Pr. Commissioner Of Income Tax, Ajmer v. Ajmer Zila Dugdh Utpadak Sahakari Sangh Ltd., Opp. Hmt, Beawar Road, Ajmer

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 132 / 2017 Pr. Commissioner of Income Tax, Ajmer. ----Appellant Versus Ajmer Zila Dugdh Utpadak Sahakari Sangh Ltd., Opp. HMT, Beawar Road, Ajmer. ----Respondent _____________________________________________________ For Appellant(s) : Ms. Parinitoo Jain. For Respondent(s) : _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 25/07/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the tribunal hasallowed the appeal of the assessee. 2.The counsel for the appellant has framed the following substantial question of law. “(i) Whether the Tribunal is justified in ignoring thatinterest payable of Rs.1,95,12,835/- to RCDF is notallowable as deduction u/s.43B(d) of the Act,because this section allows interest actually paid asdeduction not otherwise. (ii) Whether the Tribunal is justified in ignoring thefindings of fact and law given in para 6.3 of theCIT(A) order through which the disallowance ofRs.1,95,12,835/- on account of interest payablemade in the assessment order has been confirmed. 3.Taking into consideration the observation made by the Tribunal in para no.6.2 wherein it has been held as under:- “6.2. We have heard rival contentions, perused thematerial available on record and gone through theorders of the authorities, below. The AO made thedisallowance by observing as under:- “The submissions of the asseessee perused and thesame is not acceptable for the reasons that it hasfailed to make payment of Rs.1,95,12,835/-(23,61,083 + 1,71,51,752). The assessee has notfurnished any evidence in support of dispute betweenboth the parties and also failed to submit a copy ofProfit & Loss Account proving that income ofRs.23,61,083/- was offered in the A.Y. 2009-10.Further no document in respect of unpaid interest ofRs.1,71,51,752/- was furnished regarding settlementof interest. Therefore, unpaid interest ofRs.1,95,12,835/- is disallowed and added to the totalincome.” The ld. CIT (A) confirmed the above finding in para 6.3of his order as under :- “6.3. I have considered the contentions of theappellant as well as assessment order. It is seen thatthe assessee has given brief details regarding thedispute between Ajmer Zila Dugdh Utpadak SahkariSangh Ltd. (AZDUSS Ltd.) and Rajasthan CooperativeDairy Federation (RCDF). The assessee mentioned thatthe milk plant was separated from the assesseeconcern and transferred to RCDF in 1979 and it wasagain merged with the assessee concern on01.09.1991. the difference in assets and liabilitiescould not be settled in time and assessee had nochoice or right to transfer or adjust any amountwithout approval from the State Government. Thefunds were initially received at RCDF from NBDB.Further, the assessee also claimed that the amount ofcredit lying in the name of RCDF dues is a sharecapital amount. The assessee himself has also mentioned that afterobtaining the approval from the State Government,the amount of Rs. 23,61,083/- has been credited asincome in FY 2008-09 and further sum of Rs.71,00,000/- has been credited as income in FY 2010-11 and assessee has submitted the copy of balancesheet/profit and loss account in respect of aboveamounts in support of this claim. The assessee himself has also mentioned that afterobtaining the approval from the State Government,the amount of Rs. 23,61,083/- has been credited asincome in FY 2008-09 and further sum of Rs.71,00,000/- has been credited as income in FY 2010-11 and assessee has submitted the copy of balancesheet/profit and loss account in respect of aboveamounts in support of this claim. From the above description, it is apparent thatassessee has not been able to justify the creation ofthe liability which has been shown by the assessee asunpaid interest noted by the AO in the assessmentorder of Rs. 23,61,083/- and Rs. 1,71,51,752/-.Further, assessee himself has offered a sum of Rs.23,61,083/- and Rs. 71,00,000/- out of above amountas income in the profit and loss account in the lateryears. This itself shows that assessee has not been able to justify the exact nature of dispute between theRCDF and assessee company has pointed by the AO.So the existence of the liability itself has not beenproved by the assessee by any confirmation from thecorresponding party and assessee has merely pointedout to the dispute between RCDF and assesseeconcern. Further the assessee’s claim that RCDF dues are forshare capital amount has not been confirmed by anyshares issued by the assessee against it or specificamount given to it by RCDF. So this claim is alsounsubstantiated. The assessee has shown the above amount as unpaidinterest of Rs. 23,61,083/- and Rs. 1,71,51,752/-towards RCDF. The RCDF is a undertaking controlledby Government o Rajasthan as mentioned by theassessee. It has not been shown that the aboveinterest liability is not covered by the provisions ofSec. 43B(d) and (e) of the I.T. Act. The AO has pointedout that the above interest liability remains unpaidliability of the assessee about which assessee hasmerely claimed that this amount represents thecontribution towards share capital which is notsupported by evidence. In view of the above discussion and findings of the AO,addition made by the AO is confirmed and this groundof appeal is dismissed.” The ld. Counsel for the assessee has drawn ourattention to letter dated 25.08.2003 to demonstratethat the amount of Rs. 87 lacs was due to Ajmer ZilaDugdh Utpadak Sahkari Sangh Ltd., Ajmer. Thecontention of the assessee is that the provisions ofsection 43B has been wrongly applied by theauthorities below as these provisions would beapplicable only when the AO establishes that theassessee has taken a loan/borrowing from any publicfinancial institution etc, some interest of the relevantyear is payable and in accordance with the terms andconditions of the related agreement. As per section43B(d), the first requirement is that any sum ispayable by the assessee as interest on any loan orborrowing from any public financial institution or statefinancial corporation or state industrial investmentcorporation in accordance with the terms andconditions of the agreement governing such loan orborrowing. In the present case, the AO was required todemonstrate that the assessee has obtained any loanor made any borrowing from any public financialinstitution as defined in Explanation-4 to section 43B.As per this explanation, the public financial institutionshall have the meaning assigned to it in section 4A ofthe Companies Act, 1956. In our considered viewRCDF does not fall within the definition of public financial institution. Therefore, we find force in thecontention of the ld. Counsel that the AO was notjustified in invoking the provisions of section 43B ofthe Act. The touch stone for invoking the provisions ofsection 43B is that any sum is payable by the assesseeas interest on any loan or borrowing from any publicfinancial institution or a state financial corporation or astate industrial investment corporation. Now the firstquestion would arise is whether the RCDF is a publicfinancial institution within the definition of Explanation-4 to section 43B. the said explanation has adopted thesame definition as given in section 4A of theCompanies Act, 1956. Section 4A of the CompaniesAct, 1956 does not include RCDF in the category ofpublic financial institution. Therefore, in our consideredview, the AO as well as the ld. CIT (A) were notjustified in making the addition. Thus, we direct the AOto delete the addition. 4.We are in complete agreement with the view taken by the tribunal. 5.No substantial question of law arises in the appeal. The appeal stands dismissed. (INDERJEET SINGH),J.Mohit GroverSr. No.37. (K.S. JHAVERI),J.