TaxTMI 
TaxTMI 
2026 (1) TMI 9
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....2014-15, by recording the reason to believe which is based on incorrect presumptions and therefore an action based on such presumed reason to believe is incorrect and order passed in consequence to such action is bad in law. 3. On the facts and in the circumstances of the case and in law, Ld. AO erred in initiating reassessment proceedings u/s 147 for AY 2014-15 by recording the reason to believe which is based on audit objection. We submit that the reason based on such borrowed satisfaction cannot be the basis of reopening the concluded assessment. Therefore, entire proceedings are void ab initio. 4. Without prejudice to the above grounds on the facts and in the circumstances of the case and in law, the Ld. AO erred in making addition of Rs. 2,42,00,000 by disallowing interest payable on loan from state government by invoking provisions of section 37 by assuming the same as unascertained liability. The action of Ld. AO is incorrect, illegal and without appreciating the facts of the case and therefore the entire addition deserves to be deleted. Your appellant prays for deletion of entire addition. Your appellant craves for to add, alter amend, modify, del....
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....tive Spinning Unit formed for Backward Classes under Vishesh Ghatak Yojana under the aegis of 8th Five Year Plan. b) As an eligible unit of Backward Class the society has been granted Financial Assistance from "Department of Social Wellfare- Government of Maharashtra" itself. The said financial assistance was devided into financial assistance in the form of Capital Contribution and a Soft Loan. c) Thus the interest payable of Rs. 242 lakhs is on the Loan from government itself - this may please be noted. d) Further as per GR dtd 02-08-2003 and as per letter dtd 02-07-2004, the amount of interest has not become due till date. As per clause no.2,3 and 4 of the said letter it will become due only after receiving from government at-least 90% of 95% of project cost. (45% in form of Share Capital and 50% in form of Long term Loan). We have not received the said sums till date. You may appreciate from working enclosed herewith that a sum of Rs. 5.62 Lacs is not yet received to us and hence as per extant terms of arrangement repayment of interest and principal has not fallen due. However as per Clause 3 and Clause 6 of Notification dated 02/07/2004 and a....
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....ng deduction of provisions for interest knowing fully well that it was never payable. As per provisions of section 37 of the Act, provision for unascertained liability is not allowable deduction for purposes of income tax. Further, it has been held by the Supreme Court in McDowell and Co. Ltd Vs Commercial Tax Officer (SC) 154 ITR 148 that colorable devices are not part of tax planning Tan View of the above a sum of Rs 2,42,00,000/- for AY. 2014-15 remains unexplained. Hence, an amount of Rs. 2,42,00,000/- debited to profit and loss loss account as interest on loan from the Govt. of Maharashtra as explained above and not paid to the Government is disallowed and added to the income of the assessee for the AY 2014-15." 4. After considering the replies of the assessee, the Assessing Officer completed the assessment u/s 143(3) r.w.s. 148 of the IT Act by determining total income at Rs. 4,32,92,147/-. The above assessed income includes addition on account of disallowance of interest of Rs. 2,42,00,000/- payable to Government of Maharashtra being unascertained liability u/s 37 of the IT Act & also includes disallowance on account of carried forward losses. 5. Being unsatisfied with....
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....llant has not received the said sums till date that a sum of Rs. 5.62 Laos is not yet received and hence as per extant terms of arrangement, the appellant is of the view that repayment of interest and principal has not fallen due. It is pleaded this does not mean that it would never fall due for repayment, it is further stated that as per Clause 3 and Clause 6 of Notification dated 02/07/2004 and as per prevalent accounting conventions, the appellant has consistently provided for interest on son can on the basis that interest has been accrued but not fallen due. 6.6 I have considered the submissions and it is noted that the submission was made before the AO and the AO has considered the same in para 4 of the order. The AO finds that the loan was sanctioned by Maharashtra Government between June, 1998 to March, 1999 and the appellant had been making interest provision from 198-99 onwards and thus the accumulated interest debited and not paid from FY 1998- 99 to 2013-14 was Rs. 37.60 crore. Thus, by not withdrawing an amount of Rs. 5.62 lakhs, the company had not paid the government loan. Thus, the AO noted that despite the admitted claim that neither the principal nor the l....
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....ce long and the Department also not raised any objection, however during the period under consideration the impugned addition has been made. Ld. AR further submitted that it is an admitted fact by the Assessing Officer as well as by Ld. CIT(A)/NFAC that the loan was obtained from Government of Maharashtra and obviously interest on the above loan is also payable however due to the peculiar conditions and for benefit of Cooperative Spinning Mills some relaxation was provided by Government of Maharashtra but it does not mean that the loan or interest is not payable. In support of its contentions that the loan amount as well as interest on such loan is payable to the Government of Maharashtra, Ld. AR submitted that the assessee on its own cannot wave the loan and interest received from the Government of Maharashtra since it was a bilateral consented act on behalf of both the parties. Ld. AR accordingly requested before the bench to allow deduction of interest of Rs. 2,42,00,000/- disallowed by the Assessing Officer and confirmed by Ld. CIT(A)/NFAC. 8. Ld. AR in support of its contentions that the deduction on account of provision of interest on loan amount payable to the Government ....
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....Officer has not doubted the disbursement of loan to the assessee cooperative spinning mill by the Government of Maharashtra, however at the same time the provision of interest was doubted by the Assessing Officer and it was presumed that neither interest nor loan amount was payable by the assessee cooperative society. It was also the contention of Ld. counsel of the assessee that since last many years this procedure has been followed and interest payable is provided in the books of accounts on yearly basis and the Department has also accepted the same except in one other year. It was also the contention of Ld. counsel of the assessee that the interest was provided at the rate agreed by the Government of Maharashtra in the agreement entered into by both the parties. 12. Considering the totality of the facts of the case and under the peculiar circumstances of the case, we are of the considered opinion that the loan was disbursed by the Government of Maharashtra to the assessee cooperative society under certain conditions mentioned in the agreement and agreed by both the parties and we also find that there is no quarrel that the loan was not obtained by the assessee cooperative spi....