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Income Tax Appellate Tribunal, DELHI BENCH “D”, NEW DELHI
Before: SH. BHAVNESH SAINI & SH. O. P. KANT
This appeal by assessee has been directed against the order of Ld. CIT (A), Meerut, dated 26.09.2014 for assessment year 2010- 11, challenging the addition of Rs. 7,78,62,487/- u/s 43B (d) of the Act.
Briefly the facts of the case are that the assessee is a co- operative society as defined u/s 2(19) of the Income Tax Act. The assessee society is carrying on busing of manufacturing and sale of sugar and its by products. The issue in appeal relates to disallowance made u/s 43B(d) of the Income Tax Act for interest accrued and due but not paid.
During the course of assessment proceeding the AO observed that the appellant has not paid an interest of Rs. 7,78,62,487/- on account of unsecured loans which have become accrued and due. The AO thereafter invoked the provision of section 43B(d) and after rejecting appellant’s submission made an addition of Rs. 7,78,62,487/- to the total income of the appellant. The AR argued that such interest pertains to various institutions of the UP government and does not fall within the definition of public financial institutions under the provisions of section 43B(d) of the act. It was also argued that the definition of public financial institutions as defined in section 4 A of the companies act 1956 read with section 43B(d) of Income Tax Act 1961 is exhaustive definition and clearly defines all the financial institutions. Section 4A(2) of the Companies Act, 1956 clearly defines the notified institutions. The various institutions of UP government are not mentioned in section 4A(2) of the Companies Act, 1956. It was also stated that in tax audit report in form 3CD the auditor has also not mentioned that the interest accrued and due but not paid on shakkar Vishesh Nidhi, State Govt. Loan and UP Cooperative Sugar Factories Federation Ltd. loan is covered under section 43B(d) of the Act. The AR has claimed that the AO has completely failed to understand the provisions of section 43B(d) of the act therefore in view of facts and legal position the addition of Rs. 7,78,62,487/- deserves to be deleted in full. The same arguments were put forward before the AO also. However the AO has remarked that the explanation given was not found to be convincing. He has thereafter dwelled on the intention of legislature and has given an omnibus interpretation of the provision as having been enacted to cover all financial institutions controlled by the government.
Ld. CIT(A) considering the submissions of the assessee confirmed the addition and dismissed the appeal of assessee. His findings in para 3.2 and 3.3 of the appellate order are reproduced as under: “3.2 I have gone through the written submission of the AR as well as the assessment order. It is seen that in the assessment order the AO has disposed this issue by writing only a few lines and by venturing into the realm of intention of the legislation. However the AR of the appellant has also taken an altogether misleading line of argument in the sense that he has harped on the meaning of public financial institution whereas in section 43B(d) apart from public financial institution interest paid to a state financial Corporation or to a state industrial investment Corporation is also covered. Thus what is relevant here is not what according to section 4A of the Companies Act, 1956 can be a public financial institution but whether the interest paid by the assessee to the institutions of UP Government will fall under the provision of section 43B(d). Neither the AO nor the AR have given any comments on this point. The AR of the appellant has claimed that the AO has misunderstood the provision of section 43B(d). It seems that he has done no better. He has repeatedly made this argument that the interest accrued and due but not paid till the date of return filing can only be added to income in respect of loan taken from public financial institution. It seems he has conveniently forgotten that in section 43B(d) public financial institution and state financial Corporation and state industrial investment Corporation stand on equal footing. So the moot question here is not whether shakkar Vishesh Nidhi and, UP Cooperative Sugar Factories Federation are public financial institutions rather the question to be answered here should have been whether the institutions from which the appellant had taken loan and to which it has paid interest fall within the definition of state financial Corporation or state industrial investment Corporation. The appellant had also made a reference to the order of CIT(A), Noida in assessee’s own case and the order of CIT(A), Meerut in the similar case of Ramala Sahkari Chinni Mills Ltd. However in both these orders the Id. CIT(A) have given their decision in the context of the definition of public financial institutions. As stated earlier section 43B(d) does not only speak of a public financial institution. The AR of the appellant has not shown that the institutions from which the appellant has taken loan have not been established under section 3 or section 3 A of the state financial corporations Act 1951 or has not been notified under section 46 of the state financial corporations Act 1951. 3.3 Thus, it is not established that the appellant has not paid interest on a loan taken from a state financial Corporation or a state industrial investment Corporation and any payment of interest to such lenders is not hit by the provision of Section 43B(d) of the IT Act, 1961. Based on above discussion, I have come to a conclusion that the AO has rightly made this addition. This ground of appeal
is therefore dismissed an addition of Rs. 7,78,62,487/- is confirmed.”
