2017 (11) TMI 1451 - AT - Income Tax

Addition of interest on loan from Govt. of West Bengal - Held that - In the assessee s case under consideration, the rate of interest, on the loan, is yet to be decided by the Government of West Bengal.We note that the Interest expenditure claimed on estimate basis is not an allowable expenditure under the provisions of lncome Tax Act. It is the claim of interest on account of being unascertained liability. We also note that in the audit conducted by C & AG, a comment was made that interest in respect of the unsecured loan from the Government was short provision resulting in understatement of loss, and therefore based on this comment, it was contended by the assesseethat the interest provided by the assessee was rather on lower side and should be allowed. We do not agree with this contention of the assessee because there is no any cogent evidence available on record from the Lender( Govt. of West Bengal) of the said loan about interest to be charged or not to be charged. Assessee has prayed the Bench that assessee company will get the sanction letter/confirmation from the Government of West Bengal about the rate of interest to be charged, or not to be charged, on such loan. Therefore, the Counsel prayed the Bench that the assessee has already applied to the Govt. of West Bengal,for confirmation letter and will get it very soon. Therefore, we direct the Assessing Officer to take into account the sanction letter/confirmation letter of the Government of West Bengal in respect of the rate of interest which is to be charged on such loan and adjudicate the issue as per the provisions of the Income Tax Act. Therefore, we allow this appeal for statistical purposes. Excess depreciation - Held that - AO had not disputed that the claim made by the assessee was in accordance with the order of tribunal for Assessment Year 2002-03. However, he has not allowed the claim on ground that the order of tribunal has not become final as the department has filed appeal before High Court. We are of the view that further appeal has been filed, in no way, means that the tribunal s order under consideration is not operational and effective. Unless and until the order of tribunal is reversed by High Court, the same has to be given due effect. Judicial discipline demands that once an order has been passed in the assessee s own case, lower authorities are duty bound to act in accordance with the same. Moreover, as stated earlier, CIT(A) and ITAT have taken same view in Assessment Year 2004-05 and 2005-06 also. Thus the assessee is entitled to claim depreciation on the basis of W.D.V. - Decided against revenue

Summary

Issues Involved:
1. Addition of interest on loan from the Government of West Bengal.
2. Allowability of excess depreciation claimed based on previous ITAT orders.

Issue 1: Addition of Interest on Loan from the Government of West Bengal

The assessee appealed against the addition of ?5,37,34,000 as interest on a loan from the Government of West Bengal, which was sustained by the CIT(A). The core issue was whether the interest, pending determination of the rate, could be added to the income. The assessee argued that the interest provision was made at an estimated rate of 6.25% p.a. because the exact rate had not been communicated by the government. The financial statements, audited by the CAG and statutory auditors, did not object to this provision. However, the AO disallowed the interest, stating it was an unascertainable liability and therefore not allowable under the Income Tax Act. The CIT(A) upheld this view, noting that the loan terms did not specify interest and no actual payment or demand for interest had been made. The CIT(A) emphasized that any expenditure on an estimate basis for an unascertainable liability is not deductible.

On appeal, the assessee's counsel requested a remand to the AO, pending confirmation from the Government of West Bengal regarding the interest rate. The Tribunal agreed, directing the AO to reconsider the issue based on the government's confirmation.

Issue 2: Allowability of Excess Depreciation Claimed

The Revenue appealed against the CIT(A)'s decision to allow excess depreciation of ?4,21,61,956, which was based on an ITAT order for the Assessment Year 2002-03. The AO had disallowed this depreciation, arguing that the issue was under appeal before the Calcutta High Court and had not reached finality. The CIT(A) allowed the depreciation, stating that the tribunal's order was operational and effective unless reversed by the High Court. The Tribunal upheld the CIT(A)'s decision, emphasizing judicial discipline and consistency with previous years' orders. The Tribunal directed the AO to allow the depreciation claim in line with the ITAT's earlier decisions.

Conclusion:

1. The appeal regarding the addition of interest on the loan was allowed for statistical purposes, with instructions to the AO to reconsider the issue based on the Government of West Bengal's confirmation.
2. The appeal regarding the excess depreciation claim was dismissed, upholding the CIT(A)'s decision to allow the depreciation based on previous ITAT orders.