M/s The Kashi Sahkari Chini Chini Mills Ltd., Bhadohi V. DCIT, Circle - 1, Varanasi

ITA 21/VNS/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 1077 (ITAT-VARANASI)
• Duration Of Justice: 3 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 15-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND MISHRA
• Keywords: Opportunity of being heard; Set aside
• Section: 144; 43B; 142(1); 40(a)(ia); 250; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CIRCUIT BENCH, VARANASI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA No. 21/VNS/2018 Assessment Year: 2012-13 M/s The Kashi Sahkari Chini, Mills Ltd., Aurai, Bhadohi, U.P. v. Deputy Commissioner of Income Tax, Circle-1, Varanasi. PAN:AAAAT7921J (Appellant) (Respondent) Assesseeby: Shri Arvind Mishra, Advocate Revenue by: Shri Ramendra Kumar Vishwakarma, CIT DR Date of hearing: 26.05.2022 Date of pronouncement: 26 .05.2022 O R D E R PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal, filed by assessee, being ITA No. 21/VNS/2018, is directed against the appellate order dated 23.04.2018 passed by ld. Commissioner of Income Tax (A), Varanasi (hereinafter called "the CIT(A)") in Appeal No. 11/DCIT/C- 1/VNS/2015-16 , for assessment year (ay) 2012-13, the appellate proceedings had arisen before Learned CIT(A) from assessment order dated 27 th March, 2015 passed by learned Assessing Officer (hereinafter called “the AO”) under Section 144 of the Income-tax Act, 1961 (hereinafter called “the Act”). We have heard both the parties in Open Court through physical hearing mode. 2. The grounds of appeal raised by assessee in memo of appeal filed with Income Tax Appellate Tribunal, Varanasi (hereinafter called “the tribunal”), reads as under : “1. Because the CIT(A) has exceeded his powers as provided under section 250 of the Act by adjudicating the appeal filed by the assessee/appellant on an issue which was not at all before him in the grounds of appeal raised before him. ITA No.21/VNS/2018 Assessment Year: 2012-13 M/S The Kashi Sahkari Chini Mills Ltd. , Bhadohi v. DCIT, Circle-1, Varanasi, U.P. 2 2. Because without prejudice to the aforesaid ground, no separate notice was issued by the CIT(A) before disallowing interest aggregating to Rs. 6,06,86,570/- by invoking provisions of section 43B of the Act. WITHOUT PREJUDICE TO THE AFORESAID 3. Because the amount of interest of Rs 6,06,86,570/- claimed by the appellant on account of loan taken by it from Cooperative Sugar Mills Revolving Cess Nidhi (an altogether a separate entity) does not fall within the ambit of clause (d) to section 43B the Act as the appellant is neither a “Public Financial Institution” nor “State Financial Cooperation” nor “State Industrial Development Corporation”, bodies covered under the provisions of section 43B(d) of the Act. 4. Because in any case, interest payable to the Nidhi (formed by a notification issued by the State Government for expansion-cum-modernization of existing sugar units in the corporative sugar), the same is at the most skin to State Government and provisions of section 40a(ia)/43B are not applicable to it. 5. Because the order appealed against is contrary to the facts, law and principles of natural justice.” 3. The brief facts of the case are that the assessee is a Sugar Mill which belongs to Government of U.P. The assessee filed its return of income on 30.09.2012 showing loss of Rs. 8,98,03,273/- . The case of the assessee was selected for framing scrutiny assessment through CASS, and accordingly AO issued to the assessee statutory notices u/s 143(2) and 142(1) , from time to time. During the course of assessment proceeding in reply to notice issued u/s 144, the assessee gave letter , received by AO on 10 th March, 2015, submitting that the Chini Mill was closed in financial year 2006-07 and there is no business activities conducted since financial year 2006-07, and requesting AO to transfer the case to Sultanpur Jurisdiction as the officer in charge of this Chini Mill was based in Sultanpur and was holding additional ITA No.21/VNS/2018 Assessment Year: 2012-13 M/S The Kashi Sahkari Chini Mills Ltd. , Bhadohi v. DCIT, Circle-1, Varanasi, U.P. 3 charge of this Chini Mill, and requested AO to adjourn the hearing. The AO observed that matter was getting time barred on 31.03.2015 and the case could not be transferred to Sultanpur keeping in view jurisdiction as defined under law. The AO also observed that the assessee has not produced tax-audit report, books of accounts and further no details whatsoever were produced by the assessee during the course of assessment proceedings. The AO was not able to ascertain whether entire sum of interest was paid by assessee to any finance company or to any bank , or whether the said interest was paid or was payable during the year under consideration. The AO also observed that it is not clear whether income-tax was deducted at source under provisions of the 1961 Act on the interest expenditure claimed by the assessee, which led AO to disallow the entire interest expenses of Rs. 6,06,86,570/- claimed by assessee by invoking provisions of Section 40(a)(ia) of the 1961 Act which stood added to the income of the assessee, vide assessment order dated 27.03.2015 passed by AO u/s 144 of the 1961 Act. 