George George K., Judicial Member - This appeal preferred by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-A, Bangalore, dated August 1, 2011 in relation to the assessment year 2007-08.

Briefly stated, the facts are as follows :

2. The assessee is a private limited company. It is engaged in the business of manufacturing and trading of refined edible oil. The return of income was filed for the impugned assessment year on March 29, 2008, declaring a net loss of Rs. 6,82,787. The return was processed under section 143(1) of the Act. The assessment was taken up for scrutiny by issuance of notice under section 143(2) of the Act. Scrutiny assessment order was completed under section 143(3) of the Act vide order dated December 30, 2009. The Assessing Officer determined the total income at Rs. 2,24,79,870. The Assessing Officer made the following additions to the returned income :

(a) Computed the capital gains on the sale of factory building, borewell, and plant and machinery after providing for notional depreciation for the unused assets (unused since February 6, 2003).

(b) Disallowing interest under section 43B to the extent of Rs. 1,93,96,881 claimed by the assessee as a result of one-time settlement (OTS) scheme of the banker.

3. Aggrieved by the aforesaid order passed under section 143(3) of the Act, the assessee filed an appeal before the first appellate authority. The Commissioner of Income-tax (Appeals) rejected the contentions raised by the assessee and dismissed the appeal preferred by the assessee. The assessee being aggrieved is in appeal before us raising the following grounds :

"1. The learned Commissioner of Income-tax (Appeals) is not justified in affirming the action of the learned Assessing Officer in computing the notional depreciation while determining capital gains under section 50 by failing to appreciate that the impugned assets were seized by the bank towards recovery of loan as early as in 2003 and same were not put to use by the appellant from the assessment year 2003-04 onwards.

2. The learned Commissioner of Income-tax (Appeals) ought not to have disallowed a sum of Rs. 1,93,96,881 claimed by the appellant under section 43B on the basis that the one-time settlement of loan was towards interest, particularly when the Department accepted the treatment of appellant in offering the principal amount of loan to tax to the extent of Rs. 2,57,08,826 on the basis that the same was waived.

3. In the alternative and without prejudice to the above, the learned Commissioner of Income-tax (Appeals) is not justified in failing to appreciate that the principal amount of loan to the extent of Rs. 2,57,08,826 offered to tax by the appellant on misunderstanding of fact and law, had to be necessarily excluded in computing the total income in accordance with the provisions of the Act".

Capital gains-(Ground No. 1)

4. Brief facts in relation to the above ground are follows :

The assessee had sold the land, factory building, borewell and plant and machinery and declared capital gains to the extent of Rs. 1,19,90,389 in respect thereof. The computation of capital gains is as follows :

5. While computing the capital gains, the assessee had adopted written down value of the asset as on March 31, 2003 since the property in question were attached/seized for default in payment of loan borrowed from Canara Bank and the State Bank of India. The depreciation on the abovesaid assets were not claimed since 2003 by the assessee as they were not used in the assessee's business and therefore according to the assessee the conditions mandated under section 32 of the Act was not fulfilled.

6. In the assessment order, the Assess