TELANGANA STATE HOUSING CORPORATION LIMITED,HYDERABAD V. DCIT., CIRCLE-2(1), HYDERABAD

ITA 554/HYD/2024

AI Insights

The case involves Telangana State Housing Corporation Limited appealing against the order of the CIT(A)-National Faceless Appeal Centre, which upheld several additions made by the Assessing Officer during the assessment year 2021-2022. The main issues revolved around the treatment of government grants as income, disallowance of interest payments, and discrepancies in loan account balances. The Tribunal found that the grants received for housing projects should not be treated as the corporation's income since they were passed on to implementing agencies. It also directed a re-examination of the interest disallowance and the handling of discrepancies in loan accounts, which were partly attributed to accounting treatments and moratoriums granted during the COVID-19 pandemic.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 31770 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Assessment Year: 2021-2022
• Other Referred Cases: Sahney Steel and Press Works Ltd. vs. CIT, CIT, Madras vs. M/s. Ponni Sugars & Chemicals Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B.BALAKRISHNA
• Assessee Lawyers: T RAJENDRA PRASAD
• Keywords: Set aside; Corroborative evidences; Unexplained investment; Deemed to accrue or arise in india
• Section: 139(1); 22; 13; 234B; 43B; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD “A” BENCH : HYDERABAD BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MANJUNATHA G, ACCOUNTANT MEMBER ITA.No.554/Hyd/2024 Assessment Year 2021-2022 Telangana State Housing Corporation Limited, Hyderabad – 500 029. Telangana. PAN AAFCT4920L vs. The DCIT, Circle-2(1), Hyderabad. (Appellant) (Respondent) For Assessee : CA T Rajendra Prasad And Shri M Poorna Chander Rao For Revenue : Shri B. Bala Krishna, CIT-DR Date of Hearing : 02.01.2025 Date of Pronouncement : 28.03.2025 ORDER PER MANJUNATHA G, A.M. : This appeal has been filed by the assessee against the order dated 26.03.2024, of the learned CIT(A)-National Faceless Appeal Centre [in short the “NFAC”] Delhi, relating to the assessment year 2021-2022. 2. The assessee has raised the following grounds in the instant appeal : 2 ITA.No.554/Hyd./2024 1. “The Ld. CIT-A erred in upholding the order of the AO w.r.t the major additions which order is contrary to the facts of the case and the provisions of law where the AO determined the Total Income at Rs 364,06,40,9517- and the taxes at other liabilities at Rs 268,24,88,511/-. 2. The Ld. CIT-A erred in upholding the order of the AO who failed to appreciate that the subsidy received of Rs.150,00,00,000/- is not income in the hands of the Appellant particularly in view of the fact the Appellant is acting as a nodal agency. 3. The Ld. CIT-A and the AO ought to have appreciated that the subsidy received of Rs.150,00,00,000/- is passed to the executing agencies by the Appellant and thereby it is not to be treated as an element of income in the hands of the Appellant. 4. The Ld. CIT-A erred in upholding the order of the AO who disallowed the interest paid of Rs.547,50,70,481/- invoking the provisions of Explanation 3C to Sec 43B on the mistaken assumption that the outstanding interest has been converted into fresh loan. 5. The Ld. CIT-A and the AO ought to have appreciated that the fresh loan obtained of Rs.2280,00,00,000/- has no link to the repayment of interest amount of 3 ITA.No.554/Hyd./2024 Rs.547,50,70,481/- and hence ought not to have disallowed the interest paid. 6. The Ld. CIT-A erred in upholding the addition of Rs.584,403/- out of the total addition made by the AO of Rs.24,75,450/- U/S 68, being the difference in principle amount in the books of the Appellant and that of the lender which resulted from differential treatment in the books of the Appellant and the Lender i.e., HUDCO. 7. The Ld. CIT-A erred in upholding the addition of Rs.584,403/-out of the total addition made by the AO of Rs.24,75,450/- u/sec.68 as the reasons for the differences between the books of the Appellant and the Lender (Le HUDCOJ are properly explained. 8. The Ld. CIT-A erred in partly confirming the addition made by the AO to the extent of Rs.193.88,55,090 out of the total addition of Rs.214,59,47,070/-invoking the provisions of See 69. 9. The Ld. CIT-A and the AO ought to have appreciated that the provisions of See 69 are not applicable to the facts of the case; 4 ITA.No.554/Hyd./2024 10. The Ld. CIT-A erred in partly confirming the addition made by the AO to the extent of Rs.193,88,55,090 out of the total addition of Rs.214.59.47,070- invoking the provisions of Sec 69: a. On the presumption that an amount of Rs.180,34,27,952/-being moratorium on interest component was paid outside books which is contrary to the facts of case, and b. As the AO erroneously proposed to adjust an amount of Rs.13,54,27,138/-being payment made to LIC/GIC with an unrelated loan which is, again, contrary to the facts of the case. 11. The CIT-A erred in confirming the addition made by the AO of Rs.10.89,330/-as unrecorded rent from NHB in view of the fact that an amount of Rs 6.28.560/- is already appearing in the books of account and is offered to tax;” 3. Brief facts of the case are that the assessee, Telangana State Housing Corporation Limited is a State Government Public Sector Undertaking engaged in providing housing to general public as per the scheme promoted by the government of Telangana. The assessee had furnished return of income for assessment year 2021-2022 on 10.02.2022 admitting total income at Rs.NIL and returned 5 ITA.No.554/Hyd./2024 business losss of Rs.557,47,67,392/-. The case was selected for scrutiny and the assessment has been completed u/sec.143(3) of the of the Income Tax Act, 1961 on 26.12.2022 and determined total income at Rs.921,54,08,343/- by making the following additions. Sl. No. Description Amount in INR 1. Total Income as per return of income filed u/s. 139(1) of the Act. Rs. NIL 2. Income as computed u/s. 143(1)(a) of the Act. Rs. NIL 3. Income determined u/s.2(24)(xviii) of the Act on account of subsidy received from state government. Rs.150,00,00,000/- 4. Income determined on account of disallowance of interest expenses u/s.36(1)(iii) for non- compliance to the provisions of Section 43B(d) r.w. explanation 3C of the Act. Rs.5,47,50,70,481/- 5. Income determined on account of failure on the part of the Assessee Company to reconcile differences of between the closing balance as per Assessee Company's reconciliation statement and closing balances as per HUDCO's ledger account as deemed income u/s.68 r.w.s 115BBE of the Act. Rs.24,75,450/- 6. Income determined on account of failure on the part of the Assessee Company to reconcile differences of Rs.7,30,37,305/-between the closing balance as per Note-4 annexed to and forming part of balance sheet and break-up of 'interest paid for F.Y.2020-21' as deemed income u/s.68 r.w.s 115BBE of the Act. Rs.7,30,37,305/- 7. Income determined on account of failure on the part of the Assessee Company to reconcile differences of Rs.214,59,47,070/-between the closing balance as per Assessee Company's reconciliation statement and closing balances as per HUDCO's ledger account as deemed income u/s.69 r.w.s 115BBE of the Act. Rs.214,59,47,070/- 8. Income determined on account of failure on the part of Assessee Company to explain the difference of Rs.1,15,82,176/- in respect of Employees contribution between the 'salary 6 ITA.No.554/Hyd./2024 particulars for the F.Y.2020-21' and 'EPF statement for the F.Y.2020-21' furnished by the Assessee Company and failure to explain the sources for the employees contribution towards EPF and ESI and failure to furnish the details in respect of the accounting treatment given to Rs.1,15,82,176/- in respect of Employees contribution in its books of accounts. Rs.1,15,82,176/- 9. Income determined on account of failure on the part of Assessee Company to explain the difference of Rs.62,06,531/- in respect of Employers' contribution between the 'salary particulars for the F.Y.2020-21' and 'EPF statement for the F.Y.2020-21' furnished by the Assessee Company and sources for the employers contribution towards EPF and ESI and failure to furnish the details in respect of the accounting treatment given to Rs.62,06,531/- in respect of Employers contribution in its books of accounts. Rs.62,06,531/- 10. Income determined on account of on account of Undisclosed Rental Receipts received from M/s.National Housing Bank. Rs.10,89,330/- 11. Total income determined u/s.143(3) r.w.s 144B of the Act. Rs.921,54,08,343/- 4. The assessee carried the matter in appeal before the First appellate Authority [CIT(A)] and the learned CIT(A) vide order dated 26.03.2024 for the reasons stated in his order partly allowed the appeal filed by the assessee, where the learned CIT(A) has deleted the additions made by the Assessing Officer for Rs.7,30,37,305/- towards closing balance as per Note-4 annexed to and forming part of balance sheet and break-up interest paid for financial year 2020-2021 u/sec.68 r.w.s.115BBE of the Act, deleted 7 ITA.No.554/Hyd./2024 additions made by the Assessing Officer towards employees contribution to EPF and ESI and allowed partial relief in respect of additions made towards difference in respect of ledger account of HUDCO when compared to books of accounts of the assessee. However, sustained the additions made by the Assessing Officer towards income towards grant received from Government of Andhra Pradesh u/sec. 2(24)(xviii) of the Act, addition towards disallowance of interest expenses u/sec.36(1)(iii) r.w.s.43B(d) read with Explanation-3C of the Act and also sustained the addition to the tune of Rs.214,59,47,070/- towards reconciliation difference between closing balance as per books of accounts of the assessee and closing balance as per the HUDCO ledger account as deemed income u/sec.69 r.w.s.115BBE of the Income Tax Act, 1961. 5. Aggrieved by the learned CIT(A) order, the assessee is now in appeal before the Tribunal. 6. The first issue that came-up for our consideration from ground nos.2 and 3 of the assessee’s appeal is addition of Rs.150 crores towards grant received from Government of 8 ITA.No.554/Hyd./2024 Telangana. The facts with regard to impugned dispute are that, during the previous year relevant to assessment year 2021-2022 the appellant received an amount of Rs.150 crores from the Government of Telangana towards construction of the two bedroom houses to the urban poor. The appellant has passed on the amount received from Government of Telangana to the Commissioner, Greater Hyderabad Municipal Corporation [in short “GHMC”] and District Collectors for executing the housing project as per the scheme promoted by the State Government. The assessee claimed that, since it is a Nodal Agency for implementing housing project promoted by the Government of Telangana for the urban poor, whatever the amount received by the appellant from the Government of Telangana has been transferred back-to-back to the Commissioner GHMC and District Collectors as per the Government Orders and thus, the appellant has not accounted grant received from the Government of Telangana as it’s income and amount transferred to the implementing agency as it’s expenditure. However, the amount has been routed through 9 ITA.No.554/Hyd./2024 it’s balance-sheet as a ‘current liability’ and whatever payment made to the implementing agency, has been debited to the liabilities account. 7. The Assessing Officer, however, was not convinced with the explanation furnished by the assessee and according to the Assessing Officer, as per the provisions of sec.2(24)(xviii) of the Act, any assistance in the form of subsidy or grant or cash incentive by the Central Government or State Government or any Authority should be treated as income of the assessee. The Assessing Officer noted that, as per the above provisions, assistance of any sort by whatever name given by the Government, shall be construed as income of the assessee, except, where subsidy or grant or reimbursement is considered for determination of the actual cost of the asset in terms of Explanation-10 to Sec.43(1) of the Act. Therefore, by following certain judicial precedents including the decision of Hon’ble Supreme Court in the case of Sahney Steel and Press Works Ltd., vs., CIT [1997] 228 ITR 253 (SC) and CIT, Madras vs., M/s. Ponni Sugars & Chemicals Ltd., [2008] 306 ITR 392 (SC), rejected 10 ITA.No.554/Hyd./2024 the explanation of assessee and grant received from Government of Telangana amounting to Rs.150 crores has been treated as ‘Income’ of the assessee. 8. Learned Counsel for the Assessee referring to the Government Orders issued on various dates submitted that, the entire programme in both rural and urban areas will be implemented in all the districts by the District Collectors and in Greater Hyderabad Municipal Corporation by the Commissioner, GHMC as per the guidelines issued by the Government of Telangana for implementation of the programme from time to time. The assessee is only a Nodal Agency for implementing the housing project. Whatever the amount received from the Government has been back-to- back transferred to either Commissioner, GHMC or District Collector’s of respective Districts. This fact has been brought to the notice of the Assessing Officer and also explained how the amount has been treated in the books of account of the assessee. Although, these evidences has been furnished to the Assessing Officer, the Assessing Officer has disregarded the evidences filed by the assessee and made 11 ITA.No.554/Hyd./2024 the impugned additions towards grant received from the Government of Telangana as ‘Income’ of the assessee u/sec.2(24)(xviii) of the Act. In this regard, he filed relevant Government Orders [in short “G.Os] issued by the Government of Telangana and also relevant bank statements to prove that, the amount received from Government of Telangana has been back-to-back paid to respective implementing agencies on the very same day. 9. Learned CIT-DR Shri B Bala Krishna, referring to the provisions of sec.2(24)(xviii) of the Act, submitted that, any assistance in the form of grant or subsidy received from Government or any Agency, should be treated as ‘income’ of the assessee. Further, as per sec.145(3) and Income Computation and Disclosure Standards [in short “ICDS”] issued by the CBDT, the assessee needs to account grant received from the Government as it's income and any expenditure incurred for implementing the projects can be treated as expenditure. When the law mandates a particular system of income or expenditure, the assessee should treat the grant received from the Government of Telangana as its 12 ITA.No.554/Hyd./2024 income and any payment made to the implementing agency towards implementing the project can be treated as expenditure. Since the assessee has not accounted grant as its income, the Assessing Officer has rightly treated as it income u/sec.2(24)(xviii) of the Act. The learned CIT(A) after considering the relevant facts has rightly upheld the reasons given by the Assessing Officer and, therefore, the order of the learned CIT(A) should be upheld. 10. We have heard both the parties, perused the material on record and the orders of the authorities below. There is no dispute with regard to law as per the provisions of sec.2(24)(xviii) of the Act, where it has been clearly stated that assistance in the form of subsidy or grant or cash incentives by the Central Government or State Government or any Other Authority, shall be treated as ‘income’ of the assessee. It is also not in dispute that as per Income Computation and Disclosure Standards [“ICDS”] as well as amendment made to sec.145B(3) of the Act, the income referred to in sub-clause-(xviii) of clause-(24) of section-2 shall be deemed to be the ‘income’ of the previous year in 13 ITA.No.554/Hyd./2024 which it is received, if not charged to income-tax in any earlier previous years. Going by the provisions of section 2(24)(xviii) coupled with section 145B(3) and ICDS standards, the assessee needs to account grant or subsidy as it’s ‘income’ and any expenditure incurred against the said grants can be treated as it’s ‘expenditure’. In the present case, it was the case of the assessee that, it is a Nodal Agency for implementing housing project promoted by the government of Telangana and as per the Government Orders issued by the Housing Department, the entire programme in both rural and urban areas will be implemented by the District Collectors or the Commissioner, GHMC. The assessee had also filed relevant Government Orders and corresponding bank statements to prove that, amount of grant received from Government has been passed on to the Commissioner, GHMC and District Collectors. 11. We have gone through the relevant G.Os issued by the Government of Telangana, Housing Department and as per the said orders, the entire project has been implemented by the District Collectors or Commissioner, 14 ITA.No.554/Hyd./2024 GHMC and the amount has been routed through the appellant being a Nodal Agency for implementing the project in the State of Telangana. We further note that, the assessee has already filed relevant bank statements and also the extract of receipts issued by the Finance Department, where the amount received from the Finance Department has been passed on to the Commissioner, GHMC on the very same day and these evidences are available in the paper book at pages 193 to 199 of the paper book. From the details filed by the assessee, we find that the entire amount of Rs.150 crores grant received from the Government, has been transferred to the Commissioner, GHMC on three different dates i.e., on 18.01.2021, 28.01.2021 and 06.03.2021. Therefore, we are of the considered view that, once the