TMI Blog2019 (4) TMI 1848X X X X Extracts X X X X X X X X Extracts X X X X ..... IDBI to the tune of ₹ 8,07,35,116/- under one time settlement scheme though written off by the concerned bank does not constitute trading receipt, which was never claimed by the assessee as deduction does not give rise to profits chargeable to tax u/s 41(1) of the Act and thus cannot be added at all to the income of the assessee. Addition is thus hereby deleted. Thus, this ground of appeal is allowed. Disallowance of penal interest paid to Government of Gujarat - HELD THAT:- As decided in own case [ 2012 (11) TMI 351 - ITAT, AHMEDABAD ] Observations of the CIT(A) that such late payment is against the public policy and amount paid by the same could not be allowed as deductible expenses u/s.37(1A) in view of the explanation to section 37(1), is not sustainable in /aw. The interest charged at the rate of 2% per month for delayed payment of installment by the assessee-company could not be equated with payment made against the public policy or payment made in contravention of law. We are of the considered view that the interest paid by the assessee on delayed payment of installment to the State of Gujarat is in the nature of financial charges for late payment of installment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n verification of the details so furnished by the assessee, it was further found that the amount pertains to the year under consideration of ₹ 8,07,35,116/- to PSB account of India Overseas Bank. The said amount was not offered for taxation and credited to the capital reserve of the company. The assessee was issued a show-cause dated 09.11.2011 directing him to explain as to why said amount should not be added to the income of the assessee. Pursuant to the said show-cause, the assessee submitted before the Learned Assessing Officer that it has restructured its high interest bearing unguaranteed lenders. The corporation, therefore got waiver of principal loan outstanding of 182.87 crores of principal outstanding of which ₹ 8.07 crores has been accounted to the credit of capital reserve in the A.Y. 2009-10. Since waiver of outstanding principal loan amount is a capital receipt, the same was not offered to tax. It was further contended by the assessee that whether any particular receipt is income or not would depend upon the nature of receipt and the true scope and effect of the relevant Taxing provision. It has also relied upon the judgment passed by the Hon ble Delhi Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-payment of same is the cessation of liability. The amount written off during the year or which is not payable is to be offered for taxation. The person who had given the amount to the assessee had written off the amount in their books of accounts as bad debts. Therefore, the amount is ceased to be payable to them. When a person enters in transaction with other person, the expenditure of other person becomes income of the other person, In the instant case the banks and Financial Institution who had granted loans to the assessee had written off the amount in their books of accounts and claimed it as bad debts in their final accounts. The reliance is placed on the decision of CIT vs T.V. Sundaiam lyenger Sons Ltd. 136 ITR 444 in which Hon. Apex Court had held that when the amount of deposit becomes assessee's own money because of limitation or by any other statutory or contractual right, such amount should be treated as income of assessee. In the instant case the amount received as trading liability to the assessee from banks or other non-banking financial institution are ceases to be payable as per contract between assessee company and the other banks or nonbanking finance c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned in the written submission reproduced above. I have carefully perused the judgement mentioned. It is noted that none of the judgement is applicable in the case as the judgement of the honourable Supreme Court of India in the case of T.V. Sundaram lyengar and Sons Ltd 222 ITR 344 is directly on the issue. In the cases that have been relied by the appellant the facts were different and the waiver of the loan was related to capital asset which is clearly borne out by the reading of those judgements. The judgements relied by the appellant are therefore, respectfully distinguished. The ground of appeal is accordingly, dismissed. 2.3 At the time of hearing of the instant appeal, the Learned Advocate appearing for the assessee submitted before us that waiver of outstanding principal loan amount is a capital receipt, the same is not, therefore, taxable. 2.4 He also relied upon the judgment passed by the Hon ble Madras High Court in the case of the Iskraemeco Regent Ltd.-vs- CIT reported in [2011] 331 ITR 0317 in support of his contention. On the other hand, the Learned Representative appearing for the revenue relied upon the order passed by the authorities below. 