DINDAYAL MAGASVARGIYA SAHAKARI SOOT GIRNI LTD,SANGLI vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE SANGLI, CIRCLE SANGLI

Assessment Year : 2014-15 Dindayal Magasvargiya Vs. ACIT, Circle Sangli, Sahakari Soot Girni Ltd., Sangli. At Waghwadi, Post Kameri, Tal. Walwa, Sangli- 415403. PAN : AAAAD0254E Appellant Respondent Assessee by : Shri Pramod S. Shingte Revenue by : Shri Ramnath P. Murkunde Date of hearing : 22.09.2025 Date of pronouncement : 09.12.2025 आदेश / ORDER

PER VINAY BHAMORE, JM:

1. On the facts and in the circumstances of the case and in law, Ld. AO erred in initiating reassessment proceedings u/s 147 for AY 2014-15, being the year beyond 4 years and for which assessment order u/s 143(3) has already been passed, thereby 147, therefore reassessment proceedings are void ab initio and consequential orders needs to be annulled.

2. On the facts and in the circumstances of the case and in law, Ld. AO erred in initiating reassessment proceedings u/s 147 for AY 2014-15, by recording the reason to believe which is based on incorrect presumptions and therefore an action based on such presumed reason to believe is incorrect and order passed in consequence to such action is bad in law.

3. On the facts and in the circumstances of the case and in law, Ld. AO erred in initiating reassessment proceedings u/s 147 for AY 2014-15 by recording the reason to believe which is based on audit objection. We submit that the reason based on such borrowed satisfaction cannot be the basis of reopening the concluded assessment. Therefore, entire proceedings are void ab initio.

4. Without prejudice to the above grounds on the facts and in the circumstances of the case and in law, the Ld. AO erred in making addition of Rs. 2,42,00,000 by disallowing interest payable on loan from state government by invoking provisions of section 37 by assuming the same as unascertained liability. The action of Ld. AO is incorrect, illegal and without appreciating the facts of the case and therefore the entire addition deserves to be deleted. Your appellant prays for deletion of entire addition. Your appellant craves for to add, alter amend, modify, delete any or all grounds of appeal

before or during the course of hearing in the interest of natural justice.”

3. Facts of the case, in brief, are that the assessee is a cooperative spinning mill and has furnished its original return of income on 29.11.2014 by declaring taxable income at Rs.Nil after setting off business losses of the assessment year 2012-13 amounting to Rs.2,65,01,527/-. The case of the assessee was assessed u/s 143(3) of the IT Act on 29.09.2016 by accepting the income returned by the assessee. Subsequently on verification of records of the assessee it is seen that the assessee had provided and debited an amount of Rs.2,42,00,000/- as interest on soft loan of Rs.22 crore received from Government of Maharashtra which was according to the Assessing Officer was an unascertained liability and the case was reopened u/s 147 of the IT Act and notice u/s 148 of the IT Act was issued to the assessee. The assessee furnished return in response to above said notice. Subsequently statutory notices u/s 143(2) and 142(1) were issued to the assessee. The assessee raised objection to the reopening of the case and the Assessing Officer rejected the objection and proceeded to assess the case u/s 143(3) r.w.s. 148 of the IT Act. According to the assessee, detailed note on interest of Rs.2,42,00,000/- is as under :- “"Total Interest on Loans debited to Profit and Loss a/c is Rs.27798475/-. However you may note the bifurcation of this figure is as under:- Interest accrued but not due on Soft Loan Rs.24200000.00 Interest on Loan against Fixed Deposits with Banks Rs. 35,98,475.00 Total Rs.2,77,98,475.00 Interest on loan against FDs with banks is charged as per bank statement and is debited to Profit and Loss a/c and is serviced also. As mentioned in earlier Para No 6interest on soft Loan of Rs.22 Crores has been provided for at Rs. 2.42 Crores as it has been accrued but not due. No actual payment of interest has been made.

