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TMI Blog2012 (9) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee-company is providing finance for industrial development. Earlier, the Tribunal vide an order dated 16/03/2007 for the assessment year under consideration, i.e. Assessment Year 1997-98 in ITA No.1115/Ahd/2001 has restored the issue of disallowance of interest waived during the year. In consequence thereof, the AO has noted that in respect of certain clients the assessee had reversed the interest income which was charged in earlier years amounting to Rs.23,96,745/-. In compliance, the assessee has furnished the details of the interest waived along with the copies of correspondence made with those parties. In this regard, the AO has fairly noted that the impugned amount was in the nature of penal interest and not in respect of any penalty for infringement of any law, therefore, an allowable expenditure u/s.37(1) of IT Act. In view of the said finding of the AO, upto this extent the issue thus set at rest, hence not to controvert any more. 2.2. The present controversy is in respect of disallowance of Rs.2,98,49,969/- which was disallowed treating the same as an expenditure related to the previous year. It was noted by the Tribunal; that by relying upon a decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the Board held subsequently. Accordingly, during the year under consideration the parties against whom the assessee has filed cases either under SFA Act, GPM Act, BIFR Act, etc.; the Assessee had stopped charging the interest. Further, the assessee has also reversed the interest already charged, including the interest charged in the previous year. It was pleaded that on account of legal steps taken during the year under consideration, reversal of interest had crystallized during the year and, therefore, deserves to be allowed as a deduction. It was further clarified that actually there was no liability of earlier year which had crystallized during the year. A decision of CIT vs. Punjab Agro Industries Corporation 253 ITR 788 (P&H) has been cited in which the interest waived pertaining to a sick unit by Government Corporation was allowed as a deduction in the year of waiver because interest so waived was offered to tax by the said Government Corporation in the earlier year when it had accrued. However, ld.CIT(A) was not convinced and decided the issue in favour of the Revenue vide following paragraphs:- "2.3. The matter has been given due consideration. The assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this amount in the nature of bad debt, which is the only way it can be allowable, notwithstanding the objections in the preceding paragraphs, such amounts need to be adjusted against the provisions made for bad debt. Neither any such attempt has been made by the assessee in its books of accounts nor during the assessment/appellate proceedings. 2.3.3. Therefore, to sum up, as far as the sum of Rs.2,98,49,969/- is concerned, I would hold that the same is not an allowable "expense"; however, for reasons other than the Assessing Officer." 4. From the side of the app, ld.AR Mr.Sanjay R.Shah appeared and drawn our attention on the following submissions:- "In respect of our claim for deduction of reversal of interest relating to period prior to the year under consideration amounting to Rs.2,98,49,969, your houour had called for our submission as to how the liability has crystallized during the year. In this respect we have to state that the Board of Directors in their 50th Board meeting held on 23rd February 1973 had decided that in case of default of payment of loan installment/interest by parties, the interest should not be charged from the quarter in which legal suit is filed. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any public interest. Thus in equity we find no ground to interfere. " The appellant accordingly prays to your honour that the AO be directed to grant deduction of the interest reversed during the year which had been offered to tax in the years in which it had accrued. The appellant further encloses the evidence in respect of following parties as (Ann.2): Name of the party Nature of evidence M/s.Armour Chemicals Limited BIFR order Global Drilling Fluids & Chemicals Ltd. Note indicating the legal action under section 29 Renco Gears Ltd. Copy of the news paper cutting regarding the winding up of the company as well as official liquidator's letter Dhanshree Enterprises Pvt.Ltd. Note indicating the legal action under section 29 and the disposal of assets of that company Ranuka Silk Mills Ltd. BIFR order Indian Nitro Matrix Ltd. BIFR order The appellant request your honour to kindly consider the above while finalizing the appeal." 5. We have heard both the sides. We have also perused the accounts submitted in this regard forming part of the compilation placed on record. From the side of the assessee, a decision of ITAT "B" Bench Ahmedabad in assessee's own case bearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat a legal action u/s.29 was initiated under SFC Act, hence the Board has decided that the interest entry was to be reversed. Since the Board had taken the decision during the current year, therefore the amount of previous year's expense had been charged to P&L account in the current. In respect of some of the parties; namely, M/s. Armour Chemicals Ltd., there was an order of BIFR. Further, in the case of Globan Drilling Fluids & Chemicals Ltd., a legal action was taken. Likewise, in the case of Renco Gears Ltd., there was a Newspaper cutting about the winding up of the company. So in respect of the other cases, where there was either BIFR order against those parties or a legal action has been taken, the Board of the company has decided to reverse the entry which was passed in the preceding years. On that basis, the decision taken by the Board cannot be held as an unsubstantiated decision and, therefore, such a decision deserves to be approved. In the case of CIT vs. Punjab Agro Industries Corporation reported at 253 ITR 788 (P&H) the Hon'ble Court has noted that the Tribunal had found as a fact that the assessee had waived the amount in order to secure its share capital. The dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erse pertaining to the earlier year. 3. Ld.CIT(A) has erred in law and on facts in deleted the addition of Rs.20,69,012/- being the interest waived pertaining to the earlier year. 4. Ld.CIT(A) has erred in law and on facts in deleted the addition of Rs.1,15,112/- being the amount of interest waived pertaining to the earlier year. 9. Apropos to Ground No.1, facts have revealed that the amount in question pertained to penal interest which stood allowed, therefore, following the directions of the Tribunal, the CIT(A) has directed that the waiver of penal interest is allowable. This findings of the CIT(A) being inconsistent with the order of the Tribunal is hereby allowed. 10. Apropos to Ground No.2, facts have revealed that a rectification entry for reversal of the excess interest was made, therefore the ld.CIT(A) has found that the assessee has wrongly computed the higher income than the actual receivable, therefore rectification was correctly made. In the absence of any contrary material, this finding of ld.CIT(A) is hereby confirmed and this ground of the Revenue is dismissed. 11. Apropos to Ground No.3, facts have revealed a finding was given that there was an overlapp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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