Ramachandran Nair, J v. M/S.accelerated Freeze Drying Co.ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN MONDAY, THE 22ND MARCH 2010 / 1ST CHAITHRA 1932 ITA.No. 1774 of 2009() ---------------------- ITA.971/COCH/2008 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT: -------------------- THE COMMISSIONER OF INCOME TAX,KOTTAYAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: --------------- M/S.ACCELERATED FREEZE DRYING CO. LTD.,ALLEPPEY. ADV. SRI.P.BALAKRISHNAN (E) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 22/03/2010, THE COURT ON 22/03/2010 DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &P.S.GOPINATHAN, JJ. .................................................................... I.T. Appeal No.1774 of 2009 .................................................................... Dated this the 22nd day of March, 2010. C.R. JUDGMENT Ramachandran Nair, J. The only question raised in the departmental appeal is whetherthe waiver of part of the loan by the Banks granted to the assessee isassessable as income either under Section 28(iv) or under Section 41(1)of the Income Tax Act. We have heard Senior Standing CounselSri.P.K.R.Menon appearing for the Revenue and Adv.Sri.P.Balakrishnan appearing for the respondent-assessee. 2. As on the last day of the previous year, assessee had anaccumulated liability due to the Banks amounting to Rs.3486.03lakhswhich was settled on payment of Rs.2450 lakhs. In the processassessee saved an amount of Rs.1036.03 lakhs. The Assessing Officerassessed this as deemed income assessable under the Act, but withoutany specific reference to either Sections 41(1) or 28(iv) of the Act.Even though Standing Counsel has relied on judgment of the SupremeCourt in COMMISSIONER OF INCOME-TAX VS. T.V.SUNDARAM IYENGAR AND SONS LTD. reported in 222 ITR344, we do not find any application for the said decision to the facts ofthis case. However, we find that interest, if any, written off by theBank may be assessable under Section 41(1), if it was allowed as adeduction in any of the preceding assessments of the assessee. This isbecause interest paid on funds borrowed for business purpose is anallowable deduction under Section 36(1)(iii) of the Income Tax Act. Ifthe interest allowed as a deduction in any assessment is waived, then ofcourse such amount may be assessable under Section 41(1) of the Act.Counsel appearing for the assessee referred to the findings andobservations in some orders produced in the court stating that nointerest was charged by some Banks for some period and no waiver ofinterest was granted in the one time settlement. However, StandingCounsel submitted that when waiver is of consolidated amount,necessarily part of the interest also gets waived. We find force in thiscontention because the loan amount gets accumulated with interestaccretion and even though final settlement does not show break-updetails, necessarily a component of it is interest. An agreementbetween the parties granting waiver of part of the loan is not binding onthe department because department is free to verify the break-up details of accumulated loans and allocate from out of waiver, proportionateaccretion towards interest. So much of the interest allowed asdeduction from the preceding years that is waived by the Banks may beassessable under Section 41(1) of the Act. We do not wish to expressany opinion on the assessability and on what amount assessment iscalled for because detailed facts have to be gone into by verifying theaccounts of the assessee, the payments credited and the accumulationsof interest added to the loan account. We, therefore, allow the appealby setting aside the order of the Tribunal and remand the matter to theAssessing Officer for verifying the accounts of the assessee andmaking assessment, if possible under Section 41(1). We make it clearthat no assessment is permissible under Section 28(iv) as the saidSection has no application. The Assessing Officer should givesufficient opportunity to the assessee to substantiate their case. C.N.RAMACHANDRAN NAIRJudge P.S.GOPINATHANJudge