Commissioner of Income-tax v. KLN Agrotechs (P.) Ltd
[Citation -2015-LL-0407-3]

Citation 2015-LL-0407-3
Appellant Name Commissioner of Income-tax
Respondent Name KLN Agrotechs (P.) Ltd.
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 07/04/2015
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags substantial question of law • disallowance of interest • waiver of interest • term loan
Bot Summary: The assessee- company had taken a loan from the Canara Bank which was to the tune of Rs. 387.82 lakhs as term loan and Rs. 53.48 lakhs as working capital loan, totalling to Rs. 441.30 lakhs. After deducting the said amount of interest of Rs. 193.96 lakhs from Rs. 378.72 lakhs the figure of Rs. 184.76 lakhs was taken as repayment towards the principal amount. The Department did not accept the plea of the assessee of adjusting the amount of Rs. 193.96 lakhs towards interest and also its claim for the benefit under section 43B of the Act and instead held that the entire amount of Rs. 378.72 lakhs paid by the assessee as one-time settlement with the bank to be adjusted towards the principal amount of Rs. 441.30 lakhs. Ultimately, in the appeal filed by the assessee before the Tribunal, although the erroneous claim of the assessee in adjusting the amount of Rs. 193.96 lakhs towards interest was disallowed and it was held that the total amount had to be first adjusted towards payment of principal amount, but considering the fact that the appellant had itself subjected the waived principal amount of Rs. 257.08 lakhs to tax in its returns, in the interest of justice and equity the Tribunal directed that the disallowance of the interest under section 43B of the Act be subsumed into the offer of Rs. 257.08 lakhs on waiver of principal. 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 the circumstances, the Tribunal was correct in holding that the principal sum of Rs. 2,57,08,826 waived, is 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 of allowing deduction under section 43B which is based on actual payment of interest and recorded perverse finding 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. The submission of the learned counsel for the appellant is that once it has been held that the principal sum of Rs. 257.08 lakhs had been subjected and offered to tax, after the disallowance of interest of Rs. 193.96 lakhs, it could not be subsumed into the offer of Rs. 257.08 lakhs on waiver of the principal amount. If out of the total sum of Rs. 257.08 lakhs which has been offered and subjected to tax by the assessee in its return, the amount of unpaid interest of Rs. 193.96 lakhs is deducted then the waived principal sum would come to Rs. 62.58 lakhs.


JUDGMENT judgment of court was delivered by Vineet Saran J.-This appeal relates to assessment year 2007-08. facts of case are: That assessee, which is private limited company, is engaged in business of manufacturing and trading of refined edible oil. assessee- company had taken loan from Canara Bank which was to tune of Rs. 387.82 lakhs as term loan and Rs. 53.48 lakhs as working capital loan, totalling to Rs. 441.30 lakhs. Since there was default in payment of loan amount by assessee, bank declared account of assessee as non-performing asset (NPA). total interest accrued in said account of assessee was Rs. 193.96 lakhs, i.e., total outstanding payable by bank was Rs. 635.26 lakhs which included principal amount as well as interest. These figures are as per accounts submitted by assessee and accepted by Department. During assessment year in question, assessee arrived at onetime settlement with bank and against payment of Rs. 635.26 lakhs (as per books of account of assessee), as per one-time settlement amount of Rs. 378.72 lakhs, was to be paid by assessee to bank which was paid and account was thereafter closed. In returns filed by assessee, towards total amount of Rs. 378.72 lakhs paid to bank, assessee provided for Rs. 193.96 lakhs as interest paid and claimed deduction under section 43B of Income-tax Act, 1961 (hereafter referred to as "the Act"). After deducting said amount of interest of Rs. 193.96 lakhs from Rs. 378.72 lakhs figure of Rs. 184.76 lakhs was taken as repayment towards principal amount. Thus, from total principal amount payable which was Rs. 441.30 lakhs, if Rs. 184.76 lakhs is deducted as amount paid towards principal, balance of Rs. 256.54 lakhs would be amount which was waived by bank. For relevant assessment