Ita/23/2014 Of The Commissioner Of Income-Tax v. M/S. Kln Agrotechs (P) Ltd

® IN THER HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 7 DAY OF APRIL 2015 PRESENT. THE HON’BLE MR.JUSTICE VINEET SARAN AND THE HON’BLE MRs.JUSTICE 8S SUJATHA ITA NO.23/2014 BETWEEN: 1.THE COMMISSIONER OF INCOME-TAXCR BUILDINGCR BUILDING QUEENS ROAD BANGALORE 2. “THR INCOME TAX OFFICER WARD-11(2) RASHTROTHANA BHAVAN. NRUPATHUNGA ROADBANGALORE. .. APPELLANTS (BY SRI K V ARAVIND, ADV.) AND: M/S. KLN AGROTECHS (P) LTD19/4, 1ST MAIN ROADJAYAMAHAL EXTENSION|BANGALORE-560046~~. RESPONDENT (BY SRI CHYTHANYA K K, ADV.) THIS ITA IS FILED UNDER SKC.260-A OF INCOME TAX!ACT 1961, ARISING OUT OF ORDER DATED 02/08/2013|PASSED IN ITA NO.818/BANG/2011, FOR THE ASSESSMENT|YEAR 2007-2008 PRAYING THIS HON'BLE COURT TO °: 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF)LAW STATED ABOVE. 2. ALLOW THR APPBKAL AND SEIT ASIDE THER ORDEPASSEI)BY!THEITAT,BANGALOREIN|ITANO.818/BANG/2011 DATED 02/08/2013 AND CONFIRM THEORDER OF THER APPELLATE COMMISSIONER CONFIRMINGTHE ORDER PASSED BY INCOME TAX OFFICER, WARD-11(2),BANGALORE. THIS APPEAL COMING ON FOR ADMISSION THISDAY,VINEET SARAN|., DELIVERED THE FOLLOWING: JUDGMENT This appeal relates to the assessment year 2007-2008. 2. The facts of the case are: That the assessee, which 1s a Private Limited Company,is engaged in the business of manufacturing and trading ofrefined edible oil. The asseseee-Company had taken a loanfrom the Canara Bank which was to the tune of Rs.387.82.Lakhs as term loan and Rs.53.48 Lakhs as working capitalloan, totaling to Rs.441.50 Lakhs. Since there was default in 3 payment of the loan amount by the assessee, the Bankdeclared the account of the assessee as non-performing asset(NPA). The total interest accrued in the said account of theassessee was Ks.193.96 Lakhs te. the total outstandingpayable by the Bank was Rs.635.26 Lakhs which included theprincipal amount as well as the interest. © These figures are as per the accounts submitted by the)assessee and accepted by the Department.During the assessment year in question, the assessee|arrived at a one time settlement with the Bank and againstpayment of Rs.635.26 Lakhs (as per the Books of Accounts ofthe assessee), as pet the one time settlement an amount ofRs.378.72 Lakhs, was to be paid by the assessee to the Bankwhich was paid and the account was thereafter closed. In thereturns filed by the assessee, towards the total amount ofRs.378.72 Lakhs paid to the Bank, the assessee provided forRs.193.96 Lakhs as interest paid and claimed deduction underSection 43B of the Income Tax Act, 1961 (hereafter referredto as ‘the Act’). After deducting the said amount of interest of Rs.193.96 Lakhs from Rs.378.72 Lakhs the figure of Rs.184.76Lakhs was taken as repayment towards principal amount. —Thus from the total principal amount payable which wasRs.441.30 Lakhs, 1f Rs.184.76 Lakhs 1s deducted as theamount paid towards principal, balance of Rs.256.54 Lakhswould be the amount which was waived by the Bank. For therelevant assessment year, in its return the assessee providedforwaived|amount.of|Rs.257.08Lakhs(Le.,Rs.256.54+Rs.0.54 Lakhs) as income and the said amount wasoffered to be subjected to tax. | The department did not accept the plea of the assessee|of adjusting the amount of Rs.193.96 Lakhs towards interestand also its claim for benefit under Section 43B of the Act,and instead held that the entire amount of Rs.3/78.72 Lakhspaid by the assessee as one time settlement with the Bank tobe adjusted towards the principal amount of Rs.441.30 Lakhs. Ultimately 1n the appeal filed by the assessee before the|Tribunal, although the erroneous claim of the assessee inadjusting the amount of Rs.193.96 Lakhs towards interest was The department did not accept the plea of the assessee|of adjusting the amount of Rs.193.96 Lakhs towards interestand also its claim for benefit under Section 43B of the Act,and instead held that the entire amount of Rs.3/78.72 Lakhspaid by the assessee as one time settlement with the Bank tobe adjusted towards the principal amount of Rs.441.30 Lakhs. Ultimately 1n the appeal filed by the assessee before the|Tribunal, although the erroneous claim of the assessee inadjusting the amount of Rs.193.96 Lakhs towards interest was disallowed and it was held that the total amount had to be first.adjusted towatds payment of principal amount, butconsidering the fact that the appellant had itself subjected thewaived principal amount of Rs.257.08 Lakhs to tax in itsreturns, in the interest of justice and equity the Tribunaldirected that the disallowance of the interest under SectionA3B of the Act be subsumed into the offer of Rs.257.08 Lakhs.on waiver of principal. 