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CASE NO.: Appeal (civil)  1100-1101 of 2005

PETITIONER: Bhuna Coop. Sugar Mills Ltd.                                     

RESPONDENT: Commissioner of Income Tax,Rohtak & Anr.         

DATE OF JUDGMENT: 11/02/2005

BENCH: N.Santosh Hegde & S.B.Sinha   

JUDGMENT: J U D G M E N T (Arising out of SLP ) Nos.1659-1660 of 2004) (With C.A.Nos. 1116-1117/05 @ SLP)No.3154-55 of 2004)

SANTOSH HEGDE,J.

The appellant, a cooperative sugar Mill, filed its return of  income for the assessment year 1992-93 declaring a loss of  Rs.6,95,63,045.72. While computing the said loss the appellant  declared in its return a sum of Rs.1,48,38,263.88 as interest which  had accrued for the relevant assessment year which was payable to  the creditors and had been debited in the profit and loss account,  hence, sought for its deduction. A return claiming similar losses  were also filed for the Assessment Year 1993-94. The assessing  officer processed the returns filed by the appellant under section  143(1)(a) of the Income Tax Act (the Act) and disallowed the  deduction of Rs.1,48,38,263.88 claimed by the appellant on  account of interest payable to the creditors. He also imposed a  penal additional tax of Rs.11,62,502 under section 143(1)(a) of the  Act. Being aggrieved by the said order of assessment the appellant  preferred an appeal before the Commissioner of Income Tax  (Appeals), Rohtak. The said appeal filed by the appellant came to  be allowed. The said order of the Appellate Commissioner was  challenged by the Revenue before the Income Tax Appellate  Tribunal, Delhi, which allowed the appeal of the tribunal setting  aside the order of the Appellate Commissioner. It restored the  order of the assessing authority. Consequent to the said order of the  tribunal the appellant also received a demand notice directing it to  deposit the additional tax imposed. The appellant challenged the  order of the tribunal as well as the demand notice in regard to the  additional tax payable by way of appeals and writ petitions which  came to be dismissed by the impugned order of the High Court,  hence, the appellant is before us in these appeals. The main contention of the appellant herein is that it is  entitled to deduction of interest payable on the loans taken by it  from bodies other than the financial institutions as provided under  Section 43B of the Act. Learned counsel submitted that the  tribunal as well as the High Court on an erroneous appreciation of  fact and without giving an opportunity to the appellant to establish  its case came to the conclusion that the money borrowed by the  appellant, was from the institutions enumerated in Section 43B(d),  hence, disallowed the deduction. In support of this contention  learned counsel pointed out from the order of the tribunal that it  had noted that the loan taken by the appellant was from Haryana  Financial Corporation (HFC) which according to the appellant is  wholly incorrect and the appellant had not taken any such loan  from Haryana Financial Corporation. On the contrary, the loans  taken by it were all from IFCI, IDBI, ICICI and Harcoo Bank and  under the act interest payable to these banks are entitled to

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deduction. It was contended that clause (e) of Section 43B will  have no application as the said provision was introduced by the  Finance (No) 2 Act, 1996 with effect from 1.4.1997. Learned  counsel for the appellant also argued that in view of the fact that it  had succeeded before the Commissioner of Income Tax (Appeals)  on other grounds there was no need for it to have challenged the  levy of additional tax. Learned counsel also argued that the  appellant had specifically raised a ground as to the non  applicability of section 141(1)(A) and the consequent demand  made for payment of additional tax, but the High Court without  dealing with this objection of the appellant proceeding to agree  with the tribunal without properly considering the material  available before it as to the entitlement of the appellant for  deduction of interest payable. It is also contended that the High  Court did not apply its mind as to the liability of the appellant to  pay the additional tax and proceeded to dismiss its appeals and  petition without considering all aspects of the case.  Learned counsel for the Revenue submitted that the  appellant had not produced any material to show that the institution  from which it had taken loans were institutions other than those  enumerated in sub-section (d) of section 43B of the Act, therefore  unless the appellant proves that such interest had actually been  paid, it was not entitled to claim deduction on interest which is  only payable. It was further submitted on behalf of the Revenue  that though a factual error was made by the tribunal in noting that  the loan taken was from HFC it had really not affected the legality  of the order of the tribunal because the appellant had failed to  establish that the institutions from which it had taken the loan are  those which would not fall within the institutions mentioned in  sub-section (d) of section 43B. Therefore, the authorities below  were justified in rejecting the prayer of the appellant for deduction  of interest as also were justified in levying the additional tax under  section 141(1)(A) of the Act. Having heard learned counsel and having perused the  records we think there was some confusion in the mind of the  tribunal when it proceeded to consider the case of the appellant for  deduction on a ground that the loan in question  was taken from  HFC which is a Bank contemplated under Section 43B(d) and  since the appellant contends that it has material to show that the  loan taken by it and the interest payable to institutions which  would not fall within sub-section (d) of section 43B, in the interest  of justice we think an opportunity should be given to the appellant  to prove its case. We also think that since the tribunal or the High  Court have not taken into consideration the contention of the  appellant in regard to the liability to pay additional tax under  section 141(1)(A) of the Act, an opportunity should be given to the  appellant to argue its case on this issue also.  We may note herein that learned counsel for the appellant  relied on a judgment of this Court in the case of Commissioner of  Income Tax, Bhopal v. Hindustan Elector Graphites Ltd., Indore  (2000 (3) SCC 595) while the learned counsel for the Revenue  relied on a judgment of this Court in the case of Asstt.  Commissioner of Income Tax, New Delhi vs. J.K.Synthetics Ltd.  etc. (2003 (10) SCC 623). In the view of the fact that we are remanding the matter to  the tribunal we do not think that we should express any view as to  the applicability of these judgments. We leave it to the tribunal to  consider the same. For the reasons stated above, these appeals succeed, the  matters are remanded to the Income Tax Appellate Tribunal, Delhi  Bench ’E’, New Delhi or its successor. The impugned orders of the  tribunal in appeal and that of the High Court in appeals and writ  petitions are set aside. Ordered accordingly.                         

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