LOGITRONICS PVT LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) Having regard to the commonality in the legal question which arises for consideration in these two appeals, they were heard on the same, one after the other. At the same time, after stating the legal principle which is involved, we will take up the appeals separately applying principles to the situation appearing in each of the case.

(2.) The issue in this case relates to the treatment which is to be given to the extent of amount of loan and interest waived by the financing institutions from where the loan was taken. The appellant is the assessee company, which is engaged in the business of manufacturing of electronic products. It was enjoying loan facility from State Bank of India (SBI). As the appellant could not discharge its liability for specific time, keeping in view the guidelines/directions of the SBI, the SBI categorized this loan as Non-Performing Asset (NPA). As on 31.03.1998, principal amount of loan due to the bank was '4,76,92,213 and outstanding interest was '1,90,42,295. Issue of recovery of loan was referred to Debt Recovery Tribunal in the year 2000. During the pendency of these proceedings, the assessee had settled the matter with the SBI. Pursuant to one time settlement with the bank, on payment of '1,85,00,000 against loan of '4,76,92,213 (principal amount), the remaining sum of '1,90,42,295 was waived. In the tax return filed by the assessee, it showed interest waived as income but not the amount of loan waived by SBI, though amount of interest written off i.e., '1,90,42,295 was credited to profit & loss account and was offered for taxation. However, relying upon the decision of this Court in the case of Commissioner of Income Tax Vs. Tosha International Ltd.,176 Taxman 187], principal amount written off i.e. '2,91,42,213 that was directly taken to balance sheet under the head capital reserve, was not offered for taxation.

(3.) The AO framed assessment order dated 16.12.2006. For the following reasons, the Assessing Officer held that even waiver of principal amount of loan was also taxable: