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TMI Blog2024 (10) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... d to State Government even when neither the World Bank nor the State Government falls under any of clause (d), (da) or (e) of section 43B. 2.1 The Ld. CIT(A), NFAC has erred on facts and in law in confirming the above disallowance by not correctly appreciating the fact that against the unpaid interest it has already accounted for interest subvention on World Bank loan by incorrectly holding that interest paid on loan and interest subsidy received are two separate transaction ITA NO. 174/JP/2024 -2016-17 (Revenue) ''1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.1,49,53,15,488/- made by the AO on account of electricity duty u/s 43B of the Income Tax Act, 1961 ignoring the fact that the electricity duty collected by the assessee from consumer forms an integral part of a commercial transaction of supplying and distributing the electricity, thus, the duty collected by the assessee constitutes trading receipts received during the ordinary course of its business and consequently when the payment is made to the government, the deduction under the Income Tax Act is allowed as business expenditure. Thus, if any sum is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d subsequently state government, in a separate transaction, would release the interest subsidy in respect of 30% of the loan amount. The relevant observation from para 9.3 to 9.5 as verbatim is reproduced as under:- ''9.3 The submissions of the appellant are carefully considered. It is noted from the contents of the letter dated 06.05.2016 from State Government of Rajasthan that in respect of all loans received from the World Bank till the year 2006, loans used to be received by the State Government through the Government of India in the form of 70% loans and 30% grants. These in turn used to be advanced to the appellant as 100% loans leading to the appellant paying interest to the State Government on the entire amount. Subsequently, the State Government would return to the appellant the interest received on the grant component as interest subsidy. This method of payment of interest on the entire amount of loan to the State Government and subsequent return of interest on grant component as interest subsidy was in practice during the impugned financial year, 2015-16 as well. 9.4 As can be seen from the above, the loan was advanced by the State Government and the appellant paid i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to the state government on loan advanced by it is not covered u/s 43B of the Act. This is for the reason that in clause (d), (da) or (e) of section 43B do not cover the interest payable on any loan or borrowing from the government. In these clauses interest payable to specific financial institutions / NBFC / Schedule Banks / Co-operative Banks are only covered. The interest payable to State Government is not covered under any of these clauses. Explanation no. 4 to section 43B of the Act specifies the institutions which are covered under this section. For ready reference explanation no. 4 to section 43B of the Act is reproduced below: (a) "Public financial institutions" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1) of 1956. Section 4A of the Companies Act reads as under:- Public financial institutions: (1) Each of the financial institutions specified in this subsection shall be regarded, for the purposes of this Act, as a public financial institution, namely:- (i) the Industrial Credit and Investment Corporation of India Limited, a company formed and registered under the Indian Companies Act, 1913 (7 of 1913); (ii) the Industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he financing of industrial concerns, and on the issue of such notification, the institution shall be deemed to be a Financial Corporation established by the State Government for the State within the meaning of this Act, and the provisions of this Act shall become applicable thereto according to the tenor of the notification: [Provided that no notification shall be issued under this sub-section in respect of any institution unless a request is made in that behalf by the State Government concerned.] (c) "State industrial investment corporation" means a Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and eligible for deduction under clause (viii) of sub-section (1) of section 36. (d) "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P. For ready reference, explanation to subsection (4) of Section 80P reads as under: i) "co-operative bank" and "primary agricultural credit society" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to income, as an amount more than this amount is already offered for tax. This contention of the assessee has not been accepted by the Ld. CIT (A) by stating that the payment of interest and interest subsidy received are two separate transactions ignoring that the same relate to the loan received from World Bank through the state government. Hence, for this reason also disallowance made u/s 43B is not justified. In view of the above, disallowance made by the AO and confirmed by the Ld. CIT (A) is uncalled for and be deleted.'' 