2014 (6) TMI 1063 - AT - Income Tax

Deduction u/s 43B - disallowance of prior period interest expenses as payable to public financial institutions/ Governmental bodies - HELD THAT - We are not in agreement with the Commissioner of Income Tax (Appeals) as prior period interest was paid by the assessee to the Government of Tamil Nadu and Government of Tamil Nadu is not a public financial institution / governmental body which comes under the provisions of section 43B of the Act. The co-ordinate Bench of this Tribunal in the case of The Kallakurichi Co-op. Sugar Mills Ltd. (supra) observed that any amount payable to a Government is not hit by section 43B of the Act. Thus, the observation of the Commissioner of Income Tax (Appeals) that these interest payments made to Government of Tamil Nadu are hit by the provisions of section 43B of the Act is not correct and reversed. However, we agree with the view of the Commissioner of Income Tax (Appeals) that prior period interest liability crystallized on 28.3.2008 when the payment was made to the Government of Tamil Nadu during the financial year 2007-08 relevant to the assessment year 2008- 09 and is allowable in the assessment year 2008-09. Addition u/s 43B of the Act being interest paid to Government of Tamil Nadu - AO observing that the said amount was only a provision for payment and as per the provisions of section 43B of the Act any claim of interest payments has to be allowed only on actual payment even though the loan is from public sector financing bodies, therefore Assessing Officer disallowed the said interest and added back to the total income - HELD THAT - As held that interest paid to Government of Tamil Nadu is not hit by the provisions of section 43B of the Act. In the circumstances, we are of the considered view that this matter should go back to the Assessing Officer to verify as to whether assessee paid the interest of ₹ 183.90 lakhs to Government of Tamil Nadu or to any other financial institution or it is only a provision made. Needless to say if this amount is paid to Government of Tamil Nadu, the provisions of section 43B of the Act have no application to such payments. The Assessing Officer shall examine the issue afresh in accordance with law after providing adequate opportunity to the assessee.

Summary

Issues:
1. Disallowance of interest paid to Government of Tamil Nadu under section 43B.
2. Disallowance of another interest amount paid to Government of Tamil Nadu under section 43B.

Issue 1: Disallowance of interest paid to Government of Tamil Nadu under section 43B:
The appellant contested the disallowance of Rs. 5,09,22,000 under section 43B as interest paid to the Government of Tamil Nadu, claiming exemption as a government company. The Commissioner of Income Tax (Appeals) upheld the disallowance, stating that the liability crystallized when the interest was paid during the financial year 2007-08, relevant to the assessment year 2008-09. The Commissioner observed that the interest payments were governed by section 43B as they were payable to public financial institutions or governmental bodies. However, the appellant argued that the interest paid to the Government of Tamil Nadu was not subject to section 43B. The Tribunal agreed, noting that payments to the government are not covered by section 43B. While the Commissioner's conclusion on the crystallization of the liability was accepted, the applicability of section 43B to payments to the Government of Tamil Nadu was rejected.

Issue 2: Disallowance of another interest amount paid to Government of Tamil Nadu under section 43B:
The appellant also challenged the disallowance of Rs. 2,08,64,000 under section 43B as interest paid to the Government of Tamil Nadu. The Assessing Officer disallowed this amount, considering it a provision for payment and subject to section 43B. The Commissioner directed a verification of whether the amount was paid before the due date for filing the return. The appellant argued that since Rs. 183.90 lakhs of this interest was paid to the Government of Tamil Nadu, section 43B did not apply. The Tribunal concurred, emphasizing that payments to the Government of Tamil Nadu are not covered by section 43B. The matter was remanded to the Assessing Officer for verification, with instructions to allow the interest if paid to the government. The appeal was partly allowed for statistical purposes.

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