2021 (10) TMI 106 - AT - Income Tax

Disallowance u/s 43B - entitlement of the assessee for claim of deduction of interest - Claim disallowed by the assessee u/s 43B in the earlier years - amount of interest that was waived under One Time Settlement - OTS - HELD THAT - We concur with the view taken by the CIT(A) that if the said amount was already disallowed by the assessee u/s 43B in the earlier years and formed part of the amount of interest that was waived under OTS and credited in its Profit loss a/c for the year under consideration, then, the declining of the assessee s claim for deduction of the said amount in the computation of income would result to double taxation. In our considered view, once the aforesaid interest/any part of the same had been disallowed u/s 43B in the aforementioned preceding years, then, crediting of such interest/part thereof in a subsequent year in which the same had been waived under OTS would result to a double taxation of the said amount. As the assessee as per the terms and conditions of the OTS had during the year under consideration made a payment of interest to GIIC that was disallowed u/s 43B in the said earlier years, therefore, such sum so actually paid would be eligible as a deduction during the year under consideration u/s 43B. We concur with the view taken by the CIT(A) that if the said amount was disallowed u/s 43B in the earlier years and had been credited by the assessee company in its Profit and loss account for the year under consideration on account of waiver of interest income payable to GIIC, then, the claim of the assessee for deduction of such amount in its computation of income is in order. No infirmity in the view taken by the CIT(A) who had directed the A.O to carry out certain verifications, viz. (i). that the interest waived was credited in the profit loss a/c of the assessee company for the year under consideration; and (ii). that the interest waived had been included in the figure of Profit as per the profit loss a/c taken to the computation of income; and (iii). that such interest payable to GIIC was disallowed u/s 43B in the earlier years. Accordingly, in terms of our aforesaid observations finding no infirmity in the view taken by the CIT(A) we uphold his order in terms of our aforesaid observations.

Summary

Issues Involved:
1. Whether the CIT(A) was justified in allowing the assessee's claim of ?3,23,84,509/- under Section 43B of the Income Tax Act and directing the A.O for further verification.

Issue-wise Detailed Analysis:

1. Justification of CIT(A) in Allowing the Assessee's Claim Under Section 43B:

The revenue challenged the CIT(A)'s decision to allow the assessee's claim of ?3,23,84,509/- under Section 43B of the Income Tax Act and directed the A.O to verify the claim. The assessee had filed its return for A.Y 2010-11 declaring a loss, which was initially processed under Section 143(1) and later assessed under Section 143(3). The A.O reopened the case under Section 147, believing that the deduction under Section 43B for interest payable to Gujarat Industrial Investment Corporation Ltd. (GIIC) was wrongly allowed.

During reassessment, the A.O found that the assessee had obtained a term loan from GIIC in 1973 but failed to repay due to financial difficulties. The interest on this loan was provided for in the books but not paid, leading to disallowance under Section 43B. The outstanding amount on 01.04.2009 was ?4,75,31,789/-, and a One Time Settlement (OTS) was reached, requiring the assessee to pay ?2,35,00,000/-, which included ?1,91,19,083/- as interest.

The A.O rejected the assessee's claim for deduction of ?3,23,84,509/- on the grounds that the amount was not reconciled, waiver of interest did not amount to actual payment under Section 43B, and the waiver of the principal loan was taxable as it was for a depreciated fixed asset. Consequently, the assessee's total income was assessed at ?1,79,01,490/-.

2. CIT(A)'s Observations and Directions:

The CIT(A) observed that the interest of ?3,23,84,509/- had never been claimed or allowed as an expense and was disallowed under Section 43B in earlier years. Therefore, remission of this amount could not be taxed under Section 41(1). The CIT(A) noted that the A.O did not add the remission under Section 41(1) but declined the deduction under Section 43B, as the waiver was not considered an actual payment. The CIT(A) directed the A.O to verify the amount of interest waived and credited in the profit and loss account and whether it was included in the computation of income. The A.O was also to verify if the interest was disallowed under Section 43B in earlier years. The CIT(A) allowed the deduction to the extent these conditions were satisfied.

3. ITAT's Analysis and Conclusion:

The ITAT reviewed the orders and submissions, noting that the assessee had consistently disallowed the interest under Section 43B in prior years. The ITAT agreed with the CIT(A) that the interest of ?1,91,19,083/- paid during the year under OTS was deductible under Section 43B. For the balance interest of ?1,32,65,426/-, the ITAT concurred with the CIT(A) that if this amount was disallowed under Section 43B in earlier years and credited in the profit and loss account for the current year, denying the deduction would result in double taxation. The ITAT upheld the CIT(A)'s directions for verification and found no infirmity in the CIT(A)'s order.

Final Order:

The ITAT dismissed the revenue's appeal, upholding the CIT(A)'s order and directions for verification, finding no merit in the revenue's arguments. The decision was pronounced in the open court on 29.09.2021.