Law:

Section:

Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability Where under scheme for its rehabilitation framed by BIFR vide order passed on 27-5-1993, interest liability in respect of certain debts of assessee due to banks and financial institutions was waived, such waived interest could not be considered under section 41(1) for assessment year 1993-94 even if assessee wrote off such waived interest in its books of account in previous year 1992-93 Under the scheme for its rehabilitation framed by BIFR vide order passed on 27-5-1993, interest liability in respect of certain debts of the assessee due to banks and financial institutions was waived. Such interest was written off in the books of account of the assessee ending on 31-3-1993 relevant for the assessment year under consideration i.e. 1993-94. Waiver of interest under BIFR came into existence vide Order dated 27-5-1993 which fell within the financial year commencing from 1-4-1993 and ending on 31-3-1994 and assessment for which was to be made for the year 1994-95 and it did not relate to assessment year 1993-94 in question at all. Though the order was to be operative with effect from the date it was made, the assessee company, whose books of account were yet to be finalized, wrote off the said amount of interest in his books for accounting period ending on 31-3-1993 relevant for the assessment year 1993-94. Very significantly, the BIFR order also directed that provisions of section 41(1) shall not apply to the assessee-company in respect of directions made in the order. The Assessing Officer, in the first instance, resorted to notice under section 148 for the assessment year 1994-95 for including aforesaid liability on account of waiver of interest as a result of the order of the BIFR. However, when it was faced with the conditions of waiver under the order of BIFR that section 41(1) could not be invoked in respect of concession granted to the sick companies, the proceedings under section 148 were dropped, but he sought to consider the same in the course of assessment for the assessment year 1993-94, and made additions of the sum of interest so written off in the books of…

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