This amount is debited to Profit and Loss a/c. However this amount is not disallowed u/s 438 while filing of return of income as it's a loan from government and the amount was accrued but not became due". The assessee further replied as below:- "Detailed note on Interest of Rs.24200000 is as under a) Dindayal Magaswargiya Sahakari Sut Gimi is a Cooperative Spinning Unit formed for Backward Classes under Vishesh Ghatak Yojana under the aegis of 8th Five Year Plan. b) As an eligible unit of Backward Class the society has been granted Financial Assistance from "Department of Social Wellfare- Government of Maharashtra" itself. The said financial assistance was devided into financial assistance in the form of Capital Contribution and a Soft Loan. c) Thus the interest payable of Rs. 242 lakhs is on the Loan from government itself - this may please be noted. d) Further as per GR dtd 02-08-2003 and as per letter dtd 02-07-2004, the amount of interest has not become due till date. As per clause no.2,3 and 4 of the said letter it will become due only after receiving from government at-least 90% of 95% of project cost. (45% in form of Share Capital and 50% in form of Long term Loan). We have not received the said sums till date. You may appreciate from working enclosed herewith that a sum of Rs.5.62 Lacs is not yet received to us and hence as per extant terms of arrangement repayment of interest and principal has not fallen due. However as per Clause 3 and Clause 6 of Notification dated 02/07/2004 and as per prevalent accounting conventions we have consistently provided for Interest on soft loan on the basis that Interest has been accrued but not fallen due A copy of our working and relevant notification is also enclosed. e) On the background of the above facts it would be pertinent to go through CL.(d) of Sec 43B which reads as under "Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution for a State financial corporation or a State industrial investment corporation, in accordance with the terms conditions of the governing such loan or borrowing shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the 28 of that previous year in which such sum is actually paid by him." A careful reading of above reveals that- To become exigible for disallowance, the unpaid interest must a) belong to the loan from: i) any public financial institution [or ii) a State financial corporation or iii) a State industrial investment corporation] b) Have become due as per the terms and conditions of the agreement governing such loan or borrowing. f) Now if the above tests are applied to the facts in our case then it can be noted that, a. The loan granted to our society is from Government (Dept of Social Welfare) itself. Section 43B does not refer to loans from government. b. The loan/interest itself has not fallen due for repayment, yet as the amount of loan sanctioned in not received completely". 4.0 The reply of the assessee has been considered and not acceptable. The loan was sanctioned by Govt. of Maharashtra between June 1998 to March 1999 and the assessee was making interest provision from F.Y 1998-99 onwards. The accumulated interest debited and not paid from F.Y 1998-99 to 2013-14 was Rs 37.60 Crore. Thus, by not withdrawing an amount of Rs 5.62 lakh, the company had not paid the government loan. Though, the assessee claimed that neither the principal nor loan was repayable. It was claiming deduction of provisions for interest knowing fully well that it was never payable. As per provisions of section 37 of the Act, provision for unascertained liability is not allowable deduction for purposes of income tax. Further, it has been held by the Supreme Court in McDowell and Co. Ltd Vs Commercial Tax Officer (SC) 154 ITR 148 that colorable devices are not part of tax planning Tan View of the above a sum of Rs 2,42,00,000/- for AY. 2014-15 remains unexplained. Hence, an amount of Rs. 2,42,00,000/- debited to profit and loss loss account as interest on loan from the Govt. of Maharashtra as explained above and not paid to the Government is disallowed and added to the income of the assessee for the AY 2014-15.”

6.7 Ground number 2 relates to the contention that the AO had incorrectly considered the figure of losses brought forward and losses carried forward for relevant assessment year and accordingly had erred in appropriating the disallowance to such brought forward losses which has resulted in incorrect amount of carried forward losses as well as raising of incorrect demand. The appellant has given detailed charts in this regard. The AO is directed to consider this and verify the same from records and give necessary relief if it is found admissible to the appellant.

7. Ld. AR appearing from the side of the assessee submitted before us that the order passed by Ld. CIT(A)/NFAC to the extent of not allowing deduction of Rs.2,42,00,000/- interest accrued on loan from Government of Maharashtra is not justified. Ld. AR submitted before the bench that the observation of the Assessing Officer that the interest as well as principal sum is not payable is not correct. Ld. AR submitted that according to the conditions agreed by and between both the parties i.e. the assessee cooperative spinning mill and the Government of Maharashtra it was agreed that the repayment will start only after disbursement and receipt of certain percentage of loan amount by the assessee and admittedly the assessee cooperative spinning mill did not received the agreed percentage of loan and due to this fact the repayment could not be started. Ld. AR of the assessee submitted before the bench that the disallowance u/s 37 of the IT Act is not justified by treating the liability of accrued interest as an unascertained liability. Ld. AR further submitted that by following mercantile system of accounting the accounts were being prepared by the assessee since last many years and accordingly the interest accrued on loan was provided in the books of accounts. Ld. AR further submitted that this practice is being followed since long and the Department also not raised any objection, however during the period under consideration the impugned addition has been made. Ld. AR further submitted that it is an admitted fact by the Assessing Officer as well as by Ld. CIT(A)/NFAC that the loan was obtained from Government of Maharashtra and obviously interest on the above loan is also payable however due to the peculiar conditions and for benefit of Cooperative Spinning Mills some relaxation was provided by Government of Maharashtra but it does not mean that the loan or interest is not payable. In support of its contentions that the loan amount as well as interest on such loan is payable to the Government of Maharashtra, Ld. AR submitted that the assessee on its own cannot wave the loan and interest received from the Government of Maharashtra since it was a bilateral consented act on behalf of both the parties. Ld. AR accordingly requested before the bench to allow deduction of interest of Rs.2,42,00,000/- disallowed by the Assessing Officer and confirmed by Ld. CIT(A)/NFAC.

9. Ld. DR appearing from the side of the Revenue relied on the orders passed by the subordinate authorities and requested to confirm the same.