Case Law Details
ITAT Delhi held In the case of M/s National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED) vs. JCIT that there is no qualitative difference between the two situations, viz., first, in which no enforceable liability to pay is created in the first instance, and second, in which though the enforceable liability was initially created but the same stands wiped out by the stay on the operation of such enforceable liability. In both the situations, claimant remains without any legal right to recover the amount and equally the opposite party without any legal obligation to pay the same. In the given case as the assessee did not incur any liability for payment of interest to Alimenta as at the end of the years under consideration and the arbitration award was also stayed by the court. Since no legally enforceable liability existed against the assessee, the deduction has been rightly denied.
Also in the facts and circumstances of the case, where claim of damages and interest thereon is disputed by the assessee in the court of law, deduction can’t be allowed for the interest claimed on such damages in the computation of business income.
Facts of the Case
The assessee filed its return and the assessment was completed on 27.2.2004 u/s 143(3). During the course of assessment proceedings pertaining to the A.Y. 2003-04, a special audit u/s 142(2A) was carried out which divulged, inter alia, that the assessee had claimed deduction for interest payable to M/s Alimenta SA Switzerland (Alimenta) on account of arbitration award, which was still disputed by it. The AO observed that the assessee claimed deduction of interest amounting to Rs.7.92 crore payable to Alimenta for the A.Y. 2001-02. Such amount of interest was not found to have been debited to the Profit & Loss Account but directly reduced in the computation of total income. He further observed that as per the provisions of section 40(a)(i) of the Act, this amount of interest was deductible only on the deduction of tax at source and payment thereof, which was not done by the assessee. Notice u/s 148 was issued 22.9.2006, which was duly served on the assessee.
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