1. This appeal relates to the assessment year 2007-2008.

2. The facts of the case are:

That the assessee, which is a Private Limited Company, is engaged in the business of manufacturing and trading of refined edible oil. The asseseee-Company had taken a loan from the Canara Bank which was to the tune of Rs.387.82 Lakhs as term loan and Rs.53.48 Lakhs as working capital loan, totaling to Rs.441.30 Lakhs. Since there was default in payment of the loan amount by the assessee, the Bank declared the account of the assessee as nonperforming asset (NPA). The total interest accrued in the said account of the assessee was Rs.193.96 Lakhs i.e., the total outstanding payable by the Bank was Rs.635.26 Lakhs which included the principal amount as well as the interest.

These figures are as per the accounts submitted by the assessee and accepted by the Department.

During the assessment year in question, the assessee arrived at a one time settlement with the Bank and against payment of Rs.635.26 Lakhs (as per the Books of Accounts of the assessee), as per the one time settlement an amount of Rs.378.72 Lakhs, was to be paid by the assessee to the Bank which was paid and the account was the