year, in its return assessee provided for waived amount of Rs. 257.08 lakhs (i.e., Rs. 256.54 + Rs. 0.54 lakhs) as income and said amount was offered to be subjected to tax. Department did not accept plea of assessee of adjusting amount of Rs. 193.96 lakhs towards interest and also its claim for benefit under section 43B of Act and instead held that entire amount of Rs. 378.72 lakhs paid by assessee as one-time settlement with bank to be adjusted towards principal amount of Rs. 441.30 lakhs. Ultimately, in appeal filed by assessee before Tribunal, although erroneous claim of assessee in adjusting amount of Rs. 193.96 lakhs towards interest was disallowed and it was held that total amount had to be first adjusted towards payment of principal amount, but considering fact that appellant had itself subjected waived principal amount of Rs. 257.08 lakhs to tax in its returns, in interest of justice and equity Tribunal directed that disallowance of interest under section 43B of Act be subsumed into offer of Rs. 257.08 lakhs on waiver of principal. In aforesaid facts, this appeal has been filed by Revenue raising following substantial question of law: "Whether, on facts and in circumstances, Tribunal was correct in holding that principal sum of Rs. 2,57,08,826 waived, is offered to tax, and as such, 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 sum and substance of scheme of allowing deduction under section 43B which is based on actual payment of interest and recorded perverse finding?" We have heard Sri K. V. Aravind, learned counsel for appellant as well as Sri K. K. Chythanya, learned counsel for respondent-assessee and perused records. submission of learned counsel for appellant is that once it has been held that principal sum of Rs. 257.08 lakhs (which was waived by bank) had been subjected and offered to tax, after disallowance of interest of Rs. 193.96 lakhs, it could not be subsumed into offer of Rs. 257.08 lakhs on waiver of principal amount. It is thus submitted that after waiver of interest amount was disallowed even though amount of Rs. 257.08 lakhs was subjected and offered to tax by assessee, additional tax on amount of interest (which had been disallowed) would have to be paid by assessee. In our view, Tribunal has rightly held that assessee cannot be subjected to double jeopardy, i.e., it could not be subjected to tax on waived principal sum of Rs. 257.08 lakhs as well as disallowance of interest under section 43B of Act, as said two effects are mutual, exclusive and cannot co-exist. Tribunal has also observed that "The erroneous offer of tax of Rs. 2,57,08,826 towards waiver of principal sum is more than erroneous claim of interest under section 43B of Rs. 1,93,96,881. As both erroneous offers of waived principal sum to tax and erroneous claim of interest under section 43B emanated from single transaction/event, i.e., one-time settlement, both should be understood as to have cancelled each other." We agree with aforesaid finding recorded by learned Tribunal. If out of total sum of Rs. 257.08 lakhs which has been offered and subjected to tax by assessee in its return, amount of unpaid interest of Rs. 193.96 lakhs is deducted then waived principal sum would come to Rs. 62.58 lakhs (i.e., 441.30 minus 378.72). Either it is interest which is to be waived, and if same is not to be waived, then waived principal amount of Rs. 257.08 lakhs has to be reduced by amount of interest of Rs. 193.96 lakhs which is not permitted for deduction under section 43B of Act. In either case, amount of deduction, as well as amount which is subjected to tax, would come to same. If we accept argument of learned counsel for appellant-Revenue, then it would amount to Department having cake as well as eating it, which would mean subjecting assessee to double jeopardy. This cannot be permitted. Either interest amount has to be allowed for deduction under section 43B or sum offered for tax (as waived by bank) has to be reduced by amount of interest paid. Thus, we do not find that any infirmity with order of Tribunal of allowing disallowance of interest under section 43B of Act to be subsumed into offer of waiver of principal amount. In view of aforesaid, we are of opinion that no substantial question of law arises for consideration by this court. As such appeal is dismissed. No order as to costs. *** Commissioner of Income-tax v. KLN Agrotechs (P.) Ltd
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