5. Ld. Counsel for assessee at the outset submitted that in preceding assessment year, Ld. CIT(A) has deleted the similar addition and department filed appeals before ITAT, Delhi Bench. All the departmental appeals have been dismissed on identical facts. He has submitted that issue is therefore, covered in favour of the assessee. He has filed copies of the following orders of the Tribunal in the case of same assessee.
1. Order of ITAT, Delhi Bench in the case of ACIT vs The Baghpat Co-operative Sugar Mills Pvt. Ltd., in assessment year 2007-08, dated 07.08.2015.
2. Order of ITAT, Delhi Bench in the case of ACIT vs The Baghpat Co-operative Sugar Mills Pvt. Ltd., in ITA no. 6058/Del/2013, assessment year 2008-09, dated 05.04.2016.
3. Order of ITAT, Delhi Bench in the case of ACIT vs The Baghpat Co-operative Sugar Mills Pvt. Ltd., in ITA no. 1535/Del/2014, assessment year 2009-10, dated 30.03.2016.
4. Order of ITAT, Delhi Bench in the case of ACIT vs The Baghpat Co-operative Sugar Mills Pvt. Ltd., in ITA no.
6855/Del/2015, assessment year 2011-12, dated 20.09.2017. Copies of all the above orders have been supplied to Ld. DR and after going through the same, he has stated that the issue is covered in favour of assessee by the above orders of the Tribunal in the case of same assessee.
We have considered the facts of the case in the light of the submissions of the parties. It is admitted fact that in the preceding year mentioned above, on identical facts, Ld. CIT(A) deleted the similar addition on which department filed the appeals before the Tribunal and all the departmental appeals have been dismissed. In assessment year 2007-08, the tribunal in dismissed the departmental appeal by upholding that section 43B(d) of the Income Tax Act does not apply to the facts of the case. The findings of the Tribunal in para 6-7 of the order are reproduced as under: “6. The second issue is disallowance of interest paid to federation. The AO disallowed the amount on the ground that the payment of interest is outside the purview of business of the assessee. Ld. CIT(A) gave a finding that the assessee has taken loan from Govt. of India and UP Government, for the purpose of business, and that this is evident from the sanctioned letters and hence the interest in question is allowable u/s 36(1). We have seen reason to interfere in this finding of the first appellate authority. The revenue has raised a legal argument that, the interest in question cannot be allowed, as it is hit by the provisions of section 43B(d) of the Act.
Section 43B(d) of the Act reads as follows:- d) “any sum payable by the assessee as interest on any loan or borrowing from any public financial institution (or a State financial corporation or a State industrial investment corporation), in accordance with the term and conditions of the agreement governing such loan or borrowing”
As the interest in question is payable to Govt. of India and the statement of UP Government, section 43(B)(d) does not apply. Hence, we dismiss this ground.”
7. In subsequent assessment years 2008-09, 2009-10, 2011-12, the tribunal considering the identical fact as involved in the present appeal, confirmed the order of the Ld. CIT(A) in deleting the addition. Departmental appeals were dismissed.
Ld. DR also submitted that the issue is covered in favour of the assessee by all the above orders of the Tribunal in the case of the same assessee.
By following the above orders of the Tribunal in the case of the same assessee on identical facts, we set aside the orders of the authority below and delete the addition. In the result appeal of the assessee is allowed. Order pronounced in the open court.