4. Aggrieved by the aforesaid assessment framed by AO, the assessee filed first appeal before ld. CIT(A). The assessee submitted before ld. CIT(A) that the additions as were made by AO by disallowance of interest of Rs. 6,06,86,570/- under Section 40(a)(ia) of the Income Tax Act was wrongly made, as the interest was paid to Government Institution. The assessee submitted that in case of the assessee’s sister concern namely Kishan Sahakari Chini Mills Limited, Sultanpur U.P for assessment year 2005-06, 2006-07 and 2008-09, the additions were deleted by ld. CIT(A), Lucknow . The assessee enclosed copy of ld. CIT(A) appellate order dated 15.06.2012 . The ld. CIT(A) drew attention of the assessee to the cited case laws and brought to its notice ITA No.21/VNS/2018 Assessment Year: 2012-13 M/S The Kashi Sahkari Chini Mills Ltd. , Bhadohi v. DCIT, Circle-1, Varanasi, U.P. 4 that case law cited were infact decided against the tax-payer and in favour of Revenue. The ld. CIT(A) invoked provisions of Section 43B and sought explanation/clarification from the assessee so as to that interest on loan taken by assessee from NIDHI formed by UP Government cannot be allowed unless it is actually paid in terms of Section 43B. The assessee did not offer any explanation/clarification before ld. CIT(A) despite three opportunities of hearings granted by ld. CIT(A), and in view of absence of explanation/clarification from the assessee ,the ld. CIT(A) was pleased to disallow interest amounting to Rs. 6,06,86,570/- under the provisions of Section 43B of the Act, vide appellate order dated 23.04.2018. 5. Aggrieved by appellate order dated 23.04.2018 passed by ld. CIT(A), the assessee has filed an appeal before the tribunal . The ld. Counsel for the assessee submitted that the assessee is a company which belongs to U. P. Government. It was submitted that the Chini Mill of the assessee is lying closed. The ld. Counsel for the assessee submitted that the loan was taken by assessee from State Government through Nidhi. It was submitted that interest expenditure claimed by the assessee was disallowed by AO by invoking provisions of Section 40(a)(ia) of the 1961 Act. It was submitted that the AO passed an ex-parte order u/s 144 of the 1961 Act due to the assessment getting time barred, and proper opportunity of hearing was not granted by the AO to the assessee. It was further submitted by ld. Counsel for the assessee that ld. CIT(A) invoked provisions of Section 43B and disallowed the interest expenses, which was again an ex-parte appellate order passed by ld. CIT(A) as the assessee could not submit clarifications/explanations before ld. CIT(A). It was submitted by ld. Counsel for the assessee that the assessee could not ITA No.21/VNS/2018 Assessment Year: 2012-13 M/S The Kashi Sahkari Chini Mills Ltd. , Bhadohi v. DCIT, Circle-1, Varanasi, U.P. 5 submit proper explanations/replies before both the authorities and the orders were passed ex-parte by AO as well by ld. CIT(A). The ld. Counsel for assessee submitted that although the assessee did not paid interest to the Nidhi formed by U P Government, from which loans were raised by the assessee, but the said Nidhi being Government entity is not covered/hit by provisions of Section 43B , as it neither NBFC, nor bank, nor Financial Institution. The ld. Counsel for the assessee submitted that complete details will be submitted before the authorities as to the constitution/bye laws of Nidhi formed by U P Government and all other details as may be required by the authorities to adjudicate this issue, and thus prayers were made by ld. Counsel for the assessee before the Bench to set aside and restore the matter to the file of the AO wherein one more opportunity be provided to the assessee to explain /clarify before the authorities about the constitution/ structure/bye laws/MOA etc. of the NIDHI of UP Government and other relevant details which the AO may verify before adjudication . The Ld. CIT-DR relied upon the appellate order of the CIT(A). 6. We have considered rival contentions and perused the material on record. We have observed that the assessee has claimed itself to be a U. P. Government company and was dealing in manufacturing of sugar. The assessee is having a sugar mill. It is also claimed by the assessee that the assessee’s sugar mill is lying closed for last several years . The assessee filed its return of income on 30.09.2012, declaring loss of Rs. 8,98,03,273/-. The case of the assessee was selected by Revenue for framing scrutiny assessment, under CASS. The AO issued statutory notices to the assessee, under Section 143(2) and 142(1). During the course of assessment ITA No.21/VNS/2018 Assessment Year: 2012-13 M/S The Kashi Sahkari Chini Mills Ltd. , Bhadohi v. DCIT, Circle-1, Varanasi, U.P. 6 proceedings , in reply to notice issued u/s 144, the assessee gave letter , received by AO on 10 th March, 2015, submitting that the Chini Mill was closed in financial year 2006-07 and there is no business activities conducted since financial year 2006-07, and requesting AO to transfer the case to Sultanpur Jurisdiction as the officer in charge of this Chini Mill was based in Sultanpur and was holding additional charge of this Chini Mill, and requested AO to adjourn the