Case Law Details
Tokai Sahakari Sakhar Karkhana Ltd Vs ITO (ITAT Pune)
Introduction: The case of Tokai Sahakari Sakhar Karkhana Ltd vs Income Tax Officer (ITAT Pune) revolves around the disallowance of interest expenses under various sections of the Income Tax Act, 1961. The appellant contested several grounds related to interest payments, seeking relief from the tax authority’s decision. The judgment provides insights into the application of relevant sections of the Act concerning interest deductions.
Detailed Analysis: The first substantive issue addressed by the tribunal pertained to the disallowance of interest expenses amounting to Rs. 3,13,44,000 under section 43B of the Income Tax Act. The Revenue contended that this sum, related to the National Cooperative Development Corporation (NCDC), fell within the purview of section 43B(d). However, the tribunal ruled in favor of the appellant, citing judicial consistency and previous rulings in similar cases. It emphasized that loans received through a state government do not attract section 43B(d), thus allowing the appellant’s claim.
Regarding the second substantive issue concerning interest deduction paid to The Maharashtra State Cooperative Bank, the tribunal decided to refer the matter back to the Assessing Officer for further verification. The appellant argued that since it commenced sugar production in the relevant previous year, it should not be subject to certain provisions. However, lacking substantial evidence, the tribunal deemed it necessary to reassess the issue.
The next set of substantive grounds focused on interest payments to various entities and whether they attracted TDS deduction under section 194A. The tribunal rejected the Revenue’s contention, stating that such payments did not fall under the specified provisions. Consequently, the appellant succeeded in these grounds.
The final substantive ground addressed the disallowance of interest expenses related to late filing of EPF and GST Returns. The appellant argued that these payments were compensatory in nature and therefore allowable under section 37(1) of the Act. The tribunal agreed with the appellant, concluding that the interest payments were not penal in nature and thus should be allowed.
Conclusion: The judgment in Tokai Sahakari Sakhar Karkhana Ltd vs ITO (ITAT Pune) provides important clarifications on the treatment of interest expenses under the Income Tax Act, 1961. It underscores the significance of judicial consistency and factual verification in tax assessments. The ruling reaffirms certain principles regarding the applicability of specific sections and the nature of interest payments, offering guidance to taxpayers and tax authorities alike.
FULL TEXT OF THE ORDER OF ITAT PUNE
This assessee’s appeal for Assessment Year 2018-19, arises against the National Faceless Appeal Centre(NFAC), Delhi’s DIN & Order No. ITBA/NFAC/S/250/2022-23/1049707178(1) dated 13.02.2023, in proceedings under section 250 of the Income Tax Act, 1961 [in short “the Act”].
Heard both the parties at length. Case file perused.
2. The assessee pleads the following substantive grounds in the instant appeal :
“1. On the basis of facts and circumstances of the case, the Ld CIT(A) has erred in disallowing interest expenses payable to the government of Rs 3,13,44,000/- under section 43B of the Income Tax Act 1961. The provisions of section 43B of the Act are not applicable for interest on loan availed from government and therefore the addition is liable to be deleted.
2. On the basis of facts and circumstances of the case, the Ld CIT(A) has erred in disallowing interest expenses paid to Maharashtra State Co-operative Bank of Rs 38,13,100, – under section 37(1) of the Income Tax Act 1961 . The loans are availed for business purpose and therefore the interest is an allowable expenses. The addition is unwarranted and liable to be deleted.
3. On the basis of facts and circumstances of the case, the Ld CIT(A) has erred in disallowing interest expenses of Rs 16,05,090-u/s 40a(ia) of the Income Tax Act 1961 for non-deduction of TDS u s 194A( 1). The provisions of 194A( 1) are not applicable on interest paid to banks and therefore the disallowance is bad in law and liable to be deleted.
4. On the basis of facts and circumstances of the case, the Ld CIT(A) has erred in disallowing interest expenses of Rs 21,79,030/u s 40a(ia) of the Income Tax Act 1961 for non-deduction of TDS u/s 194A( 1). The provisions of 194A( 1) arc not applicable on interest paid by cooperative society to its members and therefore the disallowance is bad in law and liable to be deleted.
