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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri Mahavir Singh, JM & Shri M. Balaganesh, AM]
Per Shri Mahavir Singh, JM:
This appeal by assessee is arising out of order of CIT(A)-XIX, Kolkata vide Appeal No. 172/CIT(A)-XIX/ACIT Cir-31/Kol/11-12 dated 12.02.2013. Assessment was framed by ACIT, Circle-31, Kolkata u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2009-10 vide his order dated 19.11.2011.
The first issue in this appeal of assessee is against the order of CIT(A) confirming the action of AO making addition of interest waived before accrual amounting to Rs.99,12,892/-.
Briefly stated facts are that the assessee is engaged in the business of granting of loans and advances, investment in shares and securities. The AO during the course of assessment proceedings noted from the Balance Sheet that the assessee has invested approximately Rs. 11 cr. in granting of loans only to three parties namely, Avis Tie up Pvt. Ltd. amounting to Rs.1,38,68,079/- and Saurabh Saraf amounting to Rs.21,20,000/- and to SSD Securities Pvt. Ltd. amounting to Rs.23,06,06,987/-. But according to AO, no interest was charged from SSD Securities Pvt. Ltd. The AO also noted that SSD Securities Pvt. Ltd. has paid total interest of Rs.6,32,13,790/- to various other parties from whom loans were taken by the Co. but no interest was paid to the assessee company. According to AO, it clearly establishes that the assessee has deliberately reduced his business income receivable from SSD Securities Pvt. Ltd. which he managed and controlled and avoided declaring income on a very flimsy pretext. The AO reproduced the copy of ledger account wherein assessee has calculated interest accrual @ 6% in the relevant year. According to AO, the assessee avoided crediting this interest of Rs.99,12,892/- Madhu Sudan Dalmia, AY 2009-10 to itself from a company which he had controlling stake as shareholder and director. Hence, the AO added back this interest of Rs.99,12,892/- to the returned income of the assessee. Aggrieved, assessee preferred appeal before CIT(A), who also confirmed the action of AO. Aggrieved now, assessee is in second appeal before Tribunal.
We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee explained before the AO that there was a request for waiver of interest, which was received by the assessee through letter dated 19.09.2008 from the SSD Securities Pvt. Ltd. and that party had not paid interest due to financial crisis and slow down of the business and profitability of the assessee company. Before us it was also explained that it is clear from the audited accounts of SSD Securities Pvt. Ltd. that for FYs 2007-08, 2008-09 and 2009-10 the assessee’s position deteriorated in term of finances, he referred to the following figures: Financial Year Profit (Loss) before taxation 2007-08 Rs.23,76,92,156 2008-09 Rs.(1,24,24,909) 2009-10 Rs.3,90,36,554 It was explained that the profit of Rs.23.76 cr. in FY 2007-08 slipped to loss of Rs.1.24 cr. in FY 2008-09 i.e. the year under consideration and balance sheet was in red. According to Ld. Counsel, the granting of waiver of interest was not at all used as a device to reduce the income of the assessee but as a measure permissible to the businessman in term of commercial expediency. The Ld. Counsel for the assessee pleaded for commercial expediency and he relied on the decision of Hon’ble Calcutta High Court in the case of Bagoria Udyog Vs. CIT (2011) 334 ITR 280 (Cal). Ld. Counsel for the assessee before us also explained that the immediate cause of action for waiver of such interest was claimed on account of global financial crisis, which severely affected capital market with unexpected volatility. Accordingly, the assessee before us contended that the commercial expediency was the reason for not charging interest/waiver of interest before the year end. This issue has been answered by Hon’ble Calcutta High Court in Bagoria Udyog, supra as under:
“9. Apart from the aforesaid fact, we are of the view that within the scope of appeal before the Tribunal preferred by the Revenue, the question was whether the Commissioner of Income-tax (Appeals) was justified in passing the order impugned on the basis of materials on record and there was no question of deciding the appeal on the basis of any admission when at no point of time in the past there was any admission of the assessee that there was no business connection between the assessee and M/s. Hamlet and such alleged admission was also not put forward as one of the grounds by the Revenue in appeal before the Tribunal. On the other hand, the Commissioner of Income-tax (Appeals) accepted the written agreement between the assessee and M/s. Hamlet showing exemption of interest by the assessee on pure business consideration holding that the 2 Madhu Sudan Dalmia, AY 2009-10 interest having been waived before it became due, the assessee was entitled to rely upon such waiver and there was no justification of adding the amount as deemed interest accrued in favour of the assessee. In our opinion, it was the duty of the Tribunal to answer the said question in accordance with law of the land. In this case, the Tribunal accepted the position of law that such waiver was permissible according to the decision of the Supreme Court and further accepted the finding of the Commissioner of Income-tax (Appeals) that sufficient cause was shown by the assessee for non-production of the agreement before the Assessing Officer.
We, therefore, find that having regard to the position of law laid down by the Supreme Court in the case of CIT v. Shiv Prakash Janak Raj and Co. P. Ltd. [1996] 222 ITR 583 (SC), relied upon by the Commissioner of Income-tax (Appeals), the Tribunal erred in law in setting aside the order of the Commissioner of Income-tax (Appeals) on the alleged ground of concession which itself was incorrect.” In view of the above proposition of law laid down by Hon’ble Calcutta High Court, the waiver of interest before the year end cannot be treated as income in the given facts and circumstances of the case. Accordingly, we delete the addition and allow this issue of assessee’s appeal.
The next issues in respect of confirming the addition by CIT(A) of Rs.2,80,248 being the notional foreign currency exchange difference and confirming the disallowance of Rs.1,29,898/- u/s. 14A of the Act were not pressed by the Ld. Counsel for the assessee at the time of hearing. Hence, the same are dismissed being not pressed.
In the result, appeal of assessee is partly allowed. Order pronounced in the open court on 03.03.2016