3.4 On the other hand, the ld. DR supported the order of the ld. CIT(A) and vehemently argued that it is not under dispute that the assessee received the loan from state government and the assessee paid interest to state government. It is also not in dispute that ultimate source of money received was from the World Bank and thus the payment of interest to World Bank covers the provision of section 43B of the Act. As per the terms of the loan first the assessee has to pay the interest and then the same is received on grant will not change the nature of expenditure incurred and the liability of the assessee on interest to financial institutions. Based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him : Provided that nothing contained in this section 55[[except the provisions of clause(h)]] shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return56. Explanation 1-For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any sum referred to in clause (f) of this section is allowed in computing the income, referred to in section 28, of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 2001, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. Explanation 3C.-For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (d) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing 57[or debenture or any other instrument by which the liability to pay is deferred to a future date] shall not be deemed to have been actually paid. Explanation 3CA.-For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (da), shall be allowed if such interest has been actually paid and any interest referred to in that cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934); (g) "systemically important non-deposit taking non-banking financial company" means a non-banking financial company which is not accepting or holding public deposits and having total assets of not less than five hundred crore rupees as per the last audited balance sheet and is registered with the Reserve Bank of India under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934). Following clause (g) shall be substituted for the existing clause (g) of Explanation 4 to section 43B by the Finance Act, 2023, w.e.f. 1-4-2024: (g) "small enterprise" shall have the meaning assigned to it in clause (m) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006). 60[Explanation 5.-For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies.] We note that clause (d), (da) or (e) of Section 43B do not cover interest payable on any loan or borrowing taken f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B)(b) has stated that electricity duty of Rs.1,49,53,15,488 is not payable being not recovered from the customers (APB 29A-29B). In course of assessment proceedings it is explained by the assessee that electricity duty is not a tax, duty, cess or fees in its hand. It was further submitted that whatever duty is collected from the consumer and payable to the State Government it is adjusted against the subsidy payable by the State Government to the assessee. The AO however held that Government of Rajasthan has merely released the payment of the subsidy and there was nothing specifically mentioned for set off of this amount with the electricity duty. By referring to letter dt.09.04.2015 (APB 30) issued by Govt. of Rajasthan it is observed that in the absence of any express provision of set-off, the non-payment of electricity duty operates as a violation of the obligation imposed by section 43B of the Act. Accordingly Rs.149,53,15,488/- was disallowed u/s 43B of the Act. 4.2 The Ld. CIT(A) at Para 10.5 to 10.8 at Page 19 to 21 of its order held that section 43B (a) covers sum payable by assessee by way of taxes / duty. The electricity duty is not a charge on the assessee which is in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was being done, no disallowance could be made. 10.8 Considering the reasons given in para 10.5 and 10.7 above, it is held that the expenditure of Rs. 1,49,53,15,488/- on account of electricity duty does not fall under the provisions of section 43B(a) of the Act, and disallowance of the same is directed to be deleted.'' 4.3 The ld. DR supporting the finding recorded in the order of the assessment argued that electricity duty is a tax and is a forming part of trading receipt and forms an integral part of a commercial transaction of supplying and distributing the electricity, therefore, if such tax is not paid on or before the due date of filing of return, the same is to be added to the income of the assessee u/s 43B of the Act. The ld. CIT(A) has not appreciated this factual and legal position and therefore, the addition deleted by him is in account of incorrect appreciation of the facts already on record and therefore, the addition deleted should be restored. 4.4 On the other hand, the ld. AR of the assessee made the following submissions in support of the finding recorded in the order of the ld. CIT(A): ''Submission: We may point out that section 43B allows deduction to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Ld. CIT (A) has therefore rightly deleted the addition by also accepting this contention of the assessee. In view of the above, disallowance made by the AO is rightly deleted by the Ld. CIT (A) and therefore the ground of the department be dismissed.'' 4.5 The ld. AR further submitted that assessee collects the electricity duty from the consumers on behalf of the Government of Rajasthan. This is not a tax or duty or cess levied on the assessee. Hence, provision of section 43B is not applicable in the case of the assessee. Assessee simply remits the electricity duty only to the extent it is collected. The uncollected electricity duty is not payable / recoverable from the assessee. Further the State Govt. grants subsidy to the assessee which it allows to adjust against the electricity duty payable by the assessee. Thus section 43B is not applicable as the State Government do not impose electricity duty on the assessee and therefore it is not a deduction which is otherwise allowable to the assessee. To support the contention so raised the ld. AR relied on the decision of Hon'ble Kerala High Court in case of Kerala State Electricity Board Vs. DCIT , 329 ITR 91 where in Para 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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