M/S HINDUSTAN VEGETABLES OILS CORPORATION LTD.,NEW DELHI vs. DCIT, NEW DELHI

At the outset Ld. Counsel for the assessee submitted that this issue now stands covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for the assessment year 2009-10 passed in and therefore, following the earlier precedence this issue is decided in favour of the assessee. On the other hand Ld. DR strongly relied upon the order of the AO and Ld. CIT (A).

The facts in brief are that assessee is a fully owned Govt. Company formed in 1984 and it was under liquidation process before the Hon’ble Delhi High Court. Due to huge losses made for continuously several assessment years its entire net worth got eroded and was referred to BIFR. The company could not make payment of its expenditure and now the same is being paid by the official liquidator of the company. The Govt. Of India sanctioned loan to the assessee for running of the company and for meeting day to day expenses of the company. The said loan was not received for any capital expenditure albeit for running of the company and therefore, the borrowing cost was not capitalised and interest charged to the profit and loss account was debited as revenue expenditure. Ld. AO noted that assessee has charged an amount of Rs. 19,95,25,149/- which also include penal interest and such interest has been debited only on accrual basis and no actual interest has been paid. Ld. AO held that since interest has not actually been paid to the Govt. of India and hence the same cannot be allowed as expenses in view of the provision of section 36(1)(iii). Ld. CIT(A), too has confirmed the said disallowance on the ground that assessee is not paying any interest for last several years and also does not have ability to pay even on the coming years and further observed that even if it is receiving the money as loan from Govt. Of India, it becomes its revenue income and if such expenses are debited to the profit and loss account and not actually incurred, AO has rightly disallowed the said interest.

We find this issue has been decided by the Tribunal in the following manner:- “11. Undisputedly during asstt. Year 2012-13 Ld. CIT(A) has allowed the interest of Rs.20,29,38,031/- being interest on the loan from Govt. of India by following the decision rendered by coordinate bench of the Tribunal in assessee’s own case bearing for asstt. year 2005-06. When the interest on the same component of loan taken by the assessee company from Govt. of India for day to day running of the company and the loan repayable on interest has been allowed in asstt. year 2005-06 and 2012-13, there is no ground to disallow the interest claimed by the assessee during the year under assessment. Moreover, the revenue itself has not challenged the order passed by the Ld. CIT(A) in assessee’s own case for asstt. Year 2012-13 by following order of the coordinate bench of the Tribunal passed in assessee’s own case for asstt. Year 2005-06 (Supra), disallowance of interest for the year under assessment is not sustainable.