2018 (11) TMI 1313 - AT - Income Tax

Disallowance of provision relating interest expenses - applicability of section 43B(d) - specification on various types of payees - Held that - The lower authorities case is that the impugned claim pertains to any sum payable by the assessee as interest on a loan or borrowing from the specified financial institutions or state financial institution or state industrial investment corporation, as the case may be. We find no substance in this reason. The Revenue fails to rebut the fact that the legislature has specified various types of payees which nowhere includes a government payee as is the case before us. We make it clear that we are dealing with a disallowance provision in a tax statute liable to be strictly construed. As in DCIT vs M/s. Baghpat Co-operative Sugar Mills Ltd. 2017 (9) TMI 1758 - ITAT DELHI has held that section 43B does not apply in case of a government payee. We therefore reverse both the lower authorities action disallowing assessee s provision of interest in question.

Summary

Issues:
Challenge to CIT(A) order upholding disallowances/additions of interest amount provision, gratuity/leave salary, and expenditure under section 143(3) of the Act.

Analysis:
1. The appellant challenged the CIT(A) order, primarily focusing on the disallowance of interest provision on loans paid to the government. The appellant did not press the challenge on the other three substantive grounds.

2. The main issue revolved around the disallowance of the provision for interest expenses amounting to ?15,02,64,000. The Assessing Officer and the CIT(A) disallowed the provision under section 43B of the Act, stating that it would be allowable only upon actual payment. However, the appellant argued that the provision was made on account of accumulated interest on government loans, which was not covered under section 43B(d) of the Act.

3. The tribunal carefully considered the arguments presented and noted that the provision made by the appellant was indeed in respect of loans payable to the government. The tribunal analyzed the applicability of section 43B(d) of the Act, which pertains to sums payable as interest on loans from specified financial institutions. The tribunal found that the provision for a government payee did not fall within the scope of section 43B(d) as per the legislative intent.

4. Citing a precedent from a coordinate bench decision, the tribunal highlighted that section 43B does not apply in the case of a government payee. Therefore, the tribunal reversed the lower authorities' decision to disallow the appellant's provision for interest, stating that the provision was not covered under section 43B of the Act.

5. Consequently, the tribunal partly allowed the appellant's appeal, specifically overturning the disallowance of the provision for interest expenses related to government loans. The tribunal's decision was pronounced in open court on 18/07/2018.