Return treated as non est and ‘invalid’ cannot be treated as allowance or deduction – So Interest waived by bank cannot be charged to tax under s. 41(1)

NJP Surya Cold Storage Pvt Ltd. Vs ITO (ITAT Hyderabad)- Tribunal in the case of Rayala Corporation (P) Ltd. Vs. ACIT, ITAT, Chennai –B Bench (127 TTJ (Chennai) 369 wherein held that:-

“Business income- profits chargeable to tax under s. 41(1)- waiver of interest by bank- returns for assessment years 1994- 95 to 1998-99 wherein the assessee had claimed deduction of interest were found defective by the AO and were declared to be non est as the assessee had failed to rectify the defect in spite of notices under s. 139(8) having been issued- authorities below concluded that the returns having become invalid, it would mean that the claim of interest has been allowed- not justified- none of the prescribed modes of assessment contemplates any type of inference to be attached to an invalid return. Thus, the inference drawn by the authorities below is devoid of cogency- a return treated as non est and ‘invalid’ can by no stretch of imagination be treated as allowance or deduction as per IT Act and records- Therefore, interest waived by the bank cannot be charged to tax under s. 41(1).”

In this case, it is on record that in earlier years, returns were non est. returns and the interest claimed cannot be considered as allowed to the assessee in the earlier years. This being so, interest waived in the present assessment year cannot be considered as income of the assessee. Reliance placed by the assessee in the case of Rayala Corporation (P) Limited vs. ACIT cited supra supports our view on this issue. In view of the above, we allow the ground raised by the assessee.

INCOME TAX APPELLATE TRIBUNAL, HYDERABAD

ITA No. 1225/Hyd/2010

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