3. In the aforesaid facts, this appeal has been filed by the revenue raising the following substantial question of law: “Whether on the facts and in thecircumstances, the Tribunal was correct in holding|that principal sum of Rs.2,57,08,826/- waived, 1s offered to tax, and as such, the disallowance of|Rs.1,93,96,881/- is to be subsumed into offer of|Rs.2,57,08,826/- on waiver of Principal, which is against the sum and substance of the scheme ofallowing deduction under Section 43B which 1s|based on actual payment of interest and recorded|perverse finding?” 4. We have heard Sri.K.V.Aravind, learned counsel for|the appellant as well as Sri.&k.K.Chythanya, learned counsel for the respondent-assessee and perused the records. 5. The submission of the learned counsel for the)appellant is that once it has been held that principal sum ofRs.257.08 Lakhs (which was waived by the Bank) had beensubjected and offered to tax, after the disallowance of interestof Rs.193.96 Lakhs, it could not be subsumed into the offer ofRs.257.08 Lakhs on waiver of principal amount. It is thussubmitted that atter the waiver of interest amount wasdisallowed, even though the amount of Rs.257.08 Lakhs wassubjected and offered to tax by the assessee, additional tax onthe amount of interest (which had been disallowed) wouldhave to be paid by the assessee. 6. In our view, the Tribunal has rightly held that the| assessee cannot be subjected to double jeopardy tLe.., it couldnot be subjected to tax on the waived principal sum ofRs.257.08 Lakhs as well as disallowance of interest under Section 43B of the Act, as the said two effects are mutual,exclusive and cannot co-exist. The Tribunal has also observedthat, ‘““The erroneous offer of tax of Rs.2,57,08,826/- towardwaiver of principal sum is more than the erroneous claim ofinterest under Section 43B of Rs.1,93,96,881/-. As both.erroneous offers of waived principal sum to tax and erroneousclaim of interest under Section 43B emanated from a singletransaction/event i.e., OTS, both should be understood as to.have cancelled each other.’ 7. We agree with the aforesaid finding recorded by the|learned Tribunal. 8 If out of the total sum of Rs.25/.08 Lakhs which|has been offered and subjected to tax by the assessee in itsreturn, the amount of unpaid interest of Rs.193.96 Lakhs isdeducted then the waived principal sum would come toRs.62.58 Lakhs (1.e., 441.30 minus 378.72). Either it 1s theinterest which is to be waived, and if the same is not to bewaived, then the waived principal amount of Rs.257.08 Lakhs 7. We agree with the aforesaid finding recorded by the|learned Tribunal. 8 If out of the total sum of Rs.25/.08 Lakhs which|has been offered and subjected to tax by the assessee in itsreturn, the amount of unpaid interest of Rs.193.96 Lakhs isdeducted then the waived principal sum would come toRs.62.58 Lakhs (1.e., 441.30 minus 378.72). Either it 1s theinterest which is to be waived, and if the same is not to bewaived, then the waived principal amount of Rs.257.08 Lakhs has to be reduced by the amount of interest of Rs.193.96Lakhs which 1s not permitted for deduction under Section 43B°of the Act. In either case, the amount of deduction, as well as”the amount which is subjected to tax, would come to thesame. If we accept the argument of learned counsel for theappellant — revenue, then it would amount to the departmenthaving the cake as well as eating it, which would meansubjecting the assessee to double jeopardy. ‘This cannot bepermitted. Either the interest amount has to be allowed fordeduction under Section 43B or the sum offered for tax (aswaived by the Bank) has to be reduced by the amount ofinterest paid. — 9. Thus we do not find that any infirmity with the order| of the Tribunal of allowing the disallowance of interest underSection 43B of the Act to be subsumed into the offer ofwaiver of principal amount. 10. In view of the aforesaid, we are of the opinion that| no substantial question of law is arises for consideration by © 6./0��7B56����0�0B<.�6.3�122314�/0�?/08/003?����7�75?35�10�67�<7060�� �����������������������?'!����������������������������?'!�����������������RS/*