ADDL. CIT, NEW DELHI vs. M/S. THE FERTILIZER CORPORATION OF INDIA LTD., NOIDA

This appeal by Revenue is filed against the order of Learned Commissioner of Income Tax (Appeals)-39, New Delhi, [“Ld. CIT(A)”, for short], dated 23.11.2016 for Assessment Year 2012-13. The grounds of appeal are as under:

“i. On the facts and in the circumstances of the case and law, the Ld. CIT(A) has erred in deleting the addition of Rs. 553,90,97,000/- on account of unpaid interest on the loan granted by the Government of India to the assessee company. The Ld. CIT(A) has relied upon the judgment of the ITAT in the case of DCIT, Circle -12(1) in which is not acceptable on the merit and also from the perusal of the records, it is ITA No.-1911/Del/2017. M/s The Fertilizer Corporation of India Limited. seen that the department for earlier years is also in appeal on the similar issue.”

(2) Return of income was filed by Assessee showing loss of Rs. 5,40,43,07,905/-.

The Assessment Order dated 27.03.2015 was passed U/s 143(3) of Income Tax Act, 1961 (“IT Act”, for short) wherein an addition of Rs. 553,90,97,000/- was made on account of disallowance of unpaid interest of GOI loan; income was assessed at Rs. 13,47,89,095/-. The relevant portion of the Assessment Order is reproduced as under:

“4.1 Schedule to the Profit & Loss account of the assessee for the year under consideration reveals that a sum of Rs. 5,53,90,97,000/- has been debited under the head interest paid under the heads with the following details;- i) Interest on Loans from GOI Rs. 4,77,78,33,000/- ii) Interest others Rs. 79,63,000/- iii) Penal interest on GOI loan Rs. 75,33,01,000/- Total Rs. 5,53,90,97,000/-

4.2 The interest debited on account of borrowings from GOI remains unpaid during the year. Further perusal of schedule ‘4’ of the Balance Sheet for the year under consideration makes it clear that such unpaid interest has been added to the loan amounts outstanding towards the GOl. As per section 43B (d) & (e) of the Income-tax Act, 1961, any sum payable by the assessee as interest on any loan or borrowing, from any public Financial Institution or State Financial Corporation or State Industrial Investment Corporation or even any term loan from a scheduled bank, shall be deductible only in the year such sum is actually paid by the assessee. This issue has been discussed in length in A.Y. 2002-03, when in response to the assessee’s reply that CIT(A) had allowed this point in favour of the assessee, my predecessor has held as;

“I have considered the reply furnished by the assessee company. However in view of the. spirit of provisions of section 43B, I am in respectful disagreement with the view taken by the Commissioner of Income-tax (Appeals). The provisions of section 43B of the Income-tax Act, 1961 were amended w.e.f. 1 4.1987 to disallow deductions on account of interest due but not actually paid to any scheduled bank in additions to other public Financial Institutions and Corporations. In the case of the assesses company. interest on borrowings from COI were not paid by it though the due amount was debited to the Profit & Loss A/c. The provisions of section 43B(d) & (e

ITA No.-1911/Del/2017. M/s The Fertilizer Corporation of India Limited. )were; conceived precisely for such situations where the assessee claims deductions on account of interest payments due towards Public Financial Institutions and Banks without actually paying the same. By narrowly construing the section so as to exclude the interest payments due on borrowings from the Govt., while disallowing similar accruals in respect of Institutions partly or fully funded by the Govt the intention of the legislature behind enacting the law 7 not being honored. In view of this, it is held that interest accruing on the Govt, borrowings but not actually paid before the date of filling of the return, shall be hit by the provisions of section 43B of the income-tax Act, 1961 and shall be disallowed."

4.3 Placing reliance on the aforesaid and further when during the relevant previous year no material changes have taken place .the facts and circumstances remaining unchanged the position of law also remaining unchanged besides the arguments of the assessee are also on the same lines as in earlier years, a sum of Rs. 5,54,09,80,000/- is being disallowed from the expenses claimed by the assessee The loss declared by assessee shall be reduced by this amount Penalty proceedings U/s 271(l)(c) of the income Tax Act, 1961 for furnishing inaccurate particulars of its income within the meaning of explanation 1 to the sub-section (1) of the section 271 1) (c) of the Income Tax Act, 1961 are also initiated.”

(2.1) Aggrieved, the Assessee filed appeal before Learned Commissioner of Income Tax (Appeals)-39, New Delhi. Vide order dated 23.11.2016, the Ld. CIT(A) deleted the aforesaid addition of Rs. 553,90,97,000/-. The relevant portion of the order of Ld. CIT(A) is as under:

“5. I have considered the impugned order u/s 143(3), the submissions of the appellant along with the court decisions and order of the first appellant authority relied upon by the letter and extent law in this regard. It is observed from the impugned order that the appellant’s claim of interest of Rs.5,53,90,97,000/- debited to the P&L Account was disallowed. The breakup of the interest expenditure claimed by the appellants is as under – i) Interest on Loans from GOI Rs. 4,77,78,33,000/- ii) Penal Interest on GOI Loans Rs. 75,33,01,000/- iii) interest others Rs. 79,63,000/- Total Rs. 5,53,90,97,000/-

ITA No.-1911/Del/2017. M/s The Fertilizer Corporation of India Limited. As the interest debited on account of borrowing from GOI remained unpaid during the relevant previous year, the AO has resorted to applicability of Section 43B (d) & (e) of the Act. In fact he has relied on his predecessor’s argument which was, inter alia, as under -

“I have considered the reply furnished by the assessee company. However in view of the spirit of provisions of section 43B, I am in respectful disagreement with the view taken by the Commissioner of Income-tax (Appeals). The provisions of section 43B of the Income-tax Act, 1961 were amended w.e.f. to disallow deductions on account of interest due but not actually paid to any scheduled bank in additions to other public Financial Institutions and Corporations. In the case of the assessee company, interest on borrowings from GOI were not paid by it though the due amount was debited to the Profit & Loss A/c. The provisions of section 43B(d) & (e) were conceived precisely for such situations whether the assessee claims deductions on account of interest payments due towards Public Financial Institutions and Banks without actually paying the same. By narrowly construing the section so as to exclude the interest payments due on borrowings from the Govt., while disallowing similar accruals in respect of Institutions partly or fully funded by the Govt., the intention of the legislature behind enacting the law is not being honored. In view of this, it is held that interest accruing on the Govt, borrowings but not actually paid before the date of filling of the return, shall be hit by the provisions of section 43B of the income-tax Act, 1961 and shall be disallowed.” 5.1 The reason adduced by the AO was that during the relevant previous year, no material changes have taken place, the facts and circumstances remained unchanged, the position of law remained unchanged besides, the arguments of the appellant are also on the same lines as in earlier years. It may not be out of place to mention that while at Para 4.3 of the impugned order, Rs.5,54,09,80,000/- is disallowed from the appellant’s claim of the expenses, in Para 5 thereof, the disallowance mentioned is Rs.5,53,90,97,000/-.

5.2 In spite of the fact that the disallowances on this point for the different AYs (as mentioned in the AR’s submission) have been deleted by the first appellate authority on the reasoning that interest payable, but remaining unpaid as at the end of the relevant previous year, in this case pertain to loan from Government of India and not to any public financial institution as mentioned in Section 43B of the Act. As per the various judicial precedents including those mentioned by the appellant, it is a well settled principle of law that legal provisions should be interpreted according to the words mentioned therein. There is no scope to intend something more or less than what is written therein. Neither anything extra can be read into it which is not there, nor anything less can be read from what is written there. If the legislature has intended to cover loans from Government of India within the ambit of section 43B, it would have mentioned and included the same just as it has mentioned and included a public financial institution or a state financial corporation or a state industrial investment corporation or a scheduled bank in clause (d) and (e) of section 43B.

ITA No.-1911/Del/2017. M/s The Fertilizer Corporation of India Limited. 5.3 It is further observed from the available records that the factual submissions made by the AR of the appellant as regards the decision of the first appellate authority on this point is borne out from records. From the appellate orders in the case of this appellant, it is seen that for AYs 2001 - 02 to 2009-10 and 2011-12 the CIT (A) has allowed the appellant’s claim that the non-payment of interest on GOI loan did not come under the ambit of Section 43B of the Act on the aforesaid reasoning. Also, it is seen from the appellate order for AY 2011-12 that it is mention therein, inter alia, “4.3.1 The departmental appeal against the order of Ld. CIT(A) for A.Y. 01-02 was dismissed by the Hon’ble ITAT on 29.03.07 in Appeal No. 1267/Del/05 for lack of approval of the committee on Disputes [COD].

4.3.2 It is also noted from the order of Ld CIT (A) for A.Y. 2003-04 dated 17.06.2015 that the department did not take further action for obtaining the COD approval and revive the appeal for the A.Y. 2001-02. In effect the decision of Ld. CIT (A) for A Y. 2001-02 was not contested further accepted by the department." This issue has also been dealt with by the ITAT Delhi in Del/2013 in Hindustan Fertilizers Corporation Ltd Vs DCIT Cir 12(1), New Delhi for AY 2005-06 wherein the disallowance of unpaid interest on borrowings from GOI made in the assessment has been deleted mentioning inter alia, “7. We have considered the rival submissions on this issue and have gone through the material available on record. A perusal of the assessment order reveals that the Assessing Officer had disallowed on amount of Rs.8,90,58,45,000/- on account of interest on borrowings by observing that this amount was being disallowed keeping in view the treatment given to this interest in preceding assessment year 2004-05. He therefore, held that the interest claimed was the accrued interest and had not been paid by the assessee. He, therefore, disallowed the same. We find that the Id. CIT(A) has rightly considered the contention of assessee that in A. Y. 2004-05, the Id. CIT(A) had already given relief to the assessee vide order dated 10.07.2007 wherein the issue has been adjudicated by the CIT(A) in favour of the assessee. The Id. CIT (A) has also given reference of such allowance made in A. Y. 2002-03 and 2003-04. The Id. DR could not be able to rebut the findings reached by the Id. CIT (A) in the impugned order. Therefore, considering the rule of consistency under the identical facts and circumstances, in out considered opinion, the order of the Id. CIT (A) does not call for any interference on this issue. Accordingly, the appeal of the Revenue, being devoid of merits, is liable to be dismissed.” 5.4 Therefore, in due deference to the decisions of the Apex Court as well as the jurisdictional High Court regarding the applicability of the provisions of Section 43B of the Act in disallowing the unpaid interest on GOI loan when there is no express provision under the Act to that effect, I agree with the contention of the appellant on this point as well as with the aforementioned appellate orders of the first appellate authority as well as that of the ITAT Delhi in a similar case mentioned above and accordingly, delete the disallowance made u/s 43B (Rs.553,90,97,000/-) in the impugned order.”

ITA No.-1911/Del/2017. M/s The Fertilizer Corporation of India Limited.

(3) The present appeal before us in Income Tax Appellate Tribunal (“ITAT”, for short) has been filed by Revenue against the aforesaid impugned order dated 23.11.2016 of the Ld. CIT(A). The appeal was listed for hearing in ITAT, on 29.07.2019, and again on 01/08/2019. On both the days, Shri S.S. Rana Learned Commissioner of Income Tax (Departmental Representative) [“Ld. CIT(DR)”, for short] was appeared on behalf of Revenue. However, Assessee was not represented by anybody. The Ld. CIT(DR) fairly brought to our notice that the issue in dispute is covered in favour of the assessee by order dated 28.11.2018 of Co-ordinate Bench of ITAT, Delhi, in in assessee’s own case, wherein on identical facts, the issue was decided in favour of the assessee. He also filed a copy of the aforesaid order dated 28.11.2018 of Co-ordinate Bench of ITAT, Delhi. Relevant portion of the aforesaid order dated 28.11.2018 of Co-ordinate Bench of ITAT, Delhi is reproduced as under:

“8. We have heard both the parties and perused the material available on record. From the perusal of the assessment order, it can be seen that regarding cessation of liability, the Assessing Officer has not gone into the details of waiver in respect of Government giving a particular waiver benefit to specific industry which is again coming under the purview of Government of India, Ministry of Chemical & Fertilizers. The same was made for the purpose of reviving the industry. Thus, it can be seen that the assessee Company incurred a heavy loss and Government of India’s policy reflected that the PSU will be given FCI Inter-corporate Loan which will be settled by the Government of India. The assessee at no point of time has claimed waiver of interest on GOI Loan, Guarantee Fee and commitment fee as its expenditure. In-fact, these were the Government Policies and will come under the purview of Section 2(XVIII) as grant in aid. The reliance of the ITA No.-1911/Del/2017. M/s The Fertilizer Corporation of India Limited. Ld. DR on the Hon’ble Delhi High Court’s decision in case of Rollatainers Ltd. Vs. CIT (2011) 339 ITR 54(Delhi) does not apply in the present case as the Hon’ble High Court therein held that wavier of loan taken in the course of carrying on business was recorded in the books of accounts. In the present case the assessee company has not claimed waiver of interest on GOI Loan, Guarantee Fee and commitment fee as its expenditure. It is pertinent to note that the waiver of the Interest on loan by the Government of India as well as waiver of LIC guarantee fee along with waiver of Government of India loan has been rightly indicated in the financial statements produced before the Assessing Officer and the same were reflected in the books of accounts. Therefore, addition on account of Section 41(1) does not sustain. Thus, the Assessing Officer as well as the CIT(A) are not correct in making and confirming the additions. Hence, Ground No. 2 is allowed. As regards to Ground No. 3, the CIT(A) has not given any direction for adjustment of carry forward of losses and depreciation as per appellate order in earlier years, for which, the issue needs to be adjudicated by the CIT(A). Therefore, we are remanding back this issue to the file of the CIT(A). Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 3 is accordingly allowed for statistical purpose.”

