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CIT v. Modern Spinners Ltd. (2016) 382 ITR 472 (SC)
The assessee filed a return for the assessment year 1995- 96 on Novembr 24, 1995, declaring a loss of Rs.57,99,781. During the course of the assessment proceedings, the Assessing Officer specifically required the assessee to show cause why the provision of interest of Rs.49.23 lakh should not be disallowed as the provision amounted to unascertained liability. After granting opportunity to the assessee, the deduction for the said amount of interest was disallowed by the Assessing Officer. Against this order, the assessee preferred an appeal which was also dismissed by the Commissioner of Income Tax (Appeals). The view taken by the Assessing Officer as well as the Commissioner of Income Tax (Appeals), was set aside by the Income-tax Appellate Tribunal upon appeal by the assessee.
The Tribunal held that the assessee had provided interest liability only at the rate of 10 per cent which was as per the compromise agreement with the bank and not as per the original terms and conditions of loan. Therefore, it could not be treated to be a contingent liability, rather it was an ascertained liability. According to the Tribunal the assessee could not be penalized for claiming less interest liability.
The High Court dismissed the appeal of the Revenue holding that it was not an unilateral act on the part of the assessee but was a bilateral consented action on behalf of the parties which was of binding in terms of the agreement and as such it could not be termed as an unascertained liability.
On further appeal by the Revenue to the Supreme Court it was held that the matter was covered against the Revenue by the judgment of the Supreme Court in Taparia Ltd. vs. Joint CIT [2015] 372 ITR 605 (SC).
