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TMI Blog2014 (7) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... rightly deleting the disallowance/addition – Decided against Revenue. Cane cess and bonus payable u/s 43B – Held that:- The assessee had paid 6 lacs towards cane cess payable and 18,59,947/- towards bonus liabilities - Both the liabilities pre-existed on the first day of the previous year - the assessee filed vouchers as evidence for payment of bonus and challans showing payment of cess - the entire amount is an allowable expenditure under the provisions of Section 43B of the Act, according to which, a deduction otherwise allowable under the Act shall, notwithstanding anything contained in any other provision of the Act, be allowed in computing the income referred to in Section 28 of the Act, of that previous year, in which such sum is actually paid by the assessee. In the Tax Audit Report of the assessee, both these amounts have duly been reported as allowable expenditure - CIT (A) correctly allowed the payment on account of cane cess and bonus paid during the year by the assessee out of pre-existing liabilities – Decided against Revenue. Income taxed twice – Held that:- The Profit 19.34 lacs only – This was inclusive of the tentative impact of interest @ 6% per annum, of 9.6%, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tze (I) Ltd. vs. CIT (2006) 157 Taxman 1 (SC)." 2. Apropos Ground No.1, the AO made disallowance of an amount of ₹ 29,34,000/- u/s 43B of the IT Act on account of non-payment of interest on Sugar Development Fund. The AO held: "a) The assessee has shown the term loan as "Sugar Development Fund Loan (thru IFCI)" in Schedule-2 of secured loan of the balance sheet. b) The assessee has not paid interest during the year. c) That IFCI has written letter dated 17.2.2000, wherein the co was asked to remit the entire amount of loan. On the basis of this letter the AO concluded that IFCI has not only given the loan but pursued for its repayment. 3. The CIT (A) deleted this disallowance/addition. 4. The ld. DR has contended that the ld. CIT (A) has erred in deleting the disallowance correctly made; that while doing so, the ld. CIT (A) has failed to appreciate the fact that since the assessee has termed the loan as a loan from the Central Government, this alone does not absolve the assessee from its responsibility to pay interest on the term loan and that the case of the assessee squarely falls within the ambit of Section 43B (d) of the Act. The ld. Counsel for the assessee, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and recoverable from the Major Head '8229' - Development and welfare funds - Sugar Development Fund.' 6. The AO, however, observed that the submission of the assessee gets diluted in the wake of the fact that IFCI has written a letter dated 17.02.2000 to the assessee company asking the company to remit to them the entire amount of loan immediately, and that the letter prima facie established that IFCI had not only given the loan, but was also pursuing the assessee for repayment. It was further observed that the correspondence for early repayment had been regularly made by IFCI with the assessee and under the given circumstances, the assessee could not absolve itself of its responsibility to pay interest on term loan, merely by terming it is a loan from the Central Government; and that IFCI always acts on behalf of the Central Government and the case of this assessee squarely falls within the ambit of section 43B (d) of IT Act, 1961. 7. It was in this manner that the AO made the disallowance in question. 8. We find that the deed of hypothecation is at APB 92-101, giving all the details regarding the creditor, the debtor and the agent. The SDF loan, definitely, was given by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be repaid to the Controller of Accounts, Department of Food, Government of India. Hence, the creditor of loan is the Government of India. The correspondence made by IFCI clearly states that the assessee was required to credit the installment of principal and interest amount to the Controller of Accounts, Ministry of Consumer Affairs, Food & Public Distribution. Thus, a debtor-creditor relationship was established between the assessee company as a debtor and the Ministry of Food & Civil Supplies, Government of India, as a creditor. 13. IFCI letter dated 23.08.07 (APB 87 and 106) states that: "You are requested to credit the installment of principal and interest amount directly to controller of Accounts, Ministry of Consumer Affairs, Food & Public Distribution." 14. IFCI letter dated 21.09.07 (APB 88 and 107) reads:- "We have also to advice that any amount received by way of repayment of loan, payment of interest thereon or any other receipt, credit the said amount to Sugar Development Fund, Government of India. IFCI acting as a nodal agency, charge agency commission from Government of India." 15. IFC letter dated 17.02.00 (APB 104) specifically states that IFCI was actin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Fund, Government of India; ii) Any amount received by way of repayment of loan, payment of interest thereon or any other receipt; credit the said amount to Sugar Development Fund, Government of India. iii) IFCI acting as a nodal agency and charge agency commission. iv) As per latest procedure of repayment of SDF loan principal and interest amount is directly, to be sent to controller of Accounts Ministry of Consumer Affairs, Food & Public Distribution, New Delhi." 