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The Tax Publishers Disallowance of bank interest paid due to account becoming NPA - Reconstruction settlement *Facts:* Assessee had borrowed loans from Canara Bank which could not be repaid. The loans were handed over to a reconstruction Company Edelweiss who after negotiations with entire group arrived at a settlement of loan with payments. Excess payment over book balance of loan was claimed as interest which was disallowed by lower authorities. On higher appeal - Held in favour of the assessee that the excess payment was interest and deserved to be allowed. However since the payments were made without TDS to Edelweiss which was not a bank the case was remanded to AO to check if Edelweiss had declared these amounts as income so as to avoid disallowance under Section 40(a)(ia). *Applied :* Amex Garments Pvt. Ltd., [ITA No. 2513/Chny/2018, dt. 30-11-2021] : 2021 TaxPub(DT) 6570 (Chen-Trib) for AY 2015-16 *Ed. Note:* Post Covid many businesses have gone into distress and such settlements also might be seen in large numbers. This decision will be a good pointer to those cases. *Case:* Hamosons Exports (P) Ltd. v. Dy. CIT 2023 TaxPub(DT) 1933 (Chen-Trib)

The Tax Publishers

Disallowance of bank interest paid due to account becoming NPA - Reconstruction settlement

Facts:

Assessee had borrowed loans from Canara Bank which could not be repaid. The loans were handed over to a reconstruction Company Edelweiss who after negotiations with entire group arrived at a settlement of loan with payments. Excess payment over book balance of loan was claimed as interest which was disallowed by lower authorities. On higher appeal -

Held in favour of the assessee that the excess payment was interest and deserved to be allowed. However since the payments were made without TDS to Edelweiss which was not a bank the case was remanded to AO to check if Edelweiss had declared these amounts as income so as to avoid disallowance under Section 40(a)(ia).

Applied :

Amex Garments Pvt. Ltd., [ITA No. 2513/Chny/2018, dt. 30-11-2021] : 2021 TaxPub(DT) 6570 (Chen-Trib) for AY 2015-16

Ed. Note: Post Covid many businesses have gone into distress and such settlements also might be seen in large numbers. This decision will be a good pointer to those cases.

Case: Hamosons Exports (P) Ltd. v. Dy. CIT 2023 TaxPub(DT) 1933 (Chen-Trib)