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Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SHRI. CHANDRA POOJARI & SMT. BEENA PILLAI
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against the order dated 04.09.2018 passed by the Ld.CIT(A)-Davangere for A.Y. 2012-13 on following grounds of appeal: “1) That Order of the Hon'ble Commissioner of Income (Appeals) Davangere is opposed to the law and facts and circumstances of the case. 2) That the Learned CIT (Appeals) Davanagere is not justified in rejecting grounds summarily which is opposed to the principles of Natural Justice. 3) That the Learned CIT ( Appeals) Davanagere has erred in upholding the disallowance of Rs. 4,88,43,166/- U/s Page 2 of 43B without appreciating the legal provisions as applicable. 4) That the Learned CIT ( Appeals) Davanagere has erred in confirming an addition of Rs. 38,10,000/- without perusing the case and the same is opposed to the principles of Natural Justice. 5) That the Learned CIT ( Appeals) Davanagere has erred in sustaining and addition of Rs. 12,43,154/- u/s 69C which is also opposed to the principles of Natural Justice. 6) That the Learned CIT ( Appeals) Davanagere is not justified in summarily dismissing the grounds of brought forward and carried forward of loss of Rs. 5,39,71,320/- for Asst. Years 2012-13”
2. Brief facts of the case are as under: 2.1 The Assessee is a Co-operative Sugar factory assessed to Income Tax with ITO, Ward (2). Haveri. The assessee has been leased out as per the order of the Govt. Of Karnataka for year under consideration. The assessee filed its return of income on 31/07/2012 declaring Nil income. The case of the assessee was selected for scrutiny and a notice u/s 143(2). The assessee submitted written replies / explanations for various queries raised by the Ld.AO. The Ld.AO made following additions while concluding the assessment. 1) Disallowances made u/s 43B Rs.4,88,43,166/- 2) Excess liability as income Rs.38,10,000/- 3) Disallowance for No TDS u/s 40(a)(ia) Rs. 75000/- 4) Expenditure treated as unexplained towards interest on RD & NRD Rs. 12,43,154/- 2.2 The Ld.AO after setting off of the loss against the addition no tax was computed to be payable. 2.3 Aggrieved by the order of Ld.AO, assessee filed appeal before the Ld.CIT(A).
Page 3 of 2.4 The Ld.CIT(A) upheld the additions made by the Ld.AO. 2.5 Aggrieved by the order of Ld.CIT(A), assessee filed present appeal before this Tribunal.
The Ld.AR submitted that Ground no. 1 is general in nature and therefore do not require adjudication.
Ground no. 2 is submitted to be not pressed by assessee and therefore dismissed.
Ground no. 3: Assessee raised this issue against the disallowance of Rs.4,88,43,166/- u/s. 43B of the Act. The Ld.AR submitted that the said amount relates to payment to be made to State Government of Karnataka. He submitted that the assessee had filed various documents to support that, interest on loans from state government does not fall within the ambit of section 43B. It is submitted that, the amount that is already appearing in the balance sheet amounting to Rs. 5,17,00,000/- is the borrowing from State Government under a scheme, and interest payable on such borrowings from the State Government cannot be disallowed u/s. 43B.
The Ld.AR vide written submission dated 24.01.2022 submitted that, the assessee is deriving income by way of leasing sugar factory building and machinery (under composite lease), earned income from lease rent and Interest Income from deposits, thereby for the year under consideration.
He submitted that the Ld.AO presumed, without appreciating the fact, that the provisions of section 43B is applicable for the cash assistance made by Government (in the form of Bridge loan / soft loan/ godown loan/store loan/ sugar pledge loan).
He submitted that the "State Government" is not a Public Financial institution, scheduled Bank, State Financial Corporation and state Industrial Investment Corporation as per Explanation 4 to Section 43B. It is submitted that the amount borrowed appearing in balance sheet to an extent of Rs. 5,17,00,000/- (i.e., 1,18,00,000/- + 3,99,00,000/-) represents borrowing from "State Government" under the scheme.
