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2015 (9) TMI 486 - ITAT CHENNAI

2015 (9) TMI 486 - ITAT CHENNAI - TMI - Interest disallowance made u/s 36(1)(iii) - CIT(A) restricted disallowance - Held that:- There is no dispute that the very interest disallowance had been restricted to the extent of diversion of interest bearing funds @ 15% in the past. It has already come on record that the ‘tribunal’ has also decided this ground in assessee’s favour to the extent indicated hereinabove. No distinction much less a justifiable one on facts is forthcoming. In these circumsta .....

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ts only. The lower appellate order records a finding of fact that one time settlement scheme in question does not give rise to any revenue or trading receipt under Section 28(iv) of the Act in the nature of remission of a corresponding trading liability under Section 41(1) of the Act. It also refers to case law of hon'ble jurisdictional high court In the case of CIT v. Tosha International Ltd. (2008 (9) TMI 31 - HIGH COURT DELHI) and Mahindra & Mahindra Ltd. v. CIT [2003 (1) TMI 71 - BOMBAY High .....

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S.S. Godara, JUDICIAL MEMBER: This Revenue s appeal for assessment year 2009-10, arises from order of the Commissioner of Income Tax (Appeals)- I, Chennai, dated 24.02.2014 passed in ITA No.640/11-12/A-I restricting interest disallowance made u/s 36(1)(iii) of ₹ 6.12 crores to ₹ 3.25 crores and deleting addition of ₹ 2,25,13,704/- u/s 28(iv) arising from waiver of principal amount in one time settlement scheme, in proceedings under Section 143(3) of the Income-tax Act, 1961 (i .....

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sulted in deprivation of financial sources only. He quoted history of this issue to have arisen in regular assessment framed in earlier assessment years. There is no dispute that the CIT(A) has deleted identical disallowances in the past. The Assessing Officer sought to distinguish the relevant facts for invoking Section 36(1)(iii) and treated the impugned interest outgo as unfruitful for disallowing the sum in question of ₹ 6,11,69,042/- 3. The assessee preferred an appeal. The CIT(Appeal .....

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hile discussing about the borrowed funds and own funds and the sources of diverted fund to sister concerns, he has safely came to a conclusion that ₹ 3.25 crores which are interest bearing funds, have been diverted to sister concern, RAPL and restricted the deemed interest disallowance only on this amount @ 15%. The concluding part of my predecessor s order is reproduced hereunder: 5.2 I have carefully considered the facts of the case and the submissions of the ld.AR. I have also gone thro .....

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advance out of interest bearing fund had been made subsequently. Hence, interest @ 15 per cent on the advance of ₹ 3.25 crores amounting to ₹ 48.75 lakhs was held to be not allowable. Since no further advances were made out of interest bearing funds in the subsequent years, following the reasons given in A.Y.2002-03, the disallowance was restricted to ₹ 48.75 lakhs each in A.Y.2004-05 and 2005-06 respectively vide orders in ITA Nos.811 & 812/09- 10/A.III dated 25.10.2010. .....

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owing my predecessor s painstaking observations, I direct the A.O. to restrict the disallowance of 15% interest relatable to diversion of interest-bearing funds of ₹ 3.25 crores. The ground is partly allowed. 4. We have heard both sides and perused relevant findings. There is no dispute that the very interest disallowance had been restricted to the extent of diversion of interest bearing funds @ 15% in the past. It has already come on record that the tribunal (supra) has also decided this .....

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ender bank settled it through one time settlement scheme of ₹ 1,04,86,223/-. The assessee got benefitted by a sum of ₹ 2,25,13,704/-. It would treat this amount as a capital receipt since the loan had been availed for acquiring a capital asset; not to be included in its total income. The Assessing Officer referred to relevant loan documents and observed that the same had been obtained for servicing term loan of ₹ 9.4 crores already granted. He held that the same was a working l .....

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asset. There was one time settlement (OTS) of the loan obtained from Bank of Baroda resulting in a remission of principal borrowed. It has been held in various judicial decisions that where there is a waiver of loan relating to a capital asset, the same cannot be treated as a revenue receipt. Where, however, there is a waiver of loan utilized for the purpose of trading obligation or interest, the same is chargeable to tax as a revenue receipt. The Hon'ble Madras High Court in the recent dec .....

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d to be in the course of business. Indisputably, the assessee obtained the loan for the purpose of investing in its capital assets. A part of this loan with interest was waived under agreement between the parties. The amount referable to the loans obtained by the assessee towards the purchase of its capital asset would not constitute trading receipt. Therefore, the facts were totally different from the facts in CIT v. T.V. Sundaram Iyengar and Sons Ltd. [1996] 222 ITR 344 (SC). (iii) That sectio .....

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