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TMI Blog2017 (11) TMI 1451X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-08, wherein the assessee has raised the following grounds of appeal: 1.For that on the fact and in the circumstances the Ld. Commissioner of Income Tax(Appeal) was wrong in sustaining addition of interest of Rs. 5,37,34,000 on loan from Govt. of West Bengal. 2.For that the ld. Commissioner of Income Tax (Appeal) failed to consider the fact (a)that in note number '8' of the Notes on Accounts the fact about charging interest "Pending determination of rate of interest" of Rs. 537.34 lakhs for the year under appeal as well as accumulated provision upto 31.03.2006 of Rs. 9,489 lakhs were disclosed. (b)that neither the Statutory Auditor of the assessee had u/s 227 of the Companies Act 1956 reported nor the C&AG had commented u/s 619(4) of the Companies Act 1956 that the Loan was interest free and/or that interest should not have been debited to the P&LA/c and (c)that Tax Auditor of the assessee in his report u/s 44AB of IT Act 1961 had reported "NIL" against sl. No.17(k) of Form No.3CD signifying that "any liability of a contingent nature" has not been debited to the P&L A/c. 3.For that the ld. Commissioner of Income Tax(Appeal) further erred in not taking into account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est on loan varied from 6.50 percent to 12.50 percent (which would also be evident from the Audit Memo. No.RAO/CTC/Aud/2006-07/3, dt.22/11/2007 of the Resident Audit Officer from the Office of the Principal Accountant General (Audit) West Bengal. Therefore, the company on a conservative basis was taking the interest expenditure @ 6.25% and charging the same to the Profit and Loss Account. As the company is following the accrual system of accounting it had to consider the fact that the loan was not sanctioned as interest free. The said fact was duly disclosed in the financial statements, which were approved by the West Bengal Government nominated directors. The financial statements were audited by the CAG appointed Statutory Auditors and also vetted by the Commercial Audit wing of the Comptroller & Auditor General of lndia. The Statutory Auditors and the Commercial Audit wing of CAG never objected in principle to account for the interest on the said loan and the charging of the interest expenditure to the Profit and Loss Account. However, the AO after going through the reply of the assessee held that the expenditure claimed on estimate basis is not an allowable expenditure as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstatement of loss. Therefore it was contended that the interest provided by the assessee was rather on lower side and should be allowed. The ld CIT(A) after considering the submissions of assessee held thatthe interest under consideration had been provided in respect of loans received from Government of West Bengal. ltwas undisputed that while sanctioning the loan, the Government had not specified that any interest was to be charged. The assessee had pointed out that it had also not been mentioned that the loan was interest free. The ld CIT(A) observed that any actual payment of interest had also not been made so far, nor any letter of demand etc. had been received from government. The loan was from the West Bengal government who is 100% owner of the company. Thus, it was not a case that the loan was from, say, a bank or financial institution or NBFC engaged in business of giving loan on interest. Therefore it cannot be said that the loan had been taken on commercial terms and interest would have to be necessarily paid on the same. lt was well-known that the assessee company had huge accumulated losses and the government, being 100% owner, may very well decide to give interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Companies Act 1956 that the loan was interest free and the interest should not have been debited to P&L A/c. In addition to this, the ld. Counsel pointed out that tax auditor of the assessee in the tax audit report u/s44AB of the I.T. Act 1961 had reported "NIL" against sl. No.17(k) of Form no.3CD signifying that "any liability of a contingent nature" has not been debited to the P&L A/c. The ld. CIT(A) did not consider the Accounting Standards notified u/s145(2) of the Act. Therefore, by following the accounting standards prescribed u/s 145(2) of the Act, the assessee has accrued interest on the basis of estimate. The ld. Counsel submitted that the loan sanctioned by West Bengal Government, 100% owner of the company, wherein it was not mentioned that the loan was interest free. Although, the exact rate of interest was not intimated by the Government of West Bengal, during the period of loan sanctioning, the market interest on loan varied from 6.50 percent to 12.50 percent.Therefore, the company provided interest at the rate of 6.25% on the said loan. The ld. Counsel submitted that the said fact had been duly disclosed in the financial statement which was audited by the Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not an allowable expenditure under the provisions of lncome Tax Act. It is the claim of interest on account of being unascertained liability. We also note that in the audit conducted by C & AG, a comment was made that interest in respect of the unsecured loan from the Government was short provision resulting in understatement of loss, and therefore based on this comment, it was contended by the assesseethat the interest provided by the assessee was rather on lower side and should be allowed. We do not agree with this contention of the assessee because there is no any cogent evidence available on record from the Lender( Govt. of West Bengal) of the said loan about interest to be charged or not to be charged. However, the Counsel for the assessee has prayed the Bench that assessee companywill get the sanction letter/confirmation from the Government of West Bengal about the rate of interest to be charged, or not to be charged, on such loan. Therefore, the Counsel prayed the Bench that the assessee has already applied to the Govt. of West Bengal,for confirmation letter and will get it very soon. Therefore, we direct the Assessing Officer to take into account the sanction letter/con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means that the tribunal's order under consideration is not operational and effective. Unless and until the order of tribunal is reversed by High Court, the same has to be given due effect. Judicial discipline demands that once an order has been passed in the assessee's own case, lower authorities are duty bound to act in accordance with the same. Moreover, as stated earlier, CIT(A) and ITAT have taken same view in Assessment Year 2004-05 and 2005-06 also. The assessee also submitted that following the appellate orders for the preceding years, the Assessing Officer was directed to allow claim of depreciation in accordance with the order of ITAT in the assessee's case in the earlier years. Such allowance of depreciation can naturally be modified, if required, as and when Hon'ble High Court decides the appeal filed by the department against the tribunal's order. This way, ldCIT(A) allowed the claim of the assessee. 4.3 The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 4.4On the other hand, the ld. Counsel for the assessee has submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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