ORISSA RURAL HOUSING AND DEVELOPMENT CORPORATION LIMITED(ORHDC),KHORDA vs. DCIT, CIRCLE-1(1), BHUBANESWAR

It was submitted by the ld. AR that the assessee is an undertaking owned by the Government of Odisha. Certain loans were given by the Government to the assessee. As the asseesee was incurring substantial losses, the interest had not been paid to the Government. It was the submission that in the course of assessment the AO disallowed the interest shown to be due to the Government by applying the provision for section 43B of the Act. It was the submission that the interest payable to the Government was not hit by the provisions of section 43B of the Act. It was & 516/CTK/2025 the submission that the assessee, admittedly, did not file any appeal against the assessment orders. It was the submission that the penalty under section 270A of the Act had been levied on the assessee on account of the said disallowance. It was the submission that, on appeal against the order under section 270A of the Act, the ld. CIT(A) without considering the submissions of the assessee, has confirmed the penalty levied. It was the submission that as the disallowance made by the AO itself was unsustainable, in so far as the provisions of section 43B of the Act did not apply to the interest payable to the government, tThe penalty under section 270A of the Act was not called for.

In reply the ld. CIT. DR vehemently supported the order of the AO and CIT(A).

We have considered the rival submissions. A perusal of the decision of the Hon’ble Allahabad High Court in the case of UP Rajya Vidyut Utpadan Nigam Limited, reported in [2013] 37 taxmann.com 164 (Allahabad) clearly shows that the Hon’ble Allahabad High Court has categorically held that the provision of section 43B of the Act is not applicable to the interest on Government loans. Once it is found that the provision of section 43B of the Act does not apply to the interest on Government loans, just because the assessee has accepted the disallowance made by the AO, would not lead to an automatic levy of penalty under section 270A of the Act. The fact that the addition itself is not called for, it is evident from the fact that the AO also recognizes that the interest disallowed by invoking the provisions of section 43B of the Act, was interest payable to the government of Odisha.