grant received from the Government has been transferred back-to- back to the implementing agencies, in our considered view, the argument of the assessee that the subsidy received from government is not it's income is acceptable. Further, assuming for a moment, the version of the Assessing Officer is correct that as per sec.2(240(xviii) r.w.s.145B(3), the 15 ITA.No.554/Hyd./2024 assessee shall account as it’s income, in our considered view, it is a tax neutral exercise because, whatever amount received by the assessee from the Government has been transferred in total to the Commissioner, GHMC on the very same day. Even if we consider the amount of grant received from the Government as the income of the assessee, the Assessing Officer also should treat the amount paid to Commissioner, GHMC as it’s expenditure. Once the grant and amount transferred to Commissioner, GHMC has been considered, then, there is no surplus to the assessee to treat it as it’s “income”. Therefore, we are of the considered view that, the Assessing Officer and the learned CIT(A) erred in making addition towards grant received from Government of Telangana as income of the assessee. In so far as case law relied upon by the learned CIT-DR and Assessing Officer, we find that those case laws are rendered on different set of facts and contexts and cannot be made applicable to the facts of the present case. Therefore, we direct the Assessing Officer to delete the addition towards grants for Rs.150 crores as income u/sec.2(24)(xviii) of the Act. 16 ITA.No.554/Hyd./2024 12. The next issue that came-up for our consideration from ground nos.4 and 5 of assessee’s appeal is with regard to addition towards disallowance of Rs.547,50,70,481/- paid to HUDCO u/sec.43B(d) read with Explanation-3C of the Income Tax Act, 1961. 13. During the course of assessment proceedings, the Assessing Officer noted that, as per the ledger extract of HUDCO furnished by the appellant, the appellant had repaid principle to an extent of Rs.261,82,17,072/- and interest payment of Rs.547,50,70,481/- during the financial year 2020-2021 relevant to assessment year 2021-2022 under consideration. The Assessing Officer further noted that, the assessee had not shown any specific revenue from his core business activity and only it’s income is income from other sources being interest income and maintenance grant from the Government of Telangana. The Assessing Officer further noted that the appellant has borrowed fresh loans to an extent of Rs.2280 crores from HUDCO during financial year 2020-2021. Therefore, the Assessing Officer observed that the assessee has repaid interest of Rs.547.56 17 ITA.No.554/Hyd./2024 crores, out of fresh loan borrowed from the HUDCO without any actual repayment and therefore, called-upon the assessee to explain as to why the provisions of sec.43B(d) r.w. Explanation-3C shall not be invoked and entire interest expenditure be disallowed. In response, the assessee submitted that the loans availed from financial institutions including HUDCO are availed on the basis of guarantee given by the Government of Telangana and the repayment of entire loan including interest is directly made from the budgetary support of the State Government. The assessee has borrowed various loans from the Government for the housing projects and the loans borrowed from the financial institutions including HUDCO has been treated as it’s ‘liability’. The entire amount of loan has been repaid by the Government directly to the HUDCO and other financial institutions and assessee only passed corresponding entries in it's books of accounts to give effect to the repayment of loan. The assessee further submitted that the Assessing Officer has erroneously invoked the provisions of sec.43B(d) Explanation-3C, even though, the entire repayment of loan 18 ITA.No.554/Hyd./2024 including interest for the financial year 2020-2021 has been directly paid by the State Government through Finance Department and the money has not been routed through the bank account of the assessee. Further, the fresh loan borrowed from HUDCO is for the purpose of various other projects as per the Government Orders issued by the Government of Telangana and, therefore, the question of repaying interest out of fresh loan borrowed from HUDCO does not arise. 14. The Assessing Officer however, was not satisfied with the explanation furnished by the assessee and according to the Assessing Officer, the assessee has nt paid interest of Rs.547,50,70,481/- which is evident from the financial statements furnished during the course of assessment proceedings where the assessee has borrowed fresh loan of Rs.2280 crores and out of fresh loan, the assessee has repaid interest of Rs.547,50,70,481/- and thus, the Assessing Officer opined that as per the provisions of sec.43B(d) Explanation-C, the assessee cannot claim deduction towards interest. Therefore, rejected the 19 ITA.No.554/Hyd./2024 explanation of the assessee and made addition of Rs.547,50,70,481/- towards interest payment to HUDCO. 15. We have heard both the parties, perused the material on record and the orders of the authorities below. The assessee is a Nodal Agency for implementing various housing projects implemented by the State Government, has borrowed loans from financial institutions including HUDCO for it’s projects. As per the terms of agreement with the financial institutions including HUDCO, the loan has been borrowed with the 100% guarantee of the State Government of Telangana and repayment of loan including interest on the said loan has been directly met by the State Government through budgetary support. The assessee has accounted loans borrowed from various financial institutions including HUDCO as it’s liability in it’s books of accounts. However, debited interest payment of Rs.547,50,70,481/- as it’s expenditure under the Head “Finance Charges”. The Assessing Officer invoked the provisions of sec.43B(d), Explanation-C and observed that, any sum payable by the assessee as interest on any loan or 20 ITA.No.554/Hyd./2024 borrowing from any Public Financial Institutions in accordance with the terms and conditions of the agreement governing such loan or borrowing, then, if said loan is not repaid on or before the “due date” prescribed for filing return of income, the same cannot be allowed as ‘deduction’. The Assessing Officer further noted that as per Explanation-3C, a deduction of any sum being interest payable under clause-(d) of Section-43B, shall be allowed, if such interest has been actually paid and any interest referred to in that clause, which has been converted into a loan or borrowing, shall not be deemed to have been actually paid. In other words, the Assessing Officer invoked provisions of sec.43B(d) on the ground that assessee has converted it’s interest liability into a ‘fresh loan’ and, therefore, as per Explanation-3C, the payment of interest cannot be deemed to be have been actually paid. 16. We find that as per the details filed by the assessee during the financial year 2020-2021, the assessee has accounted interest payment of Rs.547.50 crores to HUDCO and debited to Profit and Loss A/c under the Head 21 ITA.No.554/Hyd./2024 “Finance Charges”. But, in fact, the said payment has been directly paid by State Government through it’s Finance Department to HUDCO as per the terms of agreement between the parties with the lender. The assessee had only passed journal entries in it’s books of accounts to give effect to the repayment of loan for the purpose of accounting treatment only. There is no actual payment of interest to HUDCO by the assessee. Further, the observation of the Assessing Officer that assessee has borrowed fresh loan of Rs.2280 crores and out of which, the interest payment of Rs.547.50 crores has been repaid is also devoid of merits because, the fresh loan borrowed by the assessee for different purposes which is evident from various evidences filed by the assessee. Once it is proved that, the payment of interest of Rs.547.50 crores is not by the assessee from it’s own funds and further, such payment has been directly paid by the State Government, in our considered view, the Assessing Officer is erred in invoking provisions of sec.43B(d) and Explanation-3C of the Act. The learned CIT without appreciating the relevant facts, has simply 22 ITA.No.554/Hyd./2024 sustained the addition made by the Assessing Officer. Therefore, to this extent, we reverse the findings of the CIT(A). 17. Having said so, let us come back whether the treatment given by the assessee in it’s books of accounts with respect to the interest payment of Rs.547.50 crores is in accordance with a generally accepted accounting method followed by the assessee? Admittedly, the assessee is not accounting loans and corresponding expenditure incurred out of said loans on it’s own. The assessee has accounted loans borrowed from financial institutions including HUDCO as it’s liability in its books of accounts. The corresponding expenditure incurred for various projects towards construction of housing has been accounted under the Head “Work-in-Progress”. In other words, the loan borrowed for the purpose of project has been treated as it’s ‘liability’ and expenditure incurred out of said loan has been accounted as ‘work-in-progress’ in it’s books of accounts without routing into Profit & Loss A/c. Further, as admitted by the assessee itself, the entire repayment of loan including 23 ITA.No.554/Hyd./2024 interest of Rs.547.50 crores has been directly paid by the State Government to the HUDCO. The assessee has only given effect in its books of account the repayment of loan for the purpose of accounting treatment only. Once the assessee has not treated the loan on it’s own as it’s ‘liability’ and further, the entire repayment has been directly paid by the State Government under the budget allocation, in our considered view, the assessee cannot claim interest expenditure as it’s expenditure. In the present case, although, the assessee has not shown the loan as it's ‘liability’ and repayment of loan is directly debited to said liability account, but, claimed deduction towards interest expenditure contrary to it’s own accounting treatment given in it’s books of accounts. Further, it is not a case of the assessee that, whatever grant received from the Government towards repayment of loan and interest has been accounted as income and corresponding interest payment has been treated as its expenditure. Since the assessee has not considered the amount received from the Government as it’s income to meet the expenditure of interest payment, in our 24 ITA.No.554/Hyd./2024 considered view, the claim of deduction towards interest expenditure cannot be allowed. Although, the Assessing Officer has not examined the issue on these lines, but, disallowed the expenditure by invoking provisions of sec.43B(d) and Explanation-3C of the Act, in our considered view, the deduction claimed by the assessee towards interest expenditure of Rs.547.50 crores cannot be allowed as deduction. Therefore, we are the considered view that, the matter needs to be examined by the Assessing Officer in light of our discussion given hereinabove and to decide the issue in accordance with law. Thus, we set aside the order of the learned CIT(A) on this issue and restore the issue back to the file of Assessing Officer and also direct the Assessing Officer to re-decide the issue in light of our discussion given hereinabove. 18. The next issue that came-up for consideration through ground nos.6 and 7 of assessee’s appeal is addition of Rs.5,84,403/- out of total addition made by the Assessing Officer of Rs.24,75,450/- u/sec.68 of the Act. 25 ITA.No.554/Hyd./2024 19. During the course of assessment proceedings, the Assessing Officer on the basis of evidences submitted by the assessee including relevant books of accounts observed that, there is a difference of Rs.18,91,029/- in the opening balance between HUDCO and that of the assessee in respect of various loans borrowed from HUDCO. The Assessing Officer further noted that there is a difference of Rs.5,84,403/- in respect of balance as per books of accounts of the assessee and the balance as per the ledger account furnished by the HUDCO. The Assessing Officer called-upon the assessee to reconcile the above differences. In response to which, the assessee submitted that, it has filed it’s return of income as per un-audited financial statements and as per which, there is a difference in balance as per books of accounts of assessee and as per ledger account of HUDCO in respect of opening balance as on 14.02.2020 at Rs.18,91,029/-. The assessee further submitted that, in respect of Rs.5,84,403/-, although, there is a difference in respect of principle outstanding, but, the reason for such difference is, the assessee has made 26 ITA.No.554/Hyd./2024 payment of EMI in advance and because of this the HUDCO has passed excess amount to the principle account. However, the assessee has not given effect to the said entry passed by the HUDCO in its books of accounts. The Assessing Officer, however, was not convinced with the explanation furnished by the assessee and accordingly made addition of Rs.24,75,450/- towords difference in balance as per books of accounts of assessee and balance as per HUDCO u/sec.68 of the Act. 20. On appeal, the learned CIT(A) deleted the addition of Rs.18,91,029/- towards difference in opening balance. However, sustained addition of Rs.5,84,403/- i.e., difference in balance as per books of accounts of assessee and balance as per HUDCO ledger account pertains to financial year 2020-2021. 21. Learned Counsel for the Assessee submitted that the assessee has explained the reasons for difference of Rs.5,84,403/- with relevant evidences and submitted that, in respect of loan account no.xxxx20842, the HUDCO has given incentive to the appellant for early payment of one of 27 ITA.No.554/Hyd./2024 the instalment for an amount of Rs.5,84,403/-. However, assessee has not passed the entry in it’s books of accounts. because there was no information with the assessee about the incentive given by the HUDCO. But, at latter stage, on the basis of confirmation filed by the HUDCO, the assessee has explained the Assessing Officer the reasons for difference. The Assessing Officer and the learned CIT(A) without considering relevant explanation furnished by the assessee, has simply made addition and, therefore, he submitted that the addition made by the Assessing Officer should be deleted. 22. The learned CIT-DR Shri B Bala Krishna, on the other hand, supporting the order of the learned CIT(A) submitted that, even before the CIT(A), the assessee could not explain the difference with relevant evidences. Although, the assessee has claimed that, it has received incentive for early payment of one of instalment, but, no supporting evidence has been furnished to the learned CIT(A). Therefore, the learned CIT(A), after considering the relevant facts, has rightly sustained the addition made by the 28 ITA.No.554/Hyd./2024 Assessing Officer. He accordingly submitted that, the order of the learned CIT(A) should be upheld. 23. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. We have also carefully considered relevant evidences filed by the assessee including ledger account of HUDCO loan account and confirmation from the HUDCO. Although, the assessee claimed that HUDCO has given incentive of Rs.5,84,403/- in respect of loan account for early payment of instalment, but, on perusal of relevant evidences filed by the assessee, it is difficult for us to verify the claim of the assessee with corresponding computation. Therefore, in our considered view, this issue needs to go back to the file of Assessing Officer for fresh examination of the facts. Thus, we set aside the order of the learned CIT(A) and restore it back to the Assessing Officer with a direction to re-examine the claim of assessee in light of evidences furnished by the assessee to prove it’s claim. In case. the assessee is able to reconcile the difference as noticed by the Assessing Officer with relevant evidences, the Assessing 29 ITA.No.554/Hyd./2024 Officer may be directed to delete the addition made towards difference in loan account balance u/sec.68 of the Act. 24. The next issue that came-up for consideration from ground nos.8 to 10 of the assessee’s appeal is addition sustained by the learned CIT(A) to the tune of Rs.193,88,55,090/- out of total addition of Rs.214,59,47,070/- made by the Assessing Officer by invoking the provisions of section 69 of the Act. 25. During the course of assessment proceedings, the Assessing Officer noticed that there is a difference in closing balance as per reconciliation statement submitted by the assessee towards various loans borrowed from HUDCO as per books of accounts of assessee, when compared to ledger account of HUDCO. The Assessing Officer further noted that there is a negative difference of Rs.214,59,47,070/- i.e., Rs.201,05,19,932/- on account of HUDCO loan account and Rs.13,54,27,138/- on account of LIC/GIC loan account. The Assessing Officer called-upon the assessee to explain difference with relevant evidences. In response, the assessee submitted that, it has borrowed various loans from 30 ITA.No.554/Hyd./2024 HUDCO for the purpose of executing housing project and during the period of Covid, the HUDCO has granted moratorium for two quarters by virtue of directions of the Reserve Bank of India [in short “RBI”] for repayment of loan and the same has been converted into Fund Interest Term Loan [in short “FITL”]. However, the assessee has not passed any entries in it’s books of account for the fresh loan granted by the HUDCO in respect of two instalments of moratorium granted to earlier loans. The assessee further submitted that, in respect of differences in loan borrowed from LIC/GIC, the assessee has not given effect to the bifurcation of loan amount borrowed by the erstwhile combined State of Telangana and State of Andhra Pradesh. Further, the assessee has explained the loan account with relevant evidences to prove that, there is no difference as computed by the Assessing Officer. The Assessing Officer, however, was not convinced with the explanation furnished by the assessee and according to the Assessing Officer, there is a negative difference of Rs.214,59,47,070/- in respect of various loans borrowed from HUDCO and LIC/ 31 ITA.No.554/Hyd./2024 GIC and the assessee could not explain the difference with relevant evidences. Therefore, rejected the explanation of assessee and made edition of Rs.214,59,47,070/- u/sec.69 of the Income Tax Act, 1961 as unexplained investment. 26. On appeal, the learned CIT(A) allowed partial relief to the assessee, where the learned CIT(A) out of additions made by the Assessing Officer of Rs.214,59,47,070/-, sustained the addition to the extent of Rs.193,88,55,090/-. 27. Learned Counsel for the Assessee submitted that the learned CIT(A) has erred in sustaining addition to the extent of Rs.193,88,55,090/- without appreciating the fact that there cannot be any negative differences in respect of various loans borrowed by the assessee and the said negative loan computed by the Assessing Officer is on account of fresh loan sanctioned by the HUDCO in respect of moratorium granted to two quarters during Covid period as per the directions of the RBI and the same has been treated as FITL. But, the assessee has not bifurcated the loan account into existing loan and fresh loan as classified 32 ITA.No.554/Hyd./2024 by the HUDCO. Learned Counsel further referring to various ledger accounts of HUDCO and also the Certificate from HUDCO stating that, they have granted moratorium period for two quarters as per the directions of the RBI submitted that, HUDCO has treated FITL as new loan. However, the assessee has continued to treat the loan with one account without any bifurcation towards repayment of two instalments. The Assessing Officer without understanding the basic principles of accounting, simply treated FITL loan amount and held that there is negative difference in some of the accounts and the assessee could not explain the said differences with relevant evidences. Therefore, he submitted that the additions made by the Assessing Officer should be deleted or in the alternative, the matter may be restored back to the file of Assessing Officer for fresh examination of the facts in light of various evidences filed by the assessee. 28. Learned DR, on the other hand, supporting the order of the learned CIT(A) submitted that wherever the assessee has explained the difference with reasons the learned CIT(A) has allowed relief to the assessee. In respect 33 ITA.No.554/Hyd./2024 of various loan accounts of HUDCO, the assessee could not file satisfactory explanation, except, stating that there is moratorium period for two instalments as per the directions of RBI. Even though, there is a moratorium period, but, the assessee has to follow the accounting method as per the terms of sanction from the HUDCO. Since the assessee is not able to reconcile the differences with relevant evidences, the learned CIT(A) has rightly sustained the addition made by the Assessing Officer and thus, the other of the learned CIT(A) should be upheld. 29. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the appellant being a State Government undertaking is the Nodal Agency for implementing various housing projects promoted by the State Government. The assessee has borrowed various loans from financial institutions including HUDCO and all loans borrowed by the assessee from HUDCO are fully guaranteed by the State Government. Further, the entire loan amount including interest has been 34 ITA.No.554/Hyd./2024 directly paid by the State Government through it’s Finance Department to the HUDCO. In other words, there is no financial transactions between the assessee and the HUDCO in respect of repayment of loan including interest on said loans. In light of the above factual background, if we examine the reasons given by the Assessing Officer to make addition of Rs.193 core in respect of negative difference in various loan accounts of HUDCO and LIC/GIC, we are of the considered view, that the reasons given by the Assessing Officer is fallacious and cannot be accepted. There is no concept of negative difference in any loan account. If at all any negative difference is there, it is only on account of not passing proper journal entries in the books of account of the assessee either borrower or lender. Further, except accounting mistakes, there is no question of any excess repayment for negative balance in any loan account. 30. In the present case, the Assessing Officer has computed negative balance in various loan accounts, for which, the assessee has explained that in respect of few loan accounts, the HUDCO has given moratorium for two 35 ITA.No.554/Hyd./2024 instalments as per the directions of the RBI. The assessee had also filed the relevant loan accounts including fresh loan granted by the HUDCO under the scheme “Fund Interest Term Loan [“FITL”] and by virtue of that, the Assessing Officer has considered these loans are not exist in the books of account of the assessee and thus, there is a difference when compared to books of account of the Assessee and HUDCO. In our considered view, as already stated in earlier paras of this order, there is no concept of any negative difference in loan account. The Assessing Officer has grossly misunderstood the accounting principles itself and arrived at conclusion that there is negative difference of Rs.214,59,47,070/- and invoked provisions of sub-sec.69 of the Act. Since the assessee is a State Government undertaking and the entire loans borrowed from HUDCO is guaranteed by the State Government, in our considered view, the question of making an unexplained investment in the form of loan does not arise and, therefore, we are of the considered view, that the Assessing Officer has grossly erred in invoking the provisions of sec.69 of the Act. 36 ITA.No.554/Hyd./2024 31. Be that as it may, the assessee has explained the reasons for differences in light of explanation and as per the assessee, there are few loans on which the HUDCO has granted moratorium and same has been treated as FITL loan. Although, the assessee has furnished relevant evidences, but, we cannot verify the claim of the assessee at this stage. Therefore, we are of the considered view that, the issue needs to go back to the file of Assessing Officer for fresh verification of facts in light of various evidences filed by the assessee including relevant letters issued by the HUDCO granting moratorium period for repayment of loan and also fresh loan ledger account furnished by the HUDCO under the scheme FITL account. Similarly the assessee has explained difference in loan account of GIC/LIC and stated that in view of unaudited accounts relevant entries has not been passed in the books of account of the assessee to give effect to various journal entries on account of bifurcation of old loans in the books of account of assessee before the bifurcation of combined Andhra Pradesh into State of Telangana and State of Andhra Pradesh. These facts needs 37 ITA.No.554/Hyd./2024 to be verified by the Assessing Officer. Thus, we set aside the issue to the file of Assessing Officer and direct to the Assessing Officer to verify the issue in light of various evidences filed by the assessee and decide the issue in accordance with law, after considering relevant recalculation filed by the assessee. 32. The next ground no.11 of the assessee’s appeal is addition of Rs.10,89,330/- towards unrecorded rent from National Housing Board [in short “NHB”]. 33. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has not admitted rental income of Rs.10,89,330/- received from National Housing Bank. The Assessing Officer called-upon the assessee to explain as to why addition shall not be considered towards unrecorded rent. In response, the assessee submitted that, it has received rent of Rs.6,28,560/- and the same has been recorded in it’s books of accounts. In respect of remaining amount of Rs.4,60,770/- the assessee buy an inadvertent error has 38 ITA.No.554/Hyd./2024 not accounted the rent. Therefore, he submitted that addition made by the Assessing Officer should be restricted to the extent of Rs.4,60,770/- only. 34. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. We find that the assessee has furnished relevant financial statements and as per the financial statements, the assessee has accounted it’s rental income of Rs.6,28,560/- from NHB. Learned Counsel for the Assessee fairly admitted that by an inadvertent error, although, the assessee has received rental income of Rs.10,89,330/-, but, has accounted a sum of Rs.6,28,560/- only. We find that since the assessee has already accounted rental income of Rs.6,28,560/-, the Assessing Officer cannot make addition towards the total rent on the basis of Form-26AS without considering the rent already accounted by the assessee in its books of accounts. Since the assessee has already accounted rental income of Rs.6,28,560/-, the Assessing Officer is directed to verify the rental income accounted by 39 ITA.No.554/Hyd./2024 the assessee and sustain the addition to the balance rental income of Rs.4,60,770/- only. 35. Ground no.15 of assessee’s appeal pertains to not allowing set-off of brought forward business loss as appearing in the return of income filed by the assessee. The assessee claims that it has brought forward business loss of Rs.474,75,22,389/- as business loss and the same has been reported in the ITR filed for the year under consideration u/sec.139(1) of the Act. However, the Assessing Officer has not allowed the set-off of brought forward business loss and, therefore, direction may be given to the Assessing Officer to verify the claim of the assessee and to allow the brought forward business losses as per law. 36. The learned CIT-DR Shri B Bala Krishna, on the other hand, fairly agreed that direction may be given to the Assessing Officer to verify the claim of the assessee and to allow the set-off of brought forward business loss as per law. 40 ITA.No.554/Hyd./2024 37. After hearing both the sides, we find that assessee claimed to have reported brought forward business loss shown in the return of income at Rs.474,75,22,389/- filed u/sec.139(1) of the Act. Therefore, we direct the Assessing Officer to verify the claim of the assessee in accordance with law and in case, the claim of the assessee is found to be correct, then, the Assessing Officer should have to allow set-off of brought forward business loss as per law. 38. Next issue ground no.16 is charging of interest u/sec.234A and 234B of the Act. In our considered view, charging of interest u/sec. 234A and 234B are consequential in nature and depends upon the total income computed by the Assessing Officer. Therefore, we direct the Assessing Officer to re-compute the total income of the assessee and charge interest, if any, u/secs. 234A and 234B of the Act in accordance with Law. 39. In the result appeal of the assessee is partly allowed for statistical purposes. 41 ITA.No.554/Hyd./2024 Order pronounced in the open Court on 28.03.2025 Sd/- Sd/- [VIJAY PAL RAO] [MANJUNATHA G] VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, Dated 28th March, 2025 VBP Copy to 1. Telangana State Housing Corporation Limited, H.No.3- 6-184, Urdu Hall Lane, Street No.17, Himayat Nagar, Hyderabad – 500 029. Telangana. 2. The DCIT, Circle-2(1), Signature Towers, Kondapur, Kothaguda, Opp. Botanical Gardens, Hyderabad–500084. 3. The Pr. CIT, Hyderabad. 4. The DR ITAT “A” Bench, Hyderabad. 5. Guard File. //By Order// //True Copy// "