Is disallowance made by the A.O. on account of interest liability to GoI covered under the provisions of section 43B?

This appeal concerns whether the disallowance of interest owed to the Government of India by Tungabhadra Steel Products Ltd. is covered by Section 43B of the Income Tax Act. The Assessing Officer disallowed the claim, arguing the company, declared sick, had no intention to pay. The CIT(Appeals) deleted this addition, finding the disallowance was not made under Section 43B. The Tribunal considered a similar issue from a previous assessment year.

IN THE INCOME TAX APPELLATE TRIBUNAL
“B” BENCH : BANGALORE

BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER

ITA No.259/Bang/2018
Assessment year: 2008-09

The Assistant Commissioner of
Income Tax,
Circle 1,
Bellary.
PAN: AAACT 8126H
APPELLANT 

Vs. 

Tungabhadra Steel Products Ltd.,
Tungabhadra Dam,
Hospet – 583 225.
Karnataka.
RESPONDENT

Appellant by : Shri Muzaffar Hussain, CIT(DR)(ITAT), Bengaluru.
Respondent by : None

Date of hearing : 07.07.2021
Date of Pronouncement : 12.07.2021

O R D E R

Per Chandra Poojari, Accountant Member

 This appeal by the revenue is directed against the order of the CIT(Appeals), Gulbarga dated 29.11.2017 for the assessment year 2008-09.

2. None appeared for the assessee-respondent at the time of hearing. However, we proceed to dispose of the appeal after perusing the material on record and hearing the ld. DR.

3. The revenue has raised the following grounds:-

“1. The order of the learned Commissioner of Income-tax (Appeals) is opposed to law and facts of the case. 

2. In the facts and circumstances of the case, the ld. CIT(A), has erred in directing to allow the claim of the assessee company on account of interest provisions on loan obtained from Govt. of India ignoring the fact that the assessee company itself has worked out such liability on provisional basis.

3. In the facts and circumstances of the case, the Id. CIT(A), has erred in holding that disallowance made by the A.O. on account of interest liability to Govt. of India is not accordance with the law ignoring the fact that the assessee company has been declared as sick company since 04.08.2005 and has filed application under BIFR and thus, there is no intention of the assessee company to pay interest to Govt. of India debited to the profit and loss account.

4. In the facts and circumstances of the case, the Id. CIT(A), has erred in directing to allow the claim of the assessee company on account of interest due on loan obtained from Govt. of India ignoring the fact that the assessee company has not paid any interest to the Govt. of India since long time.

5. In the facts and circumstances of the case, the Id. CIT(A), has erred in holding that disallowance made by the A.O. on account of interest liability to Govt. of India is not covered under the provisions of section 43B of the Act ignoring the fact that the Assessing Officer has not invoked the provisions section 43B of the Act while disallowing the claim of assessee on account of interest provisions on loan obtained from Govt. of India.”

4. We have heard both the parties and considered the material on record. Similar issue came up for consideration in assessee’s own case for the AY 2006-07 in ITA No.984/Bang/2017 before the Tribunal and vide order dated 27.10.2017 the Tribunal observed as follows -

“We have heard the learned Departmental Representative and considered the relevant material on record. The assessee company has not paid interest towards the Govt. of India loan of Rs.12,71,90,551 but has debited the same on provisional basis. The Assessing Officer disallowed the interest on the ground that the assessee had no intention to pay interest liability to Govt. of India and further when the interest was not actually paid then as per the provisions of Section 43B, the same is not allowable. On appeal, the CIT (Appeals) has deleted the addition made by the Assessing Officer in para 4.1.1 as under : 

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