Interest Loan Interest Current Amou Any other Pg. loan Order No. Condition during the liabilities Doc nt (in Details No year 0/s as on Lks) 31/03/2012 NCDC RDC 190 COF Repay in CG- Bridge 78 Dated 1 100 14,00,000 3,05,00,000 scheme C 1 1-2 loan 15/03/1979, year, 14% Fund State RDC 88 COF Recoup Adv from Govt 79 dt supl., 25 14,00,000 Continge 2 3 Loan 7/01/1980 Grant ncy fund 4,50,62,500 State RDC 88 COF Recoup Govt 79 dt supl., 75 3 4 Loan 4/02/ 1980 Grant CMW 204/FST Repay in 5 year Soft Loan 200 dt 400 25,93,500 2,60,28,048 4 5-15 @ 6.5% 09/02/2002 through NCDC Admin: Year: 96 Repay in 5 year KCC 16- Godown 55.30 1,00,786 15 95 583 6 dt 09/08/1986 @ 18% Bank, 19 Loan Dharwad Store Admin: Year: 96 On Demand @ 20- 120 10,43,272 87,38,432 7 Loan dt 09/08/1986 17% 23 Proceeding P&D No. Penal 16 Sugar Pledge 300 48,00,000 3,35,96,000 64 Karnataka 7469/ 2003- interest & State Apex 32.45 loan 04 18 Bank lks Confirmatio Urban Bank Notes Below 58,92,936 3,41,43,186 Below n letters Deposit below Total Disallowance -Proposed 17,96,63,749 TOTAL— Current Year Provisions — Debit in P& L 1,72,30,494 (1,72,30,494) Balance as on 31/03/2012 — proposed 16,24,33,255 disallowance u/s 43B — related to earlier years
The Ld.AR submitted that the provisions made during the year is Rs. 1,72,30,494/- only as discernable from the assessment order itself (including payments made to state Government, however the learned Assessing officer made addition of Rs. 4,88,43,166/- (i.e., Excess addition of Rs. 3,16,12,672, which in fact relates to Preceding financial years). He submitted that the Proposal Notice hereinunder as reproduced in the assessment order goes to establish that the funding was provided by the State Government. Total Interest (current year - P&L) + All Past Accumulation (in Balance sheet) - page 85 Whether Amount proposed Sl Particulars of Expenses To whom it paid within for addition u/ s No is payable time allowed 43B u/ s 43B Profit and loss accounts Interest on NCDC Bridge State Not paid till 1 14,00000 Loan Government date Interest on State Govt Loan State Not paid till 2 14,00,000 Government date State Not paid till 3 Interest on Soft Loan 25,93,500 Government date Interest on NCDC Godown Not paid till 4 KCC Bank 1,00,786 Loan date Interest on Store Co-op Bank Not paid till 5 10,43,272 Loan date Interest on Sugar Pledge Not paid till 6 state 48,00,000 loan date Interest on Urban Bank Urban Bank Not paid till 7 58,92,936 Deposits date 1,72,30,494 Current liabilities (including above amt debited to P& L) - page 85 & Page 101 Not paid till Interest on State Govt Loan State 8 4,50,62500 date Government , Interest on NCDC Bridge State Not paid till 9 3,08,00,000 Loan Government date 10 Interest on NCDC Godown Not paid till KCC Bank 15,95,583 Loan date 11 Interest on Sugar Pledge State Not paid till 3,35,96,000 loan Government date Co-op Bank Not paid till 12 Interest on Store Loan 87,38,432 date State Not paid till 13 Interest on Soft Loan 2,60,28,048 Government date 14 Interest on Urban Bank Urban Bank Not paid till 3,41,43,186 Deposits date 17,99,63,749 Total Proposed Addition 19,23,94,243 He thus submitted that the revenue was not justified in making addition during the Impugned Assessment year to an extent of Rs. 3,16,12,672/- is bad in law.
We have perused the submissions advanced by both sides in the light of records placed before us. The Ld.AR before us has relied on the decision of Hon’ble Allahabad High Court in case of CIT vs. UP Rajya Viyut Utpadan Niyamit Ltd. reported in (2013) 37 Taxman.com 164.