5. On the basis of facts and circumstances of the case, the Ld CIT(A) has erred in disallowing interest expenses of Rs 30,91,954-u/s 40a(ia) of the Income Tax Act 1961 for non-deduction of TDS u s 194A(1). The provisions of 194A(1) are not applicable on interest paid to banks and therefore the disallowance is bad in law and liable to be deleted.
6. On the basis of facts and circumstances of the case, the Ld CIT(A) has erred in disallowing interest expenses paid on late filing of EPF and GST returns of Rs 80,007/-on the basis of presumption that these interest payments are penal in nature. Therefore the addition is bad in law and liable to be deleted.
7. On the facts and circumstances of the case and in the Law, the Learned AO erred in initiating the penal proceedings under section 270A of the Income-tax Act,1961.
8. The appellant craves leave to add, amend, and alter any or withdraw any grounds of appeal at or before the time of Appeal hearing.”
3. We advert to the first and foremost issue of section 43B disallowance of the assessee’s interest claim of Rs.3,13,44,000/-. The Revenue’s case all along in light of learned lower authorities’ findings is that this sum admittedly relates to the National Cooperative Development Corporation (NCDC) which is duly covered under section 43B(d) of the Act being a statutory corporation setup by an Act of Parliament way back in the year 1963. We hardly see any reason to agree to the Revenue’s stand once it has come on record that not only the learned CIT(A)’s order in the preceding assessment year i.e. A.Y.2016-17 has decided the very issue in assessee’s favour but also the fact that the above stated corporation had released the loan sum herein through the state of Maharashtra as per pages 21 to 24 in the paper book. Be that as it may, we adopt judicial consistency to delete the impugned interest disallowance. Learned Counsel also quoted the tribunal’s learned co-ordinate bench’s decision in DCIT Vs. Kallakurichi Co-operative Sugar Mills Ltd., deleting the very nature of disallowance involving “NCDC” thereby holding such loans received through a state government do not attract section 43B(d) of the Act. We see no reason to deal with the same at this stage once we have already adopted judicial consistency in foregoing terms. This first and foremost substantive ground is accepted in assessee’s favour therefore.
4. The assessee second substantive ground claims interest deduction of Rs.38,13,100/- paid to The Maharashtra State Cooperative Bank under section 37(1) of the Act. Mr. Jasnani vehemently supported both the learned lower authorities’ action that the very issue stands covered against the assessee in earlier assessment years as well.
5. Faced with the situation, learned Counsel sought to buttress the point that the assessee has commenced its sugar production in the relevant previous year only and therefore not covered under section 36(1))(iii)(Proviso) as held as capital expenditure in the preceding assessment years. We do not see any corresponding substantive details coming from the assessee’s side to this clinching effect. We accordingly deem it appropriate to restore the instant second issue back to the Assessing Officer for his afresh factual verification as per law preferably within three effective opportunities. The second substantive ground is treated as allowed for statistical purpose in very terms.
6. The assessee’s next three substantive grounds i.e. ground no.3 to 5 seek to reverse both the lower authorities action invoking section40(a)(ia) disallowance(s) regarding interest claims involving varying sums paid to M/s. Maharashtra State Co-operative Bank, its Members and the Parbhani District Central Co-operative Bank; respectively. That being the case, we are of the considered opinion that such interest payments do not attract TDS deduction under section 194A(3)(iii)(a) regarding the foregoing twin Co-operative Society’s/banks and under section 194A(3)(V) relating payments to members made by a co-operative society; respectively. We accordingly reject the Revenue’s vehement contention in very terms. The assessee succeeds in its instant 3rd to 5th substantive grounds.
7. Lastly comes the assessee’s sixth substantive ground seeking to delete interest expenses disallowance involving late filing of EPF and GST Returns to the tune of Rs.80,007/- in question. Mr. Jasnani vehemently argued that these payments are penal in nature and therefore not allowable under section 37(1) of the Act. He could hardly rebut the clinching fact that these interest payments under the respective loans are only compensatory in nature representing statutory interest than having any penal element therein. We thus accept the assessee’s sixth substantive ground in very terms.
8. The assessee’s 7 to 8 substantive grounds are treated as consequential in nature. Delay of 23 days in filing of the instant appeal stands condoned in larger interest of justice.
9. This assessee’s appeal is partly allowed in above terms.
Order pronounced in the open Court on 16th January, 2023.
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