Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER AMIT SHUKLA, J.M. The aforesaid appeal has been filed by the assessee against impugned order dated 18.9.2015, passed by Ld. CIT (Appeals)-4, New Delhi for the quantum of assessment passed u/s 143(3) for the A.Y. 2011-12. In the grounds of appeal assessee has challenged the disallowance of interest on Govt. Loan of Rs. 19,95,25,149/- made u/s 36(1)(iii).
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.
Hon’ble Bombay High Court in case cited as Bhor Industries 264 ITR 180 (Bom) held that VRS expenditure was incurred to save the expenses and it was to be allowed in its entirety in the year in which it was incurred and expenditure could not be spread over the number of years and as such the allowable expenditure in the instant case as the major components of the interest claimed by assessee i.e. Rs. 14,87,50,000/- is on account of loan taken from the Govt. of India for making payment to the employee under voluntary retirement scheme (VRS). So certainly this is allowable expenditure.
Furthermore when winding up proceedings are undisputedly pending before the Hon’ble High Court loan taken by the assessee
company is to be treated as a loan to run the entire business and the interest component cannot be restricted to BFF unit as has been done by AO/CIT(A). So there is not iota of evidence of record that the loan taken on which interest has been claimed and disallowed by the revenue was not utilized for running day to day business of the company and the loan is repayable alongwith interest and as such are revenue expenses for all intents and purposes so we hereby delete the addition on account of interest to the tune of Rs. 1,661,03,405/- by determining the ground No. 1 in favour of the assessee company.”