ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, GUWAHATI, GUWAHATI, ASSAM vs. ASSAM POWER DISTRIBUTION COMPANY LIMITED, GUWAHATI

Appearances by: Assessee represented by : Uttam Kumar Borthakur, Advocate Department represented by : Kausik Ray, JCIT Date of concluding the hearing : 20.08.2025 Date of pronouncing the order : 25.08.2025

ORDER

PER SANJAY AWASTHI, ACCOUNTANT MEMBER:

1.1 In this appeal, there is a delay of 166 days, which has been requested to be condoned by the Revenue as under:

“The order under section 250 of the income Tax Act, 1961, passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Assam Power Distribution Company Limited Centre(NFAC), Delhi was communicated on 11/03/2025. Consequently, the due date for filing an appeal before the Hon'ble Income Tax Appellate Tribunal (ITAT) was on or before. However, the appeal was filed before the Hon'ble ITAT, Guwahati, on 16/06/2025, resulting a delay of 16 days due to the following reasons. Exceptional Workload due to Time-Barring Assessments and Initial Budget Collection Monitoring (March 2025): The period immediately preceding the appeal due date, specifically March 2025, was marked by an exceptionally high workload. During this time we are engaged in the urgent completion of time-barring assessment-related tasks, which required significant dedication to ensure compliance with the statutory deadline of March 31, 2025. This critical and time-sensitive work consumed a substantial portion of attention. The initial monitoring efforts for budget collections also began to add to the workload during this period, making it genuinely challenging to dedicate adequate time and resources to the preparation and filing of this appeal. Intense Reporting for Budget Collections and Various Other Statutory Reports (April 2025): The Initial weeks of April 2025 brought a further escalation of pressures. This period was dominated by intense and urgent monitoring and reporting requirements concerning budget collections, alongside the preparation of various other statutory reports. This necessitated extensive data compilation, rigorous analysis, and the urgent submission of numerous reports, which significantly diverted departmental resources and staff, thereby further constraining our ability to focus and the appeal filing process. Administrative Disruption due to Annual General Transfers: Finally, the Annual General Transfers (AGT) of 2025 unfortunately coincided with the crucial period for appeal filing, taking place in April-May, 2025. This administrative disruption resulted in an unavoidable delay in the smooth handover and takeover of charges by newly transferred and relieved Assessing Officers. The subsequent period, involving the acclimatization of new officers and the transition of ongoing cases, led to a temporary slowdown in routine works, impacting the timely processing and forwarding of appeal- related documents. In light of these cumulative and unavoidable circumstances, the undersigned would most humbly request your kind consideration and condonation of the delay in filing this appeal” 1.1 Considering the reasons given and the shortness of delay, the delay is hereby condoned and the appeal is admitted for adjudication.

2. In this case, the Ld.AO made several additions out of which the addition of Rs. 21,56,00,000/- on account of alleged penal interest survives for adjudication before the ITAT. The Revenue is aggrieved that the Ld. CIT(A) has afforded relief to the assessee on this account even when some new facts and documents were presented before him and the same were never given to the AO for his comments and examination.

“1. On the facts and in the circumstances of the case, the Ld.CIT(Appeals) has erred on law in deleting the disallowance of penal interest on loan amounting to Rs. 21,56,00,000/- without appreciating the complete facts and material related to the issue.

at time of hearing/pendency of appeal.

3. The Ld. DR assailed the action of Ld. CIT(A) and stated that clearly the impugned amount was penal in nature as it was mentioned in the impugned order at page 7 that such interest was leviable on the assessee in the event of default of repayment of instalments. The Ld. DR also pointed out that while the Ld. CIT(A) has clearly accepted new evidence under Rule 46A of the IT Rules, 1962 (hereafter “the Rules”), but the same was not shared with the Ld. AO for his comments and investigation as would be required under Rule 46A(3) of the Rules.

3.1 Per contra, the Ld. AR mentioned that even if the so-called new evidence was not confronted to the AO, it was clear that the interest paid was compensatory in nature and was not “penal” in the sense that it was some kind of punishment or a penalty. The Ld. AR supported the finding given by the Ld. CIT(A).

“4.3.1 AO has disallowed penal interest of Rs.21,56,00,000/-as not allowable u./s 37 of the Act being penal in nature. In this regard, assessee has submitted that the penal interest is a higher rate of interest paid for delayed payments and submitted documents under rule 46A as opportunity was not given by AO during the assessment proceedings. The documents are accepted under rule 46A as the impugned order also does not mention that opportunity was given to the assessee to explain the issue at hand. 3 Assam Power Distribution Company Limited 2.5.3 The office memorandum issued by Finance (Budget) Department of Government of Assam bearing no. BW.22/89/ 175 dated 27/03/2006 specifying the rate of interest on various kinds of loans has been enclosed with the additional paper-book referred to above, forming a part of the petition of even date under Rule 46A of the LT. Rules, 1962, and such evidence has been marked as ENCLOSURE-3 This is a sample copy to demonstrate the terms related to penal interest on government loans. The said document shows at paragraph 5 that penal interest is payable in the event of default of repayment of instalments and it is merely a higher rate of interest included in the loan sanctions/agreement. The appellant has relied on the Honorable Supreme courts judgement as below. 2.5.5 The Honourable Supreme Court in Lachmandas Mathuradas V CIT 254ITR 799 (SC) had held as followed. "While granting special leave to appeal the appeal has been confined to questions Nos. 1 and 2 only. The High Court has proceeded on the basis that the interest on arrears of sales tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Court has placed reliance on its Full Bench decision in Saraya Sugar Mills P. Ltd. v. CIT [1979] 116 ITR 387 (All). Learned counsel appearing for the appellant -assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engineering Works Ltd. v. CIT[1983] 144 ITR 732 (All), wherein it has been held that interest on arrears of tax is compensatory in nature and not penal This question has also been considered by this court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills P. Ltd. v. CIT, decided on February 29, 1996. In that view of the matter, the appeal is allowed and questions Nos. 1 and 2 are answered in favour of assessee and against the Revenue. No order as to costs. 4.3.2 In the light of the above judgment it can be seen that the principle of being compensatory in nature can be applied to the case of the assessee also. The higher rate of interest is due to delayed payments and under the light of the above judgement is treated as compensatory in nature and allowed u/s 37. This ground is allowed.” 4.1 It is seen that the Ld. CIT(A) has admitted certain documents, even the relevant papers which indicate the terms and conditions governing the loans and advances given by the State Government, and has adjudicated on the same without affording the Ld. AO an opportunity in this regard as provided under Rule 46A(3) of the Rules. We also find that the impugned interest has been charged on account of some kind of default in repayment and is actually called “penal interest”. Thus, there is a very good reason why the Ld. AO should be given an opportunity to examine this issue in depth and provide a report to the Ld. CIT(A) for his consideration. To this extent, the Ground No. 2 of the Revenue’s appeal is allowed and the 4 Assam Power Distribution Company Limited impugned order, to the extent of the issue pertaining to the so called a “penal interest” (Rs. 21,56,00,000/-) is set aside and the matter is remanded back to the file of Ld. CIT(A) for forwarding the entire set of documents admitted under Rule 46A of the Rules to the Ld. AO for his comments. Thereafter, the Ld. CIT(A) would pass a speaking order on the issue after giving an opportunity of being heard to the assessee.

4. In result, this appeal is partly allowed.

Order pronounced on 25.08.2025