In support of his submission that section 43B is not applicable to interest paid on government loans. The Ld.DR vide written submission dated 24.01.2022 submitted as under: “The Ld.CIT(A) perused the asst. order of the AO and the omissions of the appellant. The Ld.CIT(A) observed with regard to disallowance u/s 43B of the Act, that the AO noted that interest was disallowed by the assessee himself for earlier years as not allowable expenses, but has not done so in the current year and no explanation was given. In view of the above, the Ld. CIT(A) upheld the additions of the AO. I agree with the decision of the Ld.CIT(A) and the same may be upheld.”
The Ld.AR submitted that interest cannot be disallowed u/s. 43B, as it was not claimed as deduction in the return of income for year under consideration. This is discernable from the letter dated 06.02.2015 filed before the Ld.AO, which has not been considered. Therefore in the interest of justice, we direct the Ld.AO to consider the claim made by assessee for verification as submitted vide its letter dated 05.02.2015 in accordance with law.
Page 7 of Accordingly, this ground raised by assessee stands partly allowed for statistical purposes.
13. Admittedly, there is no dispute that assessee has procured loan from apex bank which is a state financial corporation.
14. Ground no. 4 is in respect of addition of Rs.38,10,000/- on account of excess of assets over liability. 14.1 The Ld.AR submitted that assessee had shown a) Interest on sugar pledge loan for DCCB Tumkur of Rs.2,99,98,000/- and b) Interest on Sugar Pledge loan Rs. 3,35,96,000/- as outstanding loans in the balance sheet. 14.2 He submitted that assessee received sum of Rs.5,97,84,000/- from DCCB, Tumkur as per the confirmation letter filed. For the balance, since no details were filed, the Ld.AO made addition in the hands of the assessee. The Ld.CIT(A) confirmed the same without verifying the papers filed by the assessee. 14.3 Before us, the Ld.AR submitted that, the said amount is outstanding based on a letter issued by the bank. The Ld.AR submitted that, the outstanding figure revealed in the balance sheet may be accepted. 14.4 We have perused the submissions advanced by both sides in the light of records placed before us. 14.5 The submissions of Ld.AR is based on surmises without there being any cogent evidences. 14.6 We therefore, remand this issue to the Ld.AO, wherein assessee shall furnish the confirmation from the bank based on Page 8 of which the claim shall be considered. Needless to say that proper opportunity of being heard is to be granted to the assessee. Accordingly, this ground raised by assessee stands partly allowed for statistical purposes.
15. Ground no. 5 is against the addition of Rs. 12,43,154/- u/s. 69C of the Act. 15.1 The Ld.AR at the outset submitted that various details in respect of the claim was submitted before the Ld.CIT(A) /AO. 15.2 He submitted that refundable deposits were required to be converted into share capital after taking approval from the Board of Directors and that this is not payable to any agencies, banks and therefore disallowance u/s. 43B does not arise. 15.3 It is also submitted that, the said advances cannot be considered u/s. 69C of the Act, as they are not unexplained. 15.4 Referring to para 6.3 of the assessment order, the Ld.AR submitted that the Ld.AO himself clearly mentions that assessee furnished the basis and material evidence in support of the claim. However, while concluding in para 6.3 of the order, the Ld.AO recorded that, the disallowance is based on non-furnishing the basis and material in support of the claim. 15.5 The Ld.CIT.DR relied on the orders passed by the authorities below. 15.6 We have perused the submissions advanced by both sides in the light of records placed before us. 15.7 We note that this issue has been considered by the revenue, without verifying the evidences and materials filed by the assessee. In the interest of justice, we remand this issue to the Ld.AO to consider the claim in accordance with law. Needless to Page 9 of say that proper opportunity of being heard is to be granted to the assessee. Accordingly, this ground raised by assessee stands partly allowed for statistical purposes.
16. Ground no. 6 raised by assessee does not arise out of the order of Ld.CIT(A). Accordingly, the same is not adjudicated. In the result, the appeal filed by assessee stands allowed for statistical purposes. Order pronounced in open court on 02nd June, 2022.