The Karnataka Sahakri Sakkare Karkhane Niyamitha , Haveri V. The Income Tax Officer Ward-2 , Haveri

ITA 3276/BANG/2018

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 1101 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 06-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice; TDS
• Section: 69C; 43B; 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 3276/Bang/2018 Assessment Year : 2012-13 M/s. The Karnataka Sahakari Sakkare Karkhane Niyamitha, Sangoor, Dist: Haveri – 581 110. PAN: AAAAT0991N Vs. The Income Tax Officer, Ward – 2, Haveri. APPELLANT RESPONDENT Assessee by : Shri Mahesh Kumar, Advocate Revenue by : Shri Pradeep Kumar, CIT DR Date of Hearing : 19-04-2022 Date of Pronouncement : 02-06-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against the order dated 04.09.2018 passed by the Ld.CIT(A)-Davangere for A.Y. 2012-13 on following grounds of appeal: “1) That Order of the Hon'ble Commissioner of Income (Appeals) Davangere is opposed to the law and facts and circumstances of the case. 2) That the Learned CIT (Appeals) Davanagere is not justified in rejecting grounds summarily which is opposed to the principles of Natural Justice. 3) That the Learned CIT ( Appeals) Davanagere has erred in upholding the disallowance of Rs. 4,88,43,166/- U/s Page 2 of 9 ITA No. 3276/Bang/2018 43B without appreciating the legal provisions as applicable. 4) That the Learned CIT ( Appeals) Davanagere has erred in confirming an addition of Rs. 38,10,000/- without perusing the case and the same is opposed to the principles of Natural Justice. 5) That the Learned CIT ( Appeals) Davanagere has erred in sustaining and addition of Rs. 12,43,154/- u/s 69C which is also opposed to the principles of Natural Justice. 6) That the Learned CIT ( Appeals) Davanagere is not justified in summarily dismissing the grounds of brought forward and carried forward of loss of Rs. 5,39,71,320/- for Asst. Years 2012-13” 2. Brief facts of the case are as under: 2.1 The Assessee is a Co-operative Sugar factory assessed to Income Tax with ITO, Ward (2). Haveri. The assessee has been leased out as per the order of the Govt. Of Karnataka for year under consideration. The assessee filed its return of income on 31/07/2012 declaring Nil income. The case of the assessee was selected for scrutiny and a notice u/s 143(2). The assessee submitted written replies / explanations for various queries raised by the Ld.AO. The Ld.AO made following additions while concluding the assessment. 1) Disallowances made u/s 43B Rs.4,88,43,166/- 2) Excess liability as income Rs.38,10,000/- 3) Disallowance for No TDS u/s 40(a)(ia) Rs. 75000/- 4) Expenditure treated as unexplained towards interest on RD & NRD Rs. 12,43,154/- 2.2 The Ld.AO after setting off of the loss against the addition no tax was computed to be payable. 2.3 Aggrieved by the order of Ld.AO, assessee filed appeal before the Ld.CIT(A). Page 3 of 9 ITA No. 3276/Bang/2018 2.4 The Ld.CIT(A) upheld the additions made by the Ld.AO. 2.5 Aggrieved by the order of Ld.CIT(A), assessee filed present appeal before this Tribunal. 3. The Ld.AR submitted that Ground no. 1 is general in nature and therefore do not require adjudication. 4. Ground no. 2 is submitted to be not pressed by assessee and therefore dismissed. 5. Ground no. 3: Assessee raised this issue against the disallowance of Rs.4,88,43,166/- u/s. 43B of the Act. The Ld.AR submitted that the said amount relates to payment to be made to State Government of Karnataka. He submitted that the assessee had filed various documents to support that, interest on loans from state government does not fall within the ambit of section 43B. It is submitted that, the amount that is already appearing in the balance sheet amounting to Rs. 5,17,00,000/- is the borrowing from State Government under a scheme, and interest payable on such borrowings from the State Government cannot be disallowed u/s. 43B. 6. The Ld.AR vide written submission dated 24.01.2022 submitted that, the assessee is deriving income by way of leasing sugar factory building and machinery (under composite lease), earned income from lease rent and Interest Income from deposits, thereby for the year under consideration. 