Teesta Agro Industries Ltd Vs DCIT (ITAT Kolkata)
It is not in dispute that the unpaid interest has been converted/rescheduled into fresh loan. The assessee had only made a claim u/s 43B of the Act as deduction passed on constructive payment of interest to the bank and constructive receipt thereon from the bank as loan. But we find that the provisions of Explanation 3C to section 43B of the Act are against the assessee which reads as under :-
“[ 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 shall not be deemed to have been actually paid.”
From a perusal of the aforesaid provision it is very clear that the unpaid interest which got converted into loan cannot be claimed as deduction u/s 43B of the Act. Hence we hold that the ld. CIT(A) had rightly confirmed the disallowance of unpaid interest in the sum of Rs.1,51,26,826/- payable to IDBI.
FULL TEXT OF THE ITAT JUDGMENT
1. This appeal by the assessee arises out of the order of the Learned Commi543/CIT(A)-4/Circle-12/Kol/14-15 dated 16.05.2016 against the order passed by the A.C.I.T., Inv.Circle-3(2), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 15.03.1996 for the Assessment Year 1993-94.
2. The first issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in confirming the disallowance of Rs.39,29,928/- u./s 43B of the Act on account of unpaid sales tax in the facts and circumstances of the case.
3. The brief facts of this issue is that the assessee M/s Teesta Agro Industries Ltd which was earlier known as Sunderban Fertilisers Ltd was in receipt of Rs.39,29,928/- under sales tax deferment scheme sanctioned by the Government of West Bengal, meaning thereby the sales tax collected by the assessee need not be remitted to the sales tax authorities for a certain period of time. Accordingly the assessee did not make any remittance of this sales tax collection of Rs. 39,29,928/- to the sales tax authorities. The assessee produced copy of the eligibility certificate issued in Form No.XIX by Assistant Commissioner , Commercial Taxes, West Bengal vide Certificate No.6295 dated 25.06.1993 wherein the assessee dealer was given eligibility for deferment of payment of sales tax for a period of 7 years commencing from 21.05.1992. The ld. AO applied the provision of section 43B of the Act and held that since the assessee had not made the remittance of sales tax collected and the assessee had not produced any evidence to show that the unpaid sales tax which has been converted into loan by the state Government, the requirement of CBDT Circular No. 496, dated 25-9-1987 was not fulfilled by the assessee and accordingly proceeded to make disallowance u/s 43B of the Act.
4. The ld. CIT(A) noted in his order that Commercial Taxes Department, West Bengal had granted deferment of payment of tax to the extent of 90% of gross value of fixed assets or Rs.35 crores whichever is less and that deferment was for a period of 7 years commencing from 21.05.1992 based on the eligibility certificate issued to the The ld. CIT(A) categorically stated that the assessee had furnished evidence in support of the claim that the sales tax liability was converted into loan. The assessee placed reliance on the CBDT Circular No. 496, dated 25-9-1987. The ld. CIT(A) however, observed from a perusal of the said circular in para-5 it was clearly stated that the CBDT had decided where amendments were made in the sales tax laws on the lines mentioned in the circular, the statutory liability shall be treated as discharged for the purposes of section 43B of the Act. He observed that the assessee in the instant case has not furnished any evidence to prove that whether any amendment was carried out in sales tax laws and accordingly the circular would not come to the rescue of the assessee and upheld the disallowance made by the AO. Aggrieved assessee is in appeal before us on the following ground :
“1) For that in the facts & Circumstances of the case the Ld. CIT(A) was unjustifiable confirm the disallowance a sum of Rs. 39,29,928/- U/s. 43B of I T Act on account of unpaid Sales Tax.”
5. We have heard the rival submissions. We find that the assessee had duly placed on record the relevant provision of West Bengal Sales Tax Act 1954 vide section 8H “ deferment payment of tax “ which is reproduced hereunder:-
“1 [8H. Deferment of payment of tax. – (1) Notwithstanding anything contained in sub-section (1) or sub-section (2) 2[ ••• ] of section 8 or sub-section (1) of section 10, the tax payable by a registered dealer under this Act according to his 3[ •• ] returns referred to in section 8 or the tax due from him according to a notice issued under sub-section (1) of section 10 shall, subject to the other provisions of this section or the rules made thereunder, be deferred.
(a) in the case of a newly set up industrial unit in [West Bengal.] from the prescribed date on which such tax becomes payable in a year during the period referred to in sub-section (2) under this Act in respect of notified commodity other than such notified commodity as may be prescribed,] manufactured in such unit or goods purchased for use directly in the manufacture of such notified commodity, or
(b) In the case anexisting industrial unit in 1 [West Bengal.] which has been expanded on approval of the State Government, from the prescribed date on which such tax becomes payable in a year during the period referred to in sub-section (2) under this Act in respect of notified commodity 2[, other than such notified commodity as may be prescribed.] manufactured in the expanded portion of such unit on utilisation of the added capacity of the plant and machinery installed therein or goods purchased for use directly in the manufacture of such notified commodity,
for such period, not exceeding 3[ nine years,] as may be prescribed, and different periods may be prescribed for different such new7, set up or existing industrial units having regard to the location of such units [in different areas as may be prescribed :]
5[Provided that deferment of payment of tax payable by a dealer in respect of sales of notified commodities manufactured by him in any of the prescribed areas may be restricted to sales of such class or classes of notified commodities as may be prescribed :
Provided further that the period prescribed under this sub-section and sub-section (2) may, subject to such restrictions and conditions as may be prescribed, be extended by two years in the cases of such industrial units as may be prescribed, where investment in fixed capital assets exceeds on hundred crore rupees.]
It is not in dispute that the assessee is entitled/eligible for sales tax deferment, meaning thereby, the sales tax collected by the assessee need not be remitted to the sales tax department for a period of 7 years commencing from 21.05.1992 as is evident from the eligibility certificate issued by the sales tax department (supra). This eligibility certificate admittedly has been issued in accordance with the provision of West Bengal Sales Tax Act 1954. Hence it can be safely concluded that the assessee had sought for this eligibility certificate on sales tax deferral loan based on the provisions of the State Act i.e. West Bengal Sales Tax Act. Hence the assessee would squarely fall under the benefit provided in the Circular No. 496, dated 25-9-1987 which reads as under :-
Circular No. 496, dated 25-9-1987
“Whether amount of sales tax liability converted into loans may be allowed as deduction in assessment for previous year in which such conversion has been permitted by or under Government orders
