2016 (3) TMI 1397 - AT - Income Tax

Disallowance of interest accrued due but not paid u/s 43B(d) - Assessee that accumulated amount of interest accrued and due but not paid to various unsecured loan and therefore the provisions of section 43(d) was invoked by the Ld. AO - CIT (A) restricted the disallowance to amount charged to the profit and loss account on account of interest accrued and due but not paid - HELD THAT - In THE BAGHPAT CO-OPERATIVE SUGAR CIRCLE-2, MILLS LTD. 2015 (8) TMI 1267 - ITAT DELHI it is held that if the interest in question is payable to Government of India and Uttar Pradesh government, section 43B (d) does not apply. No other contrary decision was brought to our notice. In view of this, following the decision of coordinate bench, we reverse the finding of CIT(A) confirming the disallowance u/s 43B(d) - Decided in favour of assessee.

Summary

Issues: Disallowance of interest accrued but not paid under section 43B(d) of the Income Tax Act for the Assessment Year 2008-09.

Analysis:
1. The appeal was filed against the order of the CIT(A) disallowing interest accrued but not paid amounting to Rs. 3,63,59,677 under section 43B(d) of the Income Tax Act. The CIT(A) restricted the disallowance to Rs. 15,24,100 as the amount charged in the profit and loss account. The main contention was that the interest accrued but not paid pertained to institutions of the Uttar Pradesh Government and did not fall under the definition of Public Financial Institutions/State Financial Institutions under section 43B of the Act.

2. The assessee, a cooperative society engaged in sugar manufacturing, filed its return declaring a loss and claimed deduction under section 80P. The assessment was completed, but later reopened to disallow the interest accrued but not paid before the due date of filing the return. The AO disallowed the interest under section 43B(d), which was partly confirmed by the CIT(A) leading to the appeal.

3. The learned AR argued that the interest payable to the Uttar Pradesh Government, specifically the Shakar Vishesh Nidhi loan, was not covered under section 43B(d) based on a decision of the ITAT Delhi benches. The AR contended that since the interest was payable to the government, the provision did not apply, citing a similar case precedent.

4. The Revenue relied on the lower authorities' order, supporting the disallowance of the interest accrued but not paid.

5. The Tribunal noted that out of the total interest amount, only Rs. 15,24,100 was charged to the profit and loss account. Referring to a previous decision of the ITAT Delhi benches, it was held that if the interest was payable to the Government of India or the Uttar Pradesh government, section 43B(d) did not apply. As no contrary decision was presented, the Tribunal reversed the CIT(A)'s finding and allowed the appeal.

6. Consequently, the appeal of the assessee was allowed, and the disallowance under section 43B(d) was reversed based on the interpretation that the interest payable to the government entities was not covered under the provision.