ITAT upholds assessee's claim under Section 43B, dismissing revenue's appeal

The ITAT dismissed the revenue's appeal, upholding the CIT(A)'s order allowing the assessee's claim of Rs. 3,23,84,509/- under Section 43B of the Income Tax Act. The ITAT agreed with the CIT(A)'s findings that the interest paid during the year under OTS was deductible under Section 43B, and denying the deduction would result in double taxation. The ITAT found no fault in the CIT(A)'s directions for verification and concluded that there was no merit in the revenue's arguments.

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Issues Involved:
1. Whether the CIT(A) was justified in allowing the assessee's claim of Rs. 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 Rs. 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 Rs. 4,75,31,789/-, and a One Time Settlement (OTS) was reached, requiring the assessee to pay Rs. 2,35,00,000/-, which included Rs. 1,91,19,083/- as interest.

The A.O rejected the assessee's claim for deduction of Rs. 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 Rs. 1,79,01,490/-.

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

The CIT(A) observed that the interest of Rs. 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 Rs. 1,91,19,083/- paid during the year under OTS was deductible under Section 43B. For the balance interest of Rs. 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.

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