High Court Of Karnataka
CIT vs. KLN Agrotechs (P.) Ltd.
Section 43B
Assessment year 2007-08
Vineet Saran And Mrs. S. Sujatha, JJ.
IT Appeal No. 23 Of 2014
April 7, 2015
JUDGMENT
Vineet Saran, J. – This appeal relates to the assessment year 2007-08.
2. The facts of the case are:
That the assessee, which is a private limited company, is engaged in the business of manufacturing and trading of refined edible oil. The assessee-company had taken a loan from the Canara Bank which was to the tune of Rs. 387.82 lakhs as term loan and Rs. 53.48 lakhs as working capital loan, totalling to Rs. 441.30 lakhs. Since there was default in payment of the loan amount by the assessee, the bank declared the account of the assessee as non-performing asset (NPA). The total interest accrued in the said account of the assessee was Rs. 193.96 lakhs, i.e., the total outstanding payable by the bank was Rs. 635.26 lakhs which included the principal amount as well as the interest.
These figures are as per the accounts submitted by the assessee and accepted by the Department.
During the assessment year in question, the assessee arrived at a onetime settlement with the bank and against the payment of Rs. 635.26 lakhs (as per the books of account of the assessee), as per the one-time settlement an amount of Rs. 378.72 lakhs, was to be paid by the assessee to the bank which was paid and the account was thereafter closed. In the returns filed by the assessee, towards the total amount of Rs. 378.72 lakhs paid to the bank, the assessee provided for Rs. 193.96 lakhs as interest paid and claimed deduction under section 43B of the Income-tax Act, 1961 (hereafter referred to as “the Act”). After deducting the said amount of interest of Rs. 193.96 lakhs from Rs. 378.72 lakhs the figure of Rs. 184.76 lakhs was taken as repayment towards the principal amount. Thus, from the total principal amount payable which was Rs. 441.30 lakhs, if Rs. 184.76 lakhs is deducted as the amount paid towards principal, the balance of Rs. 256.54 lakhs would be the amount which was waived by the bank. For the relevant assessment year, in its return the assessee provided for waived amount of Rs. 257.08 lakhs (i.e., Rs. 256.54 + Rs. 0.54 lakhs) as income and the said amount was offered to be subjected to tax.
The Department did not accept the plea of the assessee of adjusting the amount of Rs. 193.96 lakhs towards interest and also its claim for the benefit under section 43B of the Act and instead held that the entire amount of Rs. 378.72 lakhs paid by the assessee as one-time settlement with the bank to be adjusted towards the principal amount of Rs. 441.30 lakhs.
Ultimately, in the appeal filed by the assessee before the Tribunal, although the erroneous claim of the assessee in adjusting the amount of Rs. 193.96 lakhs towards interest was disallowed and it was held that the total amount had to be first adjusted towards payment of principal amount, but considering the fact that the appellant had itself subjected the waived principal amount of Rs. 257.08 lakhs to tax in its returns, in the interest of justice and equity the Tribunal directed that the disallowance of the interest under section 43B of the Act be subsumed into the offer of Rs. 257.08 lakhs on waiver of principal.
3. In the aforesaid facts, this appeal has been filed by the Revenue raising the following substantial question of law:
“Whether, on the facts and in the circumstances, the Tribunal was correct in holding that the principal sum of Rs. 2,57,08,826 waived, is offered to tax, and as such, the disallowance of Rs. 1,93,96,881 is to be subsumed into offer of Rs. 2,57,08,826 on waiver of principal, which is against the sum and substance of the scheme of allowing deduction under section 43B which is based on actual payment of interest and recorded perverse finding ?”
4. We have heard Sri K.V. Aravind, learned counsel for the appellant as well as Sri K.K. Chythanya, learned counsel for the respondent-assessee and perused the records.
5. The submission of the learned counsel for the appellant is that once it has been held that the principal sum of Rs. 257.08 lakhs (which was waived by the bank) had been subjected and offered to tax, after the disallowance of interest of Rs. 193.96 lakhs, it could not be subsumed into the offer of Rs. 257.08 lakhs on waiver of the principal amount. It is thus submitted that after the waiver of interest amount was disallowed even though the amount of Rs. 257.08 lakhs was subjected and offered to tax by the assessee, additional tax on the amount of interest (which had been disallowed) would have to be paid by the assessee.
6. In our view, the Tribunal has rightly held that the assessee cannot be subjected to double jeopardy, i.e., it could not be subjected to tax on the waived principal sum of Rs. 257.08 lakhs as well as disallowance of interest under section 43B of the Act, as the said two effects are mutual, exclusive and cannot co-exist. The Tribunal has also observed that “The erroneous offer of tax of Rs. 2,57,08,826 towards waiver of principal sum is more than the erroneous claim of interest under section 43B of Rs. 1,93,96,881. As both erroneous offers of waived principal sum to tax and erroneous claim of interest under section 43B emanated from a single transaction/event, i.e., one-time settlement, both should be understood as to have cancelled each other.”
7. We agree with the aforesaid finding recorded by the learned Tribunal.
8. If out of the total sum of Rs. 257.08 lakhs which has been offered and subjected to tax by the assessee in its return, the amount of unpaid interest of Rs. 193.96 lakhs is deducted then the waived principal sum would come to Rs. 62.58 lakhs (i.e., 441.30 minus 378.72). Either it is the interest which is to be waived, and if the same is not to be waived, then the waived principal amount of Rs. 257.08 lakhs has to be reduced by the amount of interest of Rs. 193.96 lakhs which is not permitted for deduction under section 43B of the Act. In either case, the amount of deduction, as well as the amount which is subjected to tax, would come to the same. If we accept the argument of learned counsel for the appellant-Revenue, then it would amount to the Department having the cake as well as eating it, which would mean subjecting the assessee to double jeopardy. This cannot be permitted. Either the interest amount has to be allowed for deduction under section 43B or the sum offered for tax (as waived by the bank) has to be reduced by the amount of interest paid.
9. Thus, we do not find that any infirmity with the order of the Tribunal of allowing the disallowance of interest under section 43B of the Act to be subsumed into the offer of waiver of the principal amount.
10. In view of the aforesaid, we are of the opinion that no substantial question of law arises for consideration by this court. As such the appeal is dismissed. No order as to costs.
[Citation : 375 ITR 301]
