2019 (8) TMI 611 - AT - Income Tax

ITAT Delhi upholds CIT(A)'s decision to delete addition of Rs. 553.9 Cr unpaid interest on GOI loans

Addl. CIT, Special Range -9, New Delhi. Versus M/s the Fertilizer Corporation of India Limited

Addl. CIT, Special Range -9, New Delhi. Versus M/s the Fertilizer Corporation of India Limited - TMI Issues Involved:1. Deletion of addition on account of unpaid interest on the loan granted by the Government of India (GOI) to the assessee company.2. Applicability of Section 43B of the Income Tax Act, 1961, to the unpaid interest on GOI loans.3. Consistency in judicial decisions regarding the disallowance of unpaid interest on GOI loans.Issue-Wise Detailed Analysis:1. Deletion of Addition on Account of Unpaid Interest on GOI Loan:The primary issue in the appeal was whether the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] erred in deleting the addition of Rs. 553,90,97,000/- made by the Assessing Officer (AO) on account of unpaid interest on the loan granted by the Government of India to the assessee company. The AO had disallowed this interest under Section 43B of the Income Tax Act, 1961, which mandates that certain expenses are deductible only when actually paid.2. Applicability of Section 43B of the Income Tax Act, 1961:The AO disallowed the unpaid interest on GOI loans by invoking Section 43B(d) & (e) of the Income Tax Act, which disallows deductions on account of interest due but not actually paid to any scheduled bank, public financial institution, or state financial corporation. The AO argued that the interest on borrowings from GOI, though debited to the Profit & Loss account, was not paid and thus should be disallowed under Section 43B.The Ld. CIT(A), however, deleted the addition, reasoning that Section 43B explicitly mentions public financial institutions, state financial corporations, and scheduled banks, but not loans from the Government of India. The Ld. CIT(A) emphasized that legal provisions should be interpreted according to the words mentioned therein, and the legislature did not include GOI loans within the ambit of Section 43B.3. Consistency in Judicial Decisions:The Ld. CIT(A) also noted that in previous assessment years (2001-02 to 2009-10 and 2011-12), similar disallowances were deleted by the first appellate authority on the grounds that the non-payment of interest on GOI loans did not fall under Section 43B. The Income Tax Appellate Tribunal (ITAT) Delhi had also upheld this view in the assessee's own case for AY 2005-06 and AY 2011-12, emphasizing the rule of consistency.The present appeal before the ITAT Delhi was filed by the Revenue against the Ld. CIT(A)'s order. The ITAT noted that the issue was already covered in favor of the assessee by the Co-ordinate Bench of ITAT, Delhi, in the assessee's own case for AY 2011-12. The ITAT upheld the Ld. CIT(A)'s decision, dismissing the Revenue's appeal and affirming that the unpaid interest on GOI loans does not fall under the purview of Section 43B.Conclusion:The ITAT Delhi dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s deletion of the addition of Rs. 553,90,97,000/- on account of unpaid interest on GOI loans. The ITAT affirmed that Section 43B does not apply to unpaid interest on GOI loans, maintaining consistency with previous judicial decisions in the assessee's own case. The ITAT also appreciated the fairness and assistance provided by the Ld. CIT(DR) in expeditiously resolving the appeal.