7. He submitted that the Ld.AO presumed, without appreciating the fact, that the provisions of section 43B is applicable for the cash assistance made by Government (in the form of Bridge loan / soft loan/ godown loan/store loan/ sugar pledge loan). Page 4 of 9 ITA No. 3276/Bang/2018 8. He submitted that the "State Government" is not a Public Financial institution, scheduled Bank, State Financial Corporation and state Industrial Investment Corporation as per Explanation 4 to Section 43B. It is submitted that the amount borrowed appearing in balance sheet to an extent of Rs. 5,17,00,000/- (i.e., 1,18,00,000/- + 3,99,00,000/-) represents borrowing from "State Government" under the scheme. loan Order No. Condition Loan Amou nt (in Lks) Interest during the year Interest Current liabilities 0/s as on 31/03/2012 Any other Details Doc Pg. No NCDC Bridge loan RDC 190 COF 78 Dated 15/03/1979, Repay in 1 year, 14% 100 14,00,000 3,05,00,000 CG- scheme C Fund 1 1-2 State Govt Loan RDC 88 COF 79 dt 7/01/1980 Recoup supl., Grant 25 14,00,000 4,50,62,500 Adv from Continge ncy fund 2 3 State Govt Loan RDC 88 COF 79 dt 4/02/ 1980 Recoup supl., Grant 75 3 4 Soft Loan CMW 204/FST 200 dt 09/02/2002 Repay in 5 year @ 6.5% 400 25,93,500 2,60,28,048 4 5-15 NCDC Godown Loan Admin: Year: 96 dt 09/08/1986 Repay in 5 year @ 18% 55.30 1,00,786 15 95 583 through KCC Bank, Dharwad 6 16- 19 Store Loan Admin: Year: 96 dt 09/08/1986 On Demand @ 17% 120 10,43,272 87,38,432 7 20- 23 Sugar Pledge Proceeding Karnataka P&D No. 7469/ 2003- 300 48,00,000 3,35,96,000 Penal interest 16 & 64 loan State Apex Bank 04 32.45 lks 18 Urban Bank Deposit Notes Below Confirmatio n letters below 58,92,936 3,41,43,186 Below Total Disallowance -Proposed 17,96,63,749 TOTAL— Current Year Provisions — Debit in P& L 1,72,30,494 (1,72,30,494) Balance as on 31/03/2012 — proposed disallowance u/s 43B — related to earlier years 16,24,33,255 9. The Ld.AR submitted that the provisions made during the year is Rs. 1,72,30,494/- only as discernable from the assessment order itself (including payments made to state Page 5 of 9 ITA No. 3276/Bang/2018 Government, however the learned Assessing officer made addition of Rs. 4,88,43,166/- (i.e., Excess addition of Rs. 3,16,12,672, which in fact relates to Preceding financial years). He submitted that the Proposal Notice hereinunder as reproduced in the assessment order goes to establish that the funding was provided by the State Government. Total Interest (current year - P&L) + All Past Accumulation (in Balance sheet) - page 85 Sl No Particulars of Expenses To whom it is payable Whether paid within time allowed u/ s 43B Amount proposed for addition u/ s 43B Profit and loss accounts 1 Interest on NCDC Bridge Loan State Government Not paid till date 14,00000 2 Interest on State Govt Loan State Government Not paid till date 14,00,000 3 Interest on Soft Loan State Government Not paid till date 25,93,500 4 Interest on NCDC Godown Loan KCC Bank Not paid till date 1,00,786 5 Interest on Store Loan Co-op Bank Not paid till date 10,43,272 6 Interest on Sugar Pledge loan state Not paid till date 48,00,000 7 Interest on Urban Bank Deposits Urban Bank Not paid till date 58,92,936 1,72,30,494 Current liabilities (including above amt debited to P& L) - page 85 & Page 101 8 Interest on State Govt Loan State Government Not paid till date , 4,50,62500 9 Interest on NCDC Bridge Loan State Government Not paid till date 3,08,00,000 10 Interest on NCDC Godown Loan KCC Bank Not paid till date 15,95,583 11 Interest on Sugar Pledge loan State Government Not paid till date 3,35,96,000 12 Interest on Store Loan Co-op Bank Not paid till date 87,38,432 Page 6 of 9 ITA No. 3276/Bang/2018 13 Interest on Soft Loan State Government Not paid till date 2,60,28,048 14 Interest on Urban Bank Deposits Urban Bank Not paid till date 3,41,43,186 17,99,63,749 Total Proposed Addition 19,23,94,243 He thus submitted that the revenue was not justified in making addition during the Impugned Assessment year to an extent of Rs. 3,16,12,672/- is bad in law. 10. We have perused the submissions advanced by both sides in the light of records placed before us. The Ld.AR before us has relied on the decision of Hon’ble Allahabad High Court in case of CIT vs. UP Rajya Viyut Utpadan Niyamit Ltd. reported in (2013) 37 Taxman.com 164. 