TMI Blog2014 (7) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 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 & Loss Account, the depreciation chart, the computation of income and all the other connected documents were duly taken into consideration by the CIT (A) and it was on the basis of this documentary evidence, that the CIT (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DT referred by Ld. CIT (A) for allowing relief to the assessee has no relevance. Further, keeping in view the judgement of Hon ble Apex Court in the case of M/s Goetze (I) Limited vs. CIT (2006) 157 Taxman 1 (SC) wherein t was pronounced that the AO has no power to entertain a claim made by the assessee after filing of original return otherwise than by filing revised return. 3. In the facts and circumstances of the case, the Ld. CIT (A) has erred in law and on facts in allowing the assessee s claim that an income of ₹ 1,90,70,843/- was taxed twice which was not accepted by the AO on the ground that the return was not revised. Here also reliance is placed on the judgment of Hon ble Apex Court in the case of M/s Goetze (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 lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the department of Food, Ministry of Food Civil Supplies, GOI; that the charge was created in favour of the President of India (Certificate of Registration of mortgage u/s 132 of the Companies Act); and that in the departmental communication addressed to the Controller of Accounts, Deptt. Of Food, Ministry of Food Civil Supplies, regarding sanction of SDF loan to BSML, the Deputy Secretary to the Govt. of India mentioned in clause 3 of the sanction that : The expenditure involved is debitable to the to the sanctioned budget grant of this department for year 1989-90 under grant No.38, Major Head 6860 -CC-Loans for consumer Industries-CC.1 sugar CC-1 (I)(I)(I) loans for modernization/rehabilitation of sugar mills (non-plan) 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 pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies Act, 1956, every charge created by a company shall be void against any creditors of the company, unless the prescribed particulars of the charge are filed with Registrar of Companies. Accordingly, a charge was created in favour of the creditors namely, the President of India through respective Ministry. 11. The assessee is also correct in maintaining that if the creditor in the SDF loan was IFCI, the charge would have been created in favour of IFCI, and not in favour of the President of India, since under the Companies Act, a charge can only be created in favour of the creditor of the loan. 12. Further, it goes without saying that a loan taken is required to be repaid to its creditor. The sanction letter of the SDF loan requires that it 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India. As per the terms and conditions of the SDF loan, the charge on the immovable and movable properties of the company operates as security, inter alia, for due payment by the company to the President of India for term loan together with interest, additional interest, liquidated damages and all other monies payable by the company to the President of India. The mode of repayment of loan and payment of interest thereon should be by means of a demand draft drawn on the Reserve Bank of India or the State Bank of India, New Delhi, in favour of the Controller of Accounts, Department of Food, Government of India, New Delhi.. 18. In its letter dated 21.09.07 (APB 88-106), IFCI has specifically stated that: i) IFCI has worked as a nodal agency of Sugar Development 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd ₹ 18,59,947/- towards bonus liabilities. Both these liabilities pre-existed on the first day of the previous year. Before the AO, the assessee filed vouchers as evidence for payment of bonus and challans showing payment of cess. Undisputedly, 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. 25. In the above facts, the ld. CIT (A) is found 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , addition cannot be sustained. Similarly on the principle of prudence such addition can also not be sustained. 33. The facts are that the AO noticed the assessee company to have shown an amount of ₹ 1,60,24,219/- as due to its Director. The assessee had given interest free loans to Directors and while at the same time it had paid a sum of ₹ 2,91,86,597/- to bank as interest. Relying on the decision in HR Sugar Factory Pvt. Ltd. vs. CIT , 187 ITR 363 (All), disallowed an amount of ₹ 9,61,952/-, on account of interest claimed as paid to bank on borrowed funds @ 6%. 34. While restricting the addition from ₹ 9,61,952/- to ₹ 2,52,000/-, the ld. CIT (A) observed as follows:- I have carefully considered the assessment order as well as the written submission of the appellant as 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 repaym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit was deployed in current assets, which was worth ₹ 16.66 crores, as against outstanding bank credits of ₹ 10.84 crores; that in fact, the loan in question was continuously reducing due to repayment from 31.3.01 to 31.3.04; and that this amply proves that the loan was not utilized for payment of the amount of ₹ 42 lacs as advanced to the directors of the assessee company. 36. It has further been contended that it was a continuous internal generation of funds and during the years ended on 31.3.2002 and 31.3.03, assessee s net profit before providing depreciation, amounted to ₹ 28 lacs and ₹ 170 lacs, respectively; that this apart, the assessee company was having a share capital of ₹ 7.6 crores, which was interest free; and that the ld. CIT (A) has failed to take into consideration 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee s own funds and no disallowance of the interest paid on borrowed funds for business, is called for. 41. In CIT vs. Bharti Televenture Ltd. , 331 ITR 502 (Del), where the assessee had established that it had adequate non-interest bearing funds by way of share capital and reserves at the time of advance and the loan was also prompted by business consideration, it was held that the deduction allowed by the Tribunal was not to be interfered with. 42. In CIT vs. Dalmia Cement Pvt. Ltd. 254 ITR 377 (Del), as confirmed by the Hon ble Supreme Court in SA Builders Ltd. vs. CIT , 288 ITR 1 (SC), it was held that the revenue is not justified to put itself in the armchair of the businessmen or in the position of the Board of Directors to disallow a claim of interest on borrowing, holding that the assessee had ample 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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