(3.1) Although, the Ld. CIT(DR) brought to our attention that matter is covered in favour of the assessee by aforesaid order dated 28.11.2018 of Co-ordinate Bench of ITAT, Delhi; yet he however, requested that his written submissions may be considered. The written submissions of Ld. CIT(DR) are reproduced as under:

“Sub: Written Submission in the above case- reg.

In the above case, it is humbly submitted that the following decisions may kindly be considered with regard to cessation of liability u/s 41(1) of I.T.Act:

ITA No.-1911/Del/2017. M/s The Fertilizer Corporation of India Limited. Taxman 31 (Delhi)(MAG.)/r20111 339 ITR 54 (Delhi)/r20121 250 CTR 25 (Delhi) (Copy Enclosed)

Assessee-company was declared a sick company by BIFR. It approached CDR cell for settlement of outstanding dues of various banks/institutions. CDR cell approved reworked restructuring package, pursuant to which different financial institutions and banks waived off part of their respective outstanding, comprising of principal and interest dues. Assessing Officer having invoked provisions of section 41(1), brought to tax amount of loan written off by banks and financial institutions. On second appeal, in respect of term loans, Tribunal concluded that these monies did not come in possession of assessee on account of any trading transaction; receipts were capital in nature, being loan payable over a period of time alongwith interest. Thus, waiver of said loans was not treated as income of assessee. However, waiver of loan taken in course of carrying on business was regarded as benefit in revenue field and, accordingly, addition made by Assessing Officer was confirmed. Assessee filed instant appeal challenging addition upheld by Tribunal. It was held that following order passed by Court in case of Logitronics (P.) Ltd. v. CIT [2011] 197 Taxman 394 / 9 taxmann.com 302 , impugned order of Tribunal did not require any interference.

Hon’ble Delhi High Court held that taxability of waiver of loan by bank would depend upon purpose for which said loan was taken. If loan was taken for acquiring capital asset, waiver thereof would not amount to any income exigible to tax, but, on other hand, if loan was taken for trading purpose and was treated as such from very beginning in books of account, waiver thereof may result in income, more so when it was transferred to profit and loss account.”

ITA No.-1911/Del/2017. M/s The Fertilizer Corporation of India Limited. (3.2) In fairness, the Ld. CIT(DR) informed that identical submissions were also made before Co-ordinate Bench of ITAT, Delhi; and it had already been considered by the aforesaid Co-ordinate Bench of ITAT, Delhi; before the aforesaid order dated 28.11.2018 of ITAT, Delhi, in assessee’s own case was passed; deciding the issue in favour of the assessee in identical facts. Therefore, the Ld. CIT(DR) submitted, the issue in dispute may be treated as covered in favour of the assessee, by the aforesaid order dated 28.11.2018 by Co-ordinate Bench of ITAT, Delhi, in which the identical facts, the issue is decided in favour of the assessee.

(4) We have heard the Ld. CIT(DR) in the absence of any representation from the side of the assessee company. We have also perused the materials available on record.

The Ld. CIT(DR) has fairly submitted that in identical facts, the Co-ordinate Bench of ITAT, Delhi has already taken a view, on the disputed issue, in favour of the assessee vide aforesaid order dated 28.11.2018 in assessee’s own case. Relevant portion of the aforesaid order dated 28.11.2018 of Co-ordinate Bench of ITAT, Delhi has already been reproduced earlier in this order in foregoing paragraph no. (3). Respectfully following the aforesaid order dated 28.11.2018 of Co-ordinate Bench of ITAT, Delhi in assessee’s own case, we also decide the issue in dispute in favour of the assessee and dismiss the ground of appeal filed by Revenue. Accordingly, the appeal filed by Revenue is dismissed.

(4.1) Before we part; we place on record our appreciation for extraordinary assistance provided by Ld. CIT(DR) in expeditious disposal of this appeal, even in the absence of ITA No.-1911/Del/2017. M/s The Fertilizer Corporation of India Limited. any assistance available to us from the assessee’s side at the time of hearing. By bringing it to the notice of the Bench, in the absence of anyone appearing from the assessee’s side, that the disputed issue is covered, by earlier precedent, in favour of the assessee, the Ld. CIT(DR) has displayed exemplary sense of fairness which though is expected from every public servant, but is not always seen. When the zeal of Revenue officers to act in the interest of Revenue is tempered with sense of fairplay and justice, it is praiseworthy. The fact that it has happened so in the present appeal before us, is highly appreciated.

Order pronounced in the open court on 8th day of August, 2019.