Sales tax liability under deferment scheme cannot be disallowed under Section 43B, interest disallowance rejected

ITAT Ahmedabad ruled in favor of the assessee on two issues. First, disallowance under Section 43B for sales tax liability under Sales Tax Deferment Scheme was held unjustified, following consistent ITAT precedents from earlier assessment years. Second, regarding interest disallowance under Section 36(1)(iii) proviso, the AO's proportionate disallowance for funds allegedly used for capital work-in-progress was rejected. The assessee's interest-free funds (Rs. 26.01 crores) exceeded capital work-in-progress investments by ten times, and the AO failed to prove borrowed money was actually utilized for non-business purposes. CIT(A)'s deletion of additions was upheld, with revenue's appeals dismissed.

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Issues involved: Appeal against order of Commissioner of Income-tax (Appeals) regarding Assessment Year 2009-10.

Issue 1 - Disallowance u/s. 43B - Sales Tax Liability:
The appeal concerned the disallowance u/s. 43B on account of sales tax liability under the Sales Tax Deferment Scheme. The ITAT considered past decisions and held that disallowance u/s. 43B for sales tax liability under the deferment scheme is not justified. Citing relevant case law, the ITAT upheld the CIT(A)'s decision to delete the addition made by the Revenue.

Issue 2 - Disallowance of Interest under Section 36(1)(iii):
The Assessing Officer disallowed interest amounting to Rs. 32,82,282, attributing it to funds used for capital work-in-progress. The CIT(A) overturned this disallowance. The ITAT, after considering arguments from both sides, upheld the CIT(A)'s decision based on the substantial interest-free funds available with the assessee compared to the investments in capital work-in-progress and interest-free advances, in line with relevant case law.

Issue 3 - Disallowance of Proportionate Interest:
The Assessing Officer disallowed interest of Rs. 1,44,000 on an advance given without charging interest. The CIT(A) reversed this disallowance. The ITAT, after joint consideration of related grounds, upheld the CIT(A)'s decision due to the significant interest-free funds available with the assessee, as compared to the amounts invested in capital work-in-progress and interest-free advances, in accordance with applicable legal precedents.

In conclusion, the ITAT dismissed the Revenue's appeal based on the above considerations and upheld the CIT(A)'s orders for the Assessment Year 2009-10.

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