TMI Blog2012 (9) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... ) deleted the addition - Held that:- 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 - against revenue. Addition of interest amount reverse pertaining to the earlier year - CIT(A) deleted the addition - Held that:- 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 - against revenue. Addition being the interest waived pertaining to the earlier year - CIT(A) deleted the addition - Held that:- Facts have revealed a finding was given that there was an overlapping between the waiver of the penal interest and the amount pertaining to preceding year but the exact position of overlapping of the amount has not been placed on record, therefore we refer this item of waiver of penal interest back to AO to verify the same - in favour of Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same as an expenditure related to the previous year. It was noted by the Tribunal; that by relying upon a decision of Madras Fertilizers 209 ITR 174(Mad.) the AO had made the impugned addition, which was deleted by the CIT(A), however, the Tribunal has restored the matter back to the file of the AO vide paragraph No.18 reproduced for ready reference as follows:- 18. Having heard both the parties and perusing the record, we find that the CIT(A) has deleted the addition following the decision of Hon'ble Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Ltd. (213 ITR 523). But we find that the Hon'ble Gujarat High Court has allowed the claim on the ground that if the liability has arisen in the earlier years and if it is crystallized in subsequent year and if the assessee is maintaining the accounts on mercantile basis, then the deduction has to be allowed. We find that, in the present case, the Assessing Officer has not examined the issue relating to the expenditure whether it was crystallized during the year under consideration or not and whether this expenditure pertain to earlier years and the liability is crystallized in the year under consideration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue vide following paragraphs:- 2.3. The matter has been given due consideration. The assessment order is quite general and gives number of issues open, without discussing in details. The issue will have to be decided individually for the various groups brought in the table in its submission on page 4. To take up the first major amount of Rs.2,98,49,969/-, from the discussion above, it is clear that the tax auditors as well as the Assessing Officer in the present order as well as in the original order have not appreciated the nature of the claim. It is, in fact, the claim of write off of the interest amounts which have been debited to the various customers account in the earlier years and shown as income. It is not an expense in the normal sense of the term. The reversal of interest has taken place because of either the legal action is initiated by the appellant or the party getting covered by certain statutory provisions like BIFR. This reversal of the interest income of the earlier year is clearly a unilateral act on the part of the appellant. It did not occur because of the settlement of dispute, although the amount continued to be receivable from the party bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of loan installment/interest by parties, the interest should not be charged from the quarter in which legal suit is filed. This decision was again confirmed by the Board in the meeting held on 24th September 1982 after the coming into force of Gujarat Public Money (Recovery of dues) Act 1979. A copy of the note and approval of the Board on 24th September 1982 is enclosed. (Ann. 1). Accordingly in the year under consideration the parties in whose cases the appellant has filed case under either SFA Act, or GPM Act, or loanees who are been governed by BIFR Act, appellant had stopped charging interest and consequently has reversed the interest already charged in these cases which included interest charged in the year prior to the year under consideration. Accordingly the appellant submits that the event of taking legal action has taken place during the year under consideration hence the reversal of interest has crystallized during the year and is therefore allowable as deduction. The appellant further submits that in their case there is actually no liability pertaining to earlier year which has crystallized during the year and whose deduction they had sought. In their case it is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ITA No.1672/Ahd/2009 (AY 1994-95) order dated 16/03/2012 has been referred, wherein it has been categorically held that the assessee is a Government Company engaged in the business of providing long-term finance for Industrial projects. The assessee has followed a system of accounting in respect of penal interest on accrual basis and as and when it was charged from the customer the same was shown as income of the assessee. Subsequently, on settlement with the parties the penal interest is either waived or reduced. The assessee s claim was that the same was allowable either as Revenue Expenses u/s.37(1) or the same was to be allowed as a bad debt. The Respected Co-ordinate Bench has discussed both the situations and first it was held that the interest is allowable as an expenditure u/s.37(1) of IT Act. In respect of the alternate contention about the assessee s claim to allow the impugned amount as bad debt the Tribunal has opined that both are similar in nature and both are part of the same claim. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 deduction was held as a legitimate business expenditure and held as rightly allowed by the Tribunal. Further, it was also opined that the assessee in that appeal was also a Government Company. The interest was waived in respect of a sick unit by the said Government Corporation and it was allowed as a deduction in the year of waiver though it was offered to tax in the earlier year whenever it had accrued in the past. The Court has said quote If it were subjected to unwarranted tax, even the assessee might go sick. It would not promote any public interest. Thus, even in equity there was no ground for interference. Unquote. In nutshell, to conclude the issue, we are of the considered opinion that the interest income which was taxed in the past by offering in the books of accounts forming part of the total income declared, however the same was a doubtful of recovery, therefore the assessee-company had justification to reverse that entry by charging the same in the P L account. In either case it was not an expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 overlapping between the waiver of the penal interest and the amount pertaining to preceding year. The ld.CIT(A) has therefore concluded that in terms of the directions of the Tribunal it will not material whether it was for the current year or not, hence directed to allow the same. In this regard, the exact position of overlapping of the amount has not been placed on record, therefore we refer this item of waiver of penal interest back to AO to verify the same and if found correct, then following the view taken by the Tribunal allow the same. For statistical purposes, this ground of the Revenue may be treated as allowed. 12. Apropos to Ground No.4, the issue was that the amount was waived in terms of the settlement with the customer. In the light of the discussion made hereinabove, we find no fallacy in the deletion made by ld.CIT(A). This ground is therefore dismissed. Rest of the grounds, i.e. Ground Nos.5 6 are general in nature need no adjudication. 13. In the result, assessee s appeal is partl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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