Appeal success: Interest disallowance under Income Tax Act reversed

The appeal was filed against the disallowance of interest accrued but not paid under section 43B(d) of the Income Tax Act for the Assessment Year 2008-09. The CIT(A) restricted the disallowance to Rs. 15,24,100 as the amount charged in the profit and loss account. The Tribunal reversed the CIT(A)'s decision, holding that if the interest was payable to the Government of India or the Uttar Pradesh government, section 43B(d) did not apply. Therefore, the appeal of the assessee was allowed, and the disallowance under section 43B(d) was reversed.

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Issues: Disallowance of interest accrued but not paid under section 43B(d) of the Income Tax Act for the Assessment Year 2008-09.

Analysis:
1. The appeal was filed against the order of the CIT(A) disallowing interest accrued but not paid amounting to Rs. 3,63,59,677 under section 43B(d) of the Income Tax Act. The CIT(A) restricted the disallowance to Rs. 15,24,100 as the amount charged in the profit and loss account. The main contention was that the interest accrued but not paid pertained to institutions of the Uttar Pradesh Government and did not fall under the definition of Public Financial Institutions/State Financial Institutions under section 43B of the Act.

2. The assessee, a cooperative society engaged in sugar manufacturing, filed its return declaring a loss and claimed deduction under section 80P. The assessment was completed, but later reopened to disallow the interest accrued but not paid before the due date of filing the return. The AO disallowed the interest under section 43B(d), which was partly confirmed by the CIT(A) leading to the appeal.

3. The learned AR argued that the interest payable to the Uttar Pradesh Government, specifically the Shakar Vishesh Nidhi loan, was not covered under section 43B(d) based on a decision of the ITAT Delhi benches. The AR contended that since the interest was payable to the government, the provision did not apply, citing a similar case precedent.

4. The Revenue relied on the lower authorities' order, supporting the disallowance of the interest accrued but not paid.

5. The Tribunal noted that out of the total interest amount, only Rs. 15,24,100 was charged to the profit and loss account. Referring to a previous decision of the ITAT Delhi benches, it was held that if the interest was payable to the Government of India or the Uttar Pradesh government, section 43B(d) did not apply. As no contrary decision was presented, the Tribunal reversed the CIT(A)'s finding and allowed the appeal.

6. Consequently, the appeal of the assessee was allowed, and the disallowance under section 43B(d) was reversed based on the interpretation that the interest payable to the government entities was not covered under the provision.

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