19. Thus, the AO obviously went wrong in concluding that the SDF loan was from IFCI and not from the Government of India. The ld. CIT (A) has duly taken into consideration all these facts while rightly deleting the disallowance/addition and we do not find any error whatsoever with the well reasoned observations recorded by her in the impugned order. 20. For the above discussion, finding no merit therein, the Ground No.1 raised by the department is rejected. 21. Apropos Ground No.2, the AO disallowed the assessee's claim of payment of liability of ₹ 24,59,447 on account of cane cess and bonus payable. While doing so, the AO did not accept the assessee's contention that it was by mistake that this amount paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to have correctly allowed the payment of ₹ 24,59,957/- on account of cane cess and bonus paid during the year by the assessee out of pre-existing liabilities. Accordingly, Ground No.2 is rejected. 26. Addressing Ground No.3, the assessee claimed that an income of ₹ 1,90,70,843/- had been taxed twice. This claim of the assessee was rejected by the AO for the reason that the assessee had not revised its return of income. The ld. CIT (A) allowed the assessee's claim. 27. The ld. DR contends that here also, as for Ground No.2, the ld. CIT (A) has failed to take into consideration the decision in 'M/s Goetze (I) Ltd.' (supra). 28. The ld. Counsel for the assessee, per contra, has again relied on the CIT (A)'s order. 29. The claim of the assessee has been that income of ₹ 1,90,70,843/- was taken twice, once as business income and again as income from long-term capital gain. In Schedule-II to the assessee's Profit and Loss Account for the year under consideration, this amount appears as 'Profit on sale of fixed assets.' It includes ₹ 1,89,71,606/-, being profit on sale of plots and ₹ 99,237/-, representing profit on sale of vehicles. The profit on sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as the case laws relied on by the AO and the appellant. The facts of the case of H.R. Sugar Factor v/s CIT 187 ITR 363 relied on by the AO is similar only to the extent that the assessee in both the case is a Sugar Mill. In the case of H.R. Sugar Factory, over the last several years, it has been advancing loans to its directors and since there was practically no repayment, the loan amount went on mounting and rising steadily. The advances were made to directors at a very low rate of 2.5% and hence the AO concluded that the appellant is not in the business of mercy lending and had borrowed huge funds from the bank at higher rate of interest while at the same time giving huge advances to directors/shareholders and therefore the High Court held the AO was right in disallowing the balance. In the present case it is seen that the appellant company has enjoyed interest free loans from its directors since 1999 and interest free advances were made only for the years ending 31.3.2003 and 31.3.2004. It is also seen that ₹ 120 lacs was in the form of 'calls in arrears' to be received from directors for which an entry debiting "amount due from directors" and crediting share capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration these aspects of the matter while wrongly sustaining the addition to the extent of ₹ 2,50,000/-. 37. The ld. DR, on the other hand, has placed strong reliance on the impugned order. 38. We have heard the parties and have perused the material on record. The factum of the assessee company having enjoyed interest free loans from its directors since 1999 and having made interest free advances only in the year ended on 31.3.2003, 31.3.04 and the factum of an amount of ₹ 120 lacs out of ₹ 160 lacs being 'calls in arrears' only by way of book entry and not involving any actual outflow of funds, have duly been taken into consideration by the ld. CIT (A). The sole objection raised by the ld. CIT (A) is that the assessee company has not been able to identify any link in respect of the balance amount of ₹ 42 lacs to show that the advances were paid out of internal generation of funds. 39. This, however, is found to be incorrect. The record, as produced before the taxing authorities, i.e., the AO as well as the ld. CIT (A), shows that as per the balance sheet of the assessee company, as at 31.3.04, the term loan taken from the bank was utilized in creating lon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resources at his disposal and need not have borrowed. 43. In 'CIT vs. Prem Heavy Engg. Works P. Ltd.', 285 ITR 554 (All), it was held that where, in a case of interest on borrowed capital concerning advances made by the assessee to its sister concerns, sufficient interest free funds were available with the assessee in the form of interest free advances from customers, share capital surplus and reserves to make advances, interest on borrowings was not to be disallowed. 44. In view of the above, the grievance of the assessee is justified and is accepted. The disallowance of interest paid of ₹ 2,52,000/- is deleted. ITA No.1965/Del/2011 45. This is department's appeal for AY 2007-08 against the order dated 15.2.2011, passed by the CIT (A)-VI, New Delhi, taking the following grounds:- ""1. The ld. CIT (A) has erred on facts and in law in deleting addition of ₹ 8450784/- on account of disallowance of interest liability for year on "sugar development fund loan" u/s 43B of the IT Act ignoring the fact that the assessee cannot absolve his responsibility to pay interest on term loan merely by terming it as loan from Central Govt. and the case of the assessee squarely falls ..... X X X X Extracts X X X X X X X X Extracts X X X X
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