Revenue's appeal dismissed, decisions upheld on interest disallowance & addition under Income-tax Act.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions regarding interest disallowance under Section 36(1)(iii) and the addition under Section 28(iv) of the Income-tax Act, 1961. The judgments were pronounced on March 11, 2015, in Chennai.

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Issues:
1. Interest disallowance under Section 36(1)(iii) of the Income-tax Act, 1961.
2. Addition under Section 28(iv) of the Act arising from a one-time settlement scheme.

Analysis:

Issue 1: Interest disallowance under Section 36(1)(iii)
The case involved the appeal by the Revenue regarding interest disallowance for the assessment year 2009-10. The Assessing Officer had disallowed interest of Rs. 6.12 crores under Section 36(1)(iii) due to the utilization of unsecured and secured loan funding for interest-free advances to an associate concern. However, the CIT(A) restricted the disallowance to Rs. 3.25 crores, citing past decisions and the diversion of interest-bearing funds. The Tribunal upheld the CIT(A)'s decision, noting that the disallowance had been restricted to 15% of the diversion of interest-bearing funds in previous assessments, and no justifiable distinction was presented by the Revenue.

Issue 2: Addition under Section 28(iv) of the Act
The second issue involved an addition of Rs. 2,25,13,704 under Section 28(iv) of the Act arising from a one-time settlement scheme for a term loan. The Assessing Officer treated the settlement amount as income under Section 28(iv) due to the loan being obtained for servicing a term loan already granted. However, the CIT(A) accepted the assessee's argument that the remission in liability related to a loan taken for acquiring a capital asset should not be treated as a revenue receipt. Citing judicial decisions, including those by the Madras High Court and Delhi High Court, the CIT(A) directed the deletion of the addition. The Tribunal upheld the CIT(A)'s decision, emphasizing that the loan was for acquiring capital assets and the settlement did not result in a revenue or trading receipt under Section 28(iv) of the Act.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions regarding interest disallowance and the addition under Section 28(iv) of the Income-tax Act, 1961. The judgments were pronounced on March 11, 2015, in Chennai.

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