2.5 Hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty paid to the Government for any breach of law. But it is an amount of additional interest paid to the Govt. on its loans outstanding only in the case of late payment of interest or late payment of installment of loan. In this particular case, the penal interest has been calculated at 2% on the amount of interest and on the amount of installment of loan which was paid late and the same was only calculated for the period of delay in making such payment. The assessee further submitted that it had paid interest of ₹ 118.96 crores on Govt. loan and penal interest of ₹ 7.35 crores for late payment and interest on principal amount on due dates. It was the contention of the assessee that the penal interest is not the penalty but part of regular interest and hence it is rightly debited to the profit and loss account and claimed as allowable deduction. However, the submission rendered by the assessee was not found acceptable by the Learned AO. He, thus disallowed the same and added to the total income of the assessee. In appeal, the same was deleted by the Learned CIT(A). Hence, the instant appeal filed by the revenue before us. 3.2 At the time of hearing of the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee on delayed payment of installment to the State of Gujarat is in the nature of financial charges for late payment of installment. In this view of the matter, we hold that no case of disallowance by holding the payment of penal interest as against the public policy could be made out by the department, and accordingly, the issue is decided in favour of the assessee and the grounds of the appeal of the assessee are allowed. Respectfully following the findings of the co-ordinate bench, we decline to interfere in the matter. 3.4 We find that the Learned CIT(A) relying upon the order passed by the Co-ordinate Bench in assessee s own case for A.Y. 2006-07 in ITA No.438/Ahd/2011 on the same ratio deleted the addition made by the Learned AO. 3.5 Respectfully relying upon the judgment passed by the Co-ordinate Bench, we find no infirmity in the order impugned and hence confirm the same. In the result, Revenue s ground of appeal is dismissed. 4. Ground No.2 relates to the order passed by the Learned CIT(A) in deleting the addition of ₹ 31,99,26,645/- made on account of disallowance of bad debts written off. 4.1 During the assessment proceeding it was found th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the materials available on records. We have carefully considered the order passed by the Learned CIT(A). We find that taking into consideration the judgment passed by the Hon ble Supreme court in the case of TRF Ltd. It was further pointed out that in terms of Section 36(2)(i), the deduction on account of bad debts which have become bad and been written off is allowable in case the debts represents money lent in original course of business of banking or money lending which in this particular case is carried out by the assessee. The ratio of the judgment passed by the Hon ble Apex Court in the matter of TRF Limited-vs- CIT has also been followed by the Learned CIT(A) holding that the requirement of conditions with the bad debts written off as irrecoverable in the accounts of assessee has been, since, fulfilled by the assessee disallowance made by the Learned AO is not sustainable in the eye of law. Hence, deleted. 4.5 We find no infirmity in the order passed by the Learned CIT(A), taking into consideration the ratio laid down by the Hon ble Supreme Court passed in the matter of TRF Ltd. (supra). Hence, deletion is sustainable. In that view of the matter, revenue s ground of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in dispute that amounts have actually been written off in the books of account of the assessee. The assessee has squared up the individual accounts to the debit of bad debts. In this view of the matter, and in the light of Hon'ble Supreme Court in the case of TRF Limited vs. CIT (323 ITR 397) which holds that a mere write off of the bad debts in the books of account, as irrecoverable, is sufficient to claim deductions as bad debts. Learned CIT(A) was, therefore, quite justified in granting relief to the assessee on this issue. As far provision of ₹ 88,38,79,657/- is concerned, undoubtedly there is nothing on record to show, or even indicate, that these amounts have actually been written off by squaring up individual accounts of the debtors, but what is not in dispute that the provision in question has been debited to the profit and loss account, and the amount of provision is reduced from the loans and advances appearing in the balance sheet. With these facts having been verified by us with respect to material on record, we find that the issue is squarely covered in favour of the assessee by Hon'ble jurisdictional High Court's judgement in the case of CIT vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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