2019 (4) TMI 663 - AT - Income Tax

Disallowance u/s 43B - interest payable to banks and financial institutions - applicability of the Sick Industrial Companies (special provision) Act, 1985 - effect of written back the said amount of interest u/s 41(1) as miscellaneous income in subsequent year - contingent liability - HELD THAT - In CIT Vs. J K Corporation Limited 2010 (10) TMI 192 - CALCUTTA HIGH COURT the Hon ble High Court held that the Sick Industrial Companies (Special Provisions) Act, 1985, is a special act and the scheme framed thereunder is binding upon everyone, as it has assumed the character of conclusions by virtue of section 18(4) and also section 18(8) and once a scheme is framed by virtue of section 32(1) , the scheme overrides all other provisions of the law including the Income Tax Act, 1961 and other instrument or document having effect by virtue of any law. In view of the above decision, it is evident that the schemes would override the provisions of the Income Tax Act. However no such scheme had been produced by the assessee either before the lower authorities or before us and thus the assessee cannot be allowed the benefit of the Sick Industrial Companies Act( supra). The arguments related to working capital loan interest not covered under the provisions of section 43B of the Act and written back of the interest liability under section 41(1) of the Act in AY 2008-09, had not been raised before the lower authorities and first-time these arguments have been made before the Tribunal. We also note that these issues have not been raised before us by way of any additional grounds of appeal. The provisions of section 43B during relevant period also contain the subsection (c), which includes interest in respect of the loans from financial institutions. Any working capital loan from such financial institution is also subject to the provisions of section 43B of the Act during relevant period. From the evidences containing balance sheets and profit and loss account etc presented it is not clear whether the interest on working capital loan was related to financial institutions covered by subsection (c) of 43B during relevant period or related to scheduled banks covered by subsection (d) of 43B during relevant period . On this issue further investigation of facts is required. In the year under consideration the dispute is in respect of allowabilty of claim of interest expenditure under the provisions of section 43B of the Act, which is allowed only on payment basis. The claim of interest expenditure written back under section 41(1) of the Act in subsequent years, were never raised or evidence in support thereof filed before the lower authorities. - Decided against assessee.

Issues Involved:
1. Whether the CIT(A) was justified in passing the order without giving proper reasonable opportunities of being heard.
2. Whether the CIT(A) was justified in confirming the addition of ?1,75,73,101/- in respect of interest to banks and financial institutions under section 43B on the grounds that the liability is contingent.
3. Whether the provisions of section 43B are applicable given that the assessee company has been declared as a sick industrial company.
4. Whether the CIT(A) was justified in confirming the addition of ?9,13,560/- in respect of excise duty under section 43B.
5. Whether the orders of the lower authorities are justified on facts and are legally valid.

Detailed Analysis:

1. Opportunity of Being Heard:
The assessee contended that the CIT(A) passed the order without giving proper reasonable opportunities of being heard. However, the Tribunal did not explicitly address this issue in the judgment, focusing instead on the substantive issues related to the additions under section 43B.

2. Addition of ?1,75,73,101/- as Interest to Banks and Financial Institutions:
The primary contention was whether the interest liability was contingent or determined. The Tribunal noted that the assessee failed to provide the rehabilitation scheme or proposal as directed by the Board of Industrial and Financial Reconstruction (BIFR). Since the scheme was not available, the lower authorities upheld the addition. The Tribunal also emphasized that the provisions of section 43B during the relevant period required interest on term loans from scheduled banks to be considered on a payment basis. The Tribunal found no error in the CIT(A)'s order and upheld the addition.

3. Applicability of Section 43B to a Sick Industrial Company:
The assessee argued that as a sick industrial company, the provisions of section 43B were not applicable. The Tribunal referred to the BIFR's order, which required the company to submit a comprehensive rehabilitation proposal. The Tribunal highlighted that no such scheme was produced before the lower authorities or the Tribunal. Consequently, the assessee could not benefit from the Sick Industrial Companies Act. The Tribunal upheld the CIT(A)'s order, confirming the addition under section 43B.

4. Addition of ?9,13,560/- in Respect of Excise Duty:
The assessee contended that the excise duty claim was an actual liability supported by audited accounts. However, the Tribunal did not provide a detailed analysis of this issue in the judgment. The focus remained on the broader applicability of section 43B and the failure to produce the required rehabilitation scheme.

5. Validity of Orders by Lower Authorities:
The Tribunal examined whether the orders of the lower authorities were justified on facts and legally valid. It concluded that the lower authorities acted correctly in sustaining the additions due to the assessee's failure to provide the necessary rehabilitation scheme and other required documents. The Tribunal found no error in the CIT(A)'s order and upheld the same.

Conclusion:
The Tribunal dismissed the appeal of the assessee, upholding the additions made by the CIT(A) under section 43B for both interest to banks and financial institutions and excise duty. The Tribunal emphasized the importance of compliance with procedural requirements, such as providing the rehabilitation scheme, and found no merit in the assessee's arguments regarding the applicability of the Sick Industrial Companies Act and the specific provisions of section 43B. The orders of the lower authorities were deemed justified and legally valid.

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