11. In support of his submission that section 43B is not applicable to interest paid on government loans. The Ld.DR vide written submission dated 24.01.2022 submitted as under: “The Ld.CIT(A) perused the asst. order of the AO and the omissions of the appellant. The Ld.CIT(A) observed with regard to disallowance u/s 43B of the Act, that the AO noted that interest was disallowed by the assessee himself for earlier years as not allowable expenses, but has not done so in the current year and no explanation was given. In view of the above, the Ld. CIT(A) upheld the additions of the AO. I agree with the decision of the Ld.CIT(A) and the same may be upheld.” 12. The Ld.AR submitted that interest cannot be disallowed u/s. 43B, as it was not claimed as deduction in the return of income for year under consideration. This is discernable from the letter dated 06.02.2015 filed before the Ld.AO, which has not been considered. Therefore in the interest of justice, we direct the Ld.AO to consider the claim made by assessee for verification as submitted vide its letter dated 05.02.2015 in accordance with law. Page 7 of 9 ITA No. 3276/Bang/2018 Accordingly, this ground raised by assessee stands partly allowed for statistical purposes. 13. Admittedly, there is no dispute that assessee has procured loan from apex bank which is a state financial corporation. 14. Ground no. 4 is in respect of addition of Rs.38,10,000/- on account of excess of assets over liability. 14.1 The Ld.AR submitted that assessee had shown a) Interest on sugar pledge loan for DCCB Tumkur of Rs.2,99,98,000/- and b) Interest on Sugar Pledge loan Rs. 3,35,96,000/- as outstanding loans in the balance sheet. 14.2 He submitted that assessee received sum of Rs.5,97,84,000/- from DCCB, Tumkur as per the confirmation letter filed. For the balance, since no details were filed, the Ld.AO made addition in the hands of the assessee. The Ld.CIT(A) confirmed the same without verifying the papers filed by the assessee. 14.3 Before us, the Ld.AR submitted that, the said amount is outstanding based on a letter issued by the bank. The Ld.AR submitted that, the outstanding figure revealed in the balance sheet may be accepted. 14.4 We have perused the submissions advanced by both sides in the light of records placed before us. 14.5 The submissions of Ld.AR is based on surmises without there being any cogent evidences. 14.6 We therefore, remand this issue to the Ld.AO, wherein assessee shall furnish the confirmation from the bank based on Page 8 of 9 ITA No. 3276/Bang/2018 which the claim shall be considered. Needless to say that proper opportunity of being heard is to be granted to the assessee. Accordingly, this ground raised by assessee stands partly allowed for statistical purposes. 15. Ground no. 5 is against the addition of Rs. 12,43,154/- u/s. 69C of the Act. 15.1 The Ld.AR at the outset submitted that various details in respect of the claim was submitted before the Ld.CIT(A) /AO. 15.2 He submitted that refundable deposits were required to be converted into share capital after taking approval from the Board of Directors and that this is not payable to any agencies, banks and therefore disallowance u/s. 43B does not arise. 15.3 It is also submitted that, the said advances cannot be considered u/s. 69C of the Act, as they are not unexplained. 15.4 Referring to para 6.3 of the assessment order, the Ld.AR submitted that the Ld.AO himself clearly mentions that assessee furnished the basis and material evidence in support of the claim. However, while concluding in para 6.3 of the order, the Ld.AO recorded that, the disallowance is based on non-furnishing the basis and material in support of the claim. 15.5 The Ld.CIT.DR relied on the orders passed by the authorities below. 15.6 We have perused the submissions advanced by both sides in the light of records placed before us. 15.7 We note that this issue has been considered by the revenue, without verifying the evidences and materials filed by the assessee. In the interest of justice, we remand this issue to the Ld.AO to consider the claim in accordance with law. Needless to Page 9 of 9 ITA No. 3276/Bang/2018 say that proper opportunity of being heard is to be granted to the assessee. Accordingly, this ground raised by assessee stands partly allowed for statistical purposes. 16. Ground no. 6 raised by assessee does not arise out of the order of Ld.CIT(A). Accordingly, the same is not adjudicated. In the result, the appeal filed by assessee stands allowed for statistical purposes. Order pronounced in open court on 02 nd June, 2022. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 02 nd June, 2022. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore