2015 (8) TMI 1267 - AT - Income Tax

Disallowance of subscription of UP, Co-operative Sugar Factories Federation Ltd. - CIT(A) deleted the disallowance - Held that - CIT followed his order for the assessment year 2003-04 and allowed the claim of the assessee. In fact the AO in his order disallowed the amount by merely following his order for the assessment year 2003- 04. The department accepted the order of the first appellate authority for the assessment year 2003-04. Under these circumstances we see reason to interfere in the order of the first appellate authority, specifically as the subscription is allowable u/s 37 (1) of the Act. The amount paid as subscription to federation is necessary business expenditure. The necessity / requirement of incurring this expenditure is explained. - Decided against revenue Disallowance of interest paid to federation - Held that - CIT(A) gave a finding that the assessee has taken loan from Govt. of India and UP Government, for the purpose of business, and that this is evident from the sanctioned letters and hence the interest in question is allowable u/s 36(1). As the interest in question is payable to Govt. Of India and the statement of UP Government, section 43(B)(d) does not apply. - Decided against revenue Disallowance of additional income on the ground that it is in the nature of penalty - Held that - CIT(A) has rightly held that the expenditure in question i.e additional interest, is a contractual obligation and hence allowable as expenses. He followed his predecessor s order on the same issue for the assessment year 2002-03 and revenue has accepted this order. Thus we dismiss this ground of the revenue. - Decided against revenue

Summary

Issues Involved:
1. Disallowance of subscription to Federation
2. Disallowance of interest paid to Federation
3. Disallowance of additional interest paid to Sugar Development Fund and Federation

Issue 1: Disallowance of Subscription to Federation

The appeal was filed by the revenue against the order of the CIT(A) concerning the disallowance of subscription to a Federation by the assessee, a cooperative society. The AO disallowed the subscription amount, but the CIT(A) allowed the appeal. The Tribunal upheld the CIT(A)'s decision, stating that the subscription was allowable under section 37(1) of the Income Tax Act, 1961, as necessary business expenditure. The Tribunal found no reason to interfere with the first appellate authority's order, as the subscription was deemed essential for the business.

Issue 2: Disallowance of Interest Paid to Federation

The AO disallowed the interest paid to the Federation, claiming it was outside the scope of the assessee's business. However, the CIT(A) found that the interest was related to loans taken for business purposes from the Government of India and the UP Government. The Tribunal disagreed with the revenue's argument that the interest payment fell under section 43B(d) of the Act, as it was payable to government entities, not public financial institutions. Consequently, the Tribunal dismissed the revenue's appeal on this ground.

Issue 3: Disallowance of Additional Interest Paid

The third issue involved the disallowance of additional interest paid to the Sugar Development Fund and the Federation, which the revenue considered as a penalty. The Tribunal held that the additional interest was a contractual obligation and therefore an allowable expense. The Tribunal supported the CIT(A)'s decision, citing consistency with previous orders and the acceptance of such expenses as deductions. Consequently, the Tribunal dismissed the revenue's appeal on this ground as well.

In conclusion, the Tribunal dismissed the revenue's appeal on all grounds, upholding the CIT(A)'s decisions regarding the disallowances of subscription, interest payments, and additional interest. The Tribunal's detailed analysis considered the legal provisions and the necessity of the expenditures for the assessee's business, leading to the final decision pronounced on August 7, 2015.