleted the impugned addition. - Decided against revenue.

Issues:
Challenge against deletion of addition on account of loan waiver.

Analysis:
1. The appeal was filed by the revenue against the order of the Ld. CIT(A) challenging the deletion of addition of ?1,21,02,913/- on account of waiver of loan for the assessment year 2008-09.
2. The AO observed that the difference amount of ?2,64,00,000/- was a waiver of the loan, out of which the assessee had already offered ?19,80,536/- as income for the year under consideration and ?1,23,16,551/- as income in earlier years.
3. The assessee explained that the outstanding loan amount was settled with the bank through a one-time settlement, reducing the liability by ?1,42,97,087/-, which was duly recorded in the books of accounts as waiver of interest and principal amount.
4. Ld. CIT(A) noted that the impugned amount added by the AO was related to the differential interest rates charged by the bank and the rate applied by the assessee, along with an unclaimed bank guarantee amount, which was never debited to the assessee's books.
5. Ld. CIT(A) deleted the addition, stating that the unclaimed amount cannot be added as cessation of liability or business benefit under section 28(iv) of the Act, as it was not recorded as expenditure in the return of income.
6. The department argued that the impugned amount should be treated as income upon loan waiver, while the assessee contended that it was a waiver of interest, not the loan itself, leading to the deletion of the addition by Ld. CIT(A).
7. The ITAT upheld the decision of Ld. CIT(A) as the facts presented by the assessee were undisputed, showing that the waiver was related to interest and not the principal loan amount, and since the waiver was not claimed as expenditure, it could not be considered as cessation of liability or business benefit.
8. The ITAT dismissed the departmental appeal, affirming the deletion of the addition on account of loan waiver, concluding that no interference was required in the matter.

This detailed analysis highlights the key arguments, facts, and decisions made in the legal judgment regarding the challenge against the deletion of addition on account of loan waiver for the assessment year 2008-09.

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