2009 (11) TMI 37 - HC - Income Tax

Addition on account of waiver of interest deletion of addition made by the AO on account of interest remitted and entries reversed by the assessee amounting to Rs.24, 48, 161 held that - The Assessing Officer disallowed the waiver of interest on the ground that for the period to which waiver related income had already been taxed as mercantile system of accountancy had been employed. The CIT (A) followed the earlier orders which have not been annexed with the paper book - Since the revenue has neither filed the orders for the earlier assessment years which have been followed nor it has been shown that the said orders have been interfered with the questions have to be answered against the revenue and in favour of the assessee to maintain consistency.

Summary

Issues:
1. Deduction for waiver of interest in favor of sister concerns
2. Addition on account of interest remitted and entries reversed by the assessee
3. Opportunity for creating further reserve under section 36(1)(viii) of the IT Act

Analysis:

Issue 1: Deduction for waiver of interest in favor of sister concerns
The Assessing Officer disallowed the waiver of interest, arguing that the income had already been taxed for the period to which the waiver related due to the mercantile system of accountancy. The CIT (A) granted relief to the assessee based on earlier orders, which were not provided in the paper book. The Tribunal upheld the CIT(A)'s decision, emphasizing that since the interest was waived in the relevant year, the assessee could claim the deduction. The Court ruled against the revenue, citing the lack of evidence to challenge the previous orders and to maintain consistency in decisions.

Issue 2: Addition on account of interest remitted and entries reversed by the assessee
The Assessing Officer made additions on interest remitted by the assessee, where entries were subsequently reversed. The Tribunal's decision was based on the fact that the interest liability did not crystallize in the relevant year, hence the deduction was permissible. The revenue failed to provide evidence to contest the Tribunal's decision, leading to a ruling in favor of the assessee for consistency.

Issue 3: Opportunity for creating further reserve under section 36(1)(viii) of the IT Act
The Tribunal directed the Assessing Officer to allow the assessee to create a further reserve to claim the deduction under section 36(1)(viii) of the IT Act. The CIT(A) supported this direction, noting the approval of the assessee by the central Government for the deduction. The revenue's counsel could not show any error in allowing the reserve creation as per the Act's provisions. Consequently, the Court ruled in favor of the assessee, emphasizing the entitlement to the deduction as stipulated under the law.

In conclusion, the High Court upheld the decisions of the Tribunal and CIT(A) in favor of the assessee on all three issues, emphasizing the importance of following precedents and maintaining consistency in tax assessments. The judgment provided clarity on the deduction for waiver of interest, treatment of interest remitted, and the opportunity for creating reserves under the relevant provisions of the IT Act.