hearing. The AO observed that matter was getting time barred on 31.03.2015 and the case could not be transferred to Sultanpur keeping in view jurisdiction as defined under law. The AO also observed that the assessee has not produced tax-audit report, books of accounts and further no details whatsoever were produced by the assessee during the course of assessment proceedings. The AO was pleased to frame ex-parte assessment under Section 144 by disallowing interest expenditure to the tune of Rs. 6,06,86,570/- under Section 40(a)(ia) of the Income Tax Act, as the AO was not able to ascertain whether entire sum of interest was paid by assessee to any finance company or to any bank or whether the said interest was paid or was payable during the year under consideration. The AO also observed that it is not clear whether income-tax was deducted at source under provisions of the 1961 Act on the interest expenditure claimed by the assessee, which led AO to disallow the entire interest expenses of Rs. 6,06,86,570/- claimed by assessee by invoking provisions of Section 40(a)(ia) of the 1961 Act which stood added to the income of the assessee by the AO. Even , during the appellate proceedings, the assessee did not file relevant details. The appeal of the assessee was dismissed by ld. CIT(A) by invoking provisions of Section 43B . The ld. CIT(A) observed that interest was not paid by the assessee , and has remained unpaid. Even before ld. CIT(A), details called for were not made available. ITA No.21/VNS/2018 Assessment Year: 2012-13 M/S The Kashi Sahkari Chini Mills Ltd. , Bhadohi v. DCIT, Circle-1, Varanasi, U.P. 7 Now, the assessee has come forward and submitted that loans were obtained from Nidhi which was formed by U. P. Government , and it is claimed that section 43B has no applicability to Nidhi formed by U.P. Government . The ld. Counsel for the assessee stated before the Bench that the assessee will furnish complete details of NIDHI formed by U.P. Government, from which the loans were raised by the assessee. The ld. Counsel for the assessee has stated before the Bench that complete details of Nidhi formed by U.P. Government , such as its constitution/byelaws/MOA etc. will be submitted/furnished, along with all relevant details as may be called for by the authorities in the set aside remand proceedings , to substantiate its contentions. It is also submitted by ld. Counsel for the assessee that the Chini Mills is lying closed and interest was not actually paid. Without commenting on the merits of the issue, we are of the considered view that the matter can be set aside and restored to the file of AO for fresh determination of the issue on merits in accordance with law. The assessee is directed to file complete details of the interest expenses incurred , the entities such as Nidhi formed by U.P. Government etc. from whom the loans were claimed to have been raised by the assessee and their Constitution/ MOA/ Bye laws etc before the AO in the set aside proceedings, to substantiate its claim. The assessee is claiming deduction of interest expenses from the income chargeable to tax, and thus the onus is on the assessee to prove that it is eligible and entitled to claim deduction, within the provisions of the 1961 Act. The assessee will also be required to file all the information and details etc. as may be considered relevant and appropriate by the AO in set aside remand proceedings. The AO will adjudicate the issue on merits , as to applicability of Section 43B read with Section 36(1)(iii) ,and any other relevant statutory provision . In case the assessee do not co-operate in ITA No.21/VNS/2018 Assessment Year: 2012-13 M/S The Kashi Sahkari Chini Mills Ltd. , Bhadohi v. DCIT, Circle-1, Varanasi, U.P. 8 the set aside remand proceedings, the AO will be free to decide the matter based on the material on records. The AO will give proper and adequate opportunity of being heard to the assessee in accordance with law and principles of natural justice. The evidences /explanations submitted by assessee in set aside remand proceedings shall be admitted by AO and shall be adjudicated on merits in accordance with law. Needless to say that the assessee will not seek un-necessary adjournments. We would also like to clarify at this stage that we have not commented on merits of the issue in this appeal and all contentions are kept open. The AO will pass order un-influenced by any observation which we might have made in this order. We order accordingly. 7. Thus, the appeal of the assessee in ITA no. 21/Vns/2018 for ay: 2012-13 is allowed for statistical purpose. Order was pronounced in the open court on 26/05/2022 at Varanasi, U.P, and reduced to writing and signed on 02.06.2022 at Allahabad, U.P. Sd/-/- S Sd/-d/- [VIJAY PAL RAO] [RAMIT KOCHAR] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 02/06/2022 KD Azmi Copy forwarded to: 1. Appellant – The Krishi Sahkari Chini Mills Limited, Aurai, Bhadohi, U.P. 2. Respondent –The Deputy Commissioner of Income-tax, Circle-1, Varanasi, U.P. 3. The ld. CIT-DR , ITAT, Varanasi, U.P. 4. CIT, Varanasi, U.P. 5. The CIT(A), Varanasi, U.P. ITA No.21/VNS/2018 Assessment Year: 2012-13 M/S The Kashi Sahkari Chini Mills Ltd. , Bhadohi v. DCIT, Circle-1, Varanasi, U.P. 9 Sr. P.S.