2015 (5) TMI 1056

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....The first ground of appeal is with regard to addition of Rs. 6,63,48,983/- towards interest waived by the financial institution. 3. Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that assessee-company disallowed an expenditure of Rs. 6,63,48,983/-- under Section 43B of the Income-tax Act, 1961 (in short 'the Act') towards interest payable to financial institution which was written back. According to the Ld. D.R., the above said amount of Rs. 6,63,48,983/- relates to interest due to IDBI bank for the period relating to assessment years 2003-04 to 2005- 06. The IDBI agreed to the proposal for payment of one-time settlement, and accordingly, waived the interest to the extent of Rs. 6,63,48,983/-. However, for ....

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....e rival submissions on either side and perused the relevant material on record. Admittedly, the Assessing Officer disallowed the interest to the extent of Rs. 6,63,48,983/- under Section 43B of the Act, while computing the taxable income for the assessment years 2003-04 to 2005-06. In other words, the interest, which is otherwise to be allowable under mercantile system of accounting, was taken as income in view of Section 43B of the Act. During the year under consideration, the IDBI Bank waived the entire interest portion to the extent of Rs. 6,63,48,983/-. The assessee claimed this amount as deduction while computing the total income. The Assessing Officer disallowed the claim of the assessee on the ground that there was no actual pa....

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....us. 8. The Ld.counsel further submitted that on identical circumstances, the Madras High Court had an occasion to consider the issue in Iskraemeco Regent Ltd. v. CIT (2011) 331 ITR 317 and found that the grant of bank loan cannot be treated as trading transaction. Therefore, borrowal of loan for the purpose of investing in the capital asset when the part of the loan amount along with interest waived by the financial institution, there is no change in the character with regard to original receipt which was capital in nature. Therefore, on waiver of principal amount by the financial institution, it cannot be taken as benefit or perquisite under Section 28(iv) of the Act. In view of the judgment of the Madras High Court, according to the....

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....with its interest was waived by the financial institution. The Madras High Court found that when the loan was borrowed for the purpose of investing in the capital asset, it is a capital asset, and merely because the principal amount was waived by the financial institution, it will not change the character of the original asset. In other words, the Madras High Court found that the purpose for which the loan borrowed is capital purpose, therefore, when the loan was waived by the financial institution, it will remain as capital in nature. The Madras High Court further found that it cannot be treated as benefit arising in the course of business under Section 28(iv) of the Act. In the case before us, it is not known whether the loan was borrowed....