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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
ORDER
Per Shri A.T.Varkey, JM
1. This appeal filed by the assessee is against the revision order of Pr. CIT-2, Kolkata dated 07.03.2017 for AY 2012-13 passed u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).
2. The assessee has filed the return of income declaring total loss of Rs.62,73,68,417/-. The assessment was completed later on by scrutiny on 24.03.2015 determining the total loss at Rs.62,73,68,417/-. Later on the case was selected for scrutiny by the Ld. Pr. CIT and has invoked his revisional jurisdiction u/s. 263 of the Act. The Ld. Pr. CIT found fault with the action of the AO in allowing interest of Rs.537.34 lacs as interest on the loan, the assessee had taken from the Govt. of West Bengal. According to Ld. Pr. CIT, the interest component was a contingent liability and, therefore, even as per mercantile system of accounting, interest expenditure ought not to have been allowed by the AO, therefore, he has set aside the assessment order and directed the AO to complete the assessment after disallowance of interest of Rs.537.34 lacs. Aggrieved, the assessee has preferred this appeal before us and has taken the following grounds of appeal:
West Bengal Transport Corporation Ltd., AY: 2012-13 “1. For that the invocation of the jurisdiction u/s. 263 by the Learned Principal Commissioner of Income Tax was bad-in-law so much so that there was no finding in the order under appeal as to how the assessment order is erroneous and prejudicial to the interest of the Revenue.
For that the Ld. Principal Commissioner of Income Tax failed to consider (a) the following "clause 4" of the related W. B. Government Loan Sanction Letters; "4. Regarding the terms and conditions of the Loan sanctioned hereby a further G. O. will be issued" and also (b) the G. O. on the subject matter "Loan and Advances of the State Government- Interest rates and other terms and conditions for the year 2011-2012" bearing "No. 3173-FB" dt. 30.03.2012, issued by Finance Department, Government of West Bengal, which were filed before him during the course of hearing.
3. For that on the facts and in the circumstances the Learned Principal Commissioner of Income Tax wrongly and arbitrarily considered the interest charged @ 6.25% in the Profit and Loss Account amounting to Rs. 5,37,34,000/- as Contingent Liability.”
We have heard rival submissions and gone through the facts and circumstances of the case. We at the first instance itself note that the loan was sanctioned by the West Bengal Government and as per the terms and conditions of the loan sanctioned it was provided that the G.O. will be issued later on prescribing the terms and conditions of the loan sanctioned. Thereafter, the G.O. on the subject matter “loans and advances of the State Govt. & interest rates and other term and conditions for the year 2011-12” wherein no. 3173-FB wherein different rates of interest has been specified depending upon the category of borrower and the type of loan which varies from 6.75% to 13.50% (paper book page 10) and the assessee had debited interest at 6.25% which was estimated on consistent basis in its P&L Account. In the light of the aforesaid G.O. the interest on the borrowed funds cannot be termed as a contingent liability. However, we note that though the assessee had debited Rs.537.34 lacs i.e. 6.25% of the borrowed funds as interest expenditure and claimed deduction of the same. However, the said sum was not paid before the due date of filing of the return of income. So, as per section 43B of the Act, the sum of interest not paid cannot be allowed as expenditure in this A.Y. And since the AO has accepted the return of income of the assessee without looking into the fact that the assessee has not remitted the interest to the lender, so as per section 43B of the Act the expenditure claimed on interest incurred on the loan taken, could not have been allowed and, therefore, the order of the AO is erroneous as well as prejudicial to the interest of the revenue. In such a scenario, we uphold the impugned order
West Bengal Transport Corporation Ltd., AY: 2012-13 on the reason discussed and therefore the Pr. CIT’s action in setting aside the order of the AO and directing him to reassess the assessment and disallow interest of Rs.537.34 lacs is in order and calls for no interference from our part. So, we dismiss the appeal of the assessee.
In the result, appeal of the assessee is dismissed.
Order is pronounced in the open court on 18.07.2018 Sd/- Sd/- (Waseem Ahmed) (Aby. T. Varkey) Accountant Member Judicial Member Dated : `18th July, 2018 Jd.(Sr.P.S.) Copy of the order forwarded to:
Appellant – West Bengal Transport Corporation Ltd., (formerly the Calcutta Tramways Co. (1978) Ltd.), 12, R. N. Mukherjee Road, Kolkata-700 001.
2. Respondent – Pr. C.I.T-2, Kolkata. 3. DCIT-4(2), Kolkata. 4. DR, ITAT, Kolkata. (sent through e-mail)