ANDHRA PRADESH TANNERIES LIMITED,VIZIANAGARAM vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3(1),, VISAKHAPATNAM

We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. We find from the order of the Ld. CIT(A) that the Ld. CIT(A) has extracted in para 4.1.2 of his order the reasons recorded for reopening of the assessment by the Ld. AO. The assessee also could not categorically produce any evidence regarding the non-communication of the reasons recorded. Further, we also find that the letter referred to by the assessee dated 6/4/2011 does not have a valid acknowledgement. In the facts and circumstances as described in the aforesaid paragraphs, we are of the considered view that the reasons recorded by the Ld. AO are made available to the assessee and hence challenging of reopening of the assessment by the assessee is not in accordance with law and hence this ground raised by the assessee is dismissed.

With respect to Ground No.4, the Ld. AR argued that the Ld. AO is not justified in disallowing the prior period expenditure of 6 Rs. 10,39,674/- as the assessee is in receipt of Demand Notice from the Sales Tax Authorities during the FY 2003-04. He therefore pleaded that since the liability was crystalized during the year 2003-04, it should be allowed as an expenditure in the year of payment.

We have heard both the sides and gone through the written submissions made by the assessee. It is a fact that the Sales Tax Authorities have raised a demand of Rs. 2,39,674/- and Rs. 17,02,707/- pertaining to earlier Assessment Years which was under dispute by the assessee. It is also found that the assessee has not created any provision in the books of accounts for the payment of the disputed tax. Finally, when the Sales Tax Department issued a notice of demand in Form-4 (Demand prior to attachment of land), dated 28/01/2004, the assessee made a part payment of Rs. 10,39,674/- and claimed it as an expenditure in the impugned assessment year. In this regard, we are of the considered view that since the demand has been crystalized in the earlier assessment years, the assessee has failed to make any provision in the books of account and thereby 7 the assessee could not claim it as an expenditure even U/s. 43B of the Act. Therefore, in our considered opinion the Ld. AO has rightly disallowed the prior period expenditure in the absence of any provision made in the books of account and hence we do not find any infirmity in the order of the Ld. CIT(A) on this issue. Accordingly, this ground raised by the assessee is dismissed.

With respect to Ground No.5, regarding the disallowance of interest on the deferred loan, the Ld. AR argued that the assessee has availed Interest Free Sales Tax Loan from the Government of Andhra Pradesh. As per the scheme, the beneficiary is allowed for a period of Ten Years to defer the Sales Tax payment to the Government of Andhra Pradesh. However, the interest is payable from the Eleventh Year onwards if the assessee failed to pay the deferral Sales Tax amount to the Government of Andhra Pradesh. Accordingly, the assessee has claimed the amount of Rs. 1,66,870/- as interest payable on the Interest Free Sales Tax Loan availed by the assessee which is outstanding beyond the period of Ten Years. In this connection, the Ld. CIT(A) vide para 4.3.2 has held as follows:

“4.3.2.I have carefully considered the issue. From the facts, it is understood the appellant had availed “interest free loan” from Government as an incentive in the 8 entrepreneurs. The said loan to be paid in 10 years. If the entrepreneur fails to pay the loan amount after 10 years, the recipient will have to pay interest. The appellant is required to pay interest of Rs. 1,66,870/- on the balance amount of Rs. 7,76,138/- @ 21.5%. The Assessing Officer has disallowed interest amount on the premise that the incentive is an interest free loan. Hence claiming interest does not arise. Besides, the appellant had not paid the interest. It is the interest payable which is not allowable even U/s. 43B of the Act. In these circumstances, I find no reason to interfere with the decision of Assessing Officer. Accordingly, the addition is confirmed. The grounds raised are dismissed.”

Further, even before us the assessee has not produced the payment receipt for the interest payment. Under these circumstances, we concur with the views of the Ld. CIT(A) and therefore we find no infirmity in the order of the Ld. CIT(A) and hence this Ground raised by the assessee is dismissed.

In the result, appeal filed by the assessee is dismissed.

The Principal Commissioner of Income Tax, आयकरआयुक्त (अपील)/ The Commissioner of Income Tax 4. ववभधगीयप्रनतनिधर्, आयकरअपीलीयअधर्करण, ववशधखधपटणम/ DR,ITAT, 5. Visakhapatnam गधर्ाफ़धईल / Guard file 6. आदेशधिुसधर / BY ORDER