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ACIT Circle-2, Meerut Vs. The Baghpat Co-operative Sugar Mills Ltd. Baghpat Meerut
August, 10th 2015
                        DELHI BENCHES : "H" NEW DELHI


                                   ITA No: 6157/Del/2012
                                       AY : - 2007-08

              ACIT               vs.             The Baghpat Co-operative Sugar
              Circle-2,                          Mills Ltd.
              Meerut                              Baghpat
                                                 (PAN AAAT0568P)
                (Appellant)                              (Respondent)

                          Appellant by    : Shri J.P. Chandrekar, Sr. DR
                          Respondent by   :Shri P.S. Kashyap, CA

                     Date of Hearing      :29.7.2015
               Date of pronouncement      :7.8.2015



   This is an appeal filed by the revenue directed against the order of the CIT(A)

Meerut dated 4.9.2012 for the asstt. year 2007-08. The assesee is a co-operative

society   and it filed its return of income for the assessment year 2007-08 on

18.10.2007 declaring total loss at Rs. 18,48,23,232/-. The AO completed the loss of

Rs. 1,66,35,600/- disallowing the following :-

          1. Subscription to Federation      Rs. 16,29,918/-

          2. Interest to federation          Rs. 1,65,29,427/-

          3. Payment of penal interest        Rs.    3,07,922/-
                                                            ITA No.6157/Del/2012
                                         ACIT vs. The Baghpat Co-operative Sugar Mills Ltd.

2.     Aggrieved the assessee carried the matter in appeal. The first appellate

authority allowed the appeal of the assessee.      Aggrieved the revenue is in appeal

on the following grounds :-

             1. "Whether in the facts and circumstances of the case the Ld.
                Commissioner of Income Tax (Appeals) has erred in law in deleting the
                disallowance of Rs. 16,29,918/- towards subscription of UP, Co-operative
                Sugar Factories Federation Ltd. ignoring the fact that the assesee failed
                to prove the services provided by the federation for business purposes
                and the deduction was admissible under section 37 to the IT Act,1961.
             2. Whether in the facts and circumstances of the case the Ld. Commissioner
                of Income Tax (Appeals) has erred in law in deleting the disallowance of
                additional interest of Rs. 3,07,922/- paid to the Sugar Development Fund
                (Govt. Of India) 1991 ignoring the fact that the same was in the nature
                of penalty.
             3. Whether in the facts and circumstances of the case the Ld. Commissioner
                of Income Tax (Appeals) has erred in law in deleting the disallowances of
                additional interest of Rs. 1,65,29,427/- due to be paid to Shakkar Vishesh
                Nidhi (SVN) and U.P. Co-operative Sugar Factories Federation ignoring
                the fact that the same was not paid before the filing of the return of
                income and that the disallowance was covered u/s 43B (d) of the I.T.
                Act, 1961."

3.   We have heard Shri J.P. Chandrekar, Sr. DR on behalf of the revenue and Shri

P.S. Kashyap, Ld. Counsel on behalf of the assessee.

4.   On a careful consideration of the facts and circumstances of the case and

perusal of the findings on record and the orders of the authorities below we hold as


5.   Ground No. 1 of the revenue has to be dismissed by upholding para 5.3 of the

order of the Ld. CIT (A) wherein he followed his order for the assessment year

2003-04 and allowed the claim of the assessee. In fact the AO in his order

disallowed the amount by merely following his order for the assessment year 2003-

04. The department accepted the order of the first appellate authority for the

                                                            ITA No.6157/Del/2012
                                         ACIT vs. The Baghpat Co-operative Sugar Mills Ltd.

assessment year 2003--04. Under these circumstances we see reason to interfere in

the order of the first appellate authority, specifically as the subscription is allowable

u/s 37 (1) of the Act. The amount paid as subscription to federation is necessary

business expenditure. The necessity / requirement of incurring this expenditure is

explained. Hence this ground is dismissed.

6.     The second issue is disallowance of interest paid to federation. The AO

disallowed the amount on the ground that the payment of interest is outside the

purview of business of the assessee. Ld. CIT(A) gave a finding that the assessee

has taken loan from Govt. of India and UP Government, for the purpose of business,

and that this is evident from the sanctioned letters and hence the interest in

question is allowable u/s 36(1). We have seen reason to interfere in this finding of

the first appellate authority . The revenue has raised a legal argument that, the

interest in question cannot be allowed, as it is hit by the provisions of section 43B(d)

of the Act.

7.      Section 43B(d) of the Act reads as follows :-

     d)       "any sum payable by the assessee as interest on any loan or borrowing
              from any public financial institution (or a State financial corporation or
              a State industrial investment corporation), in accordance with the term
              and conditions of the agreement governing such loan or borrowing "

       As the interest in question is payable to Govt. Of India and the statement of

UP Government, section 43(B)(d) does not apply. Hence we dismiss this ground.

8.     Ground 3 is against the deletion of disallowance of additional income on the

ground that it is in the nature of penalty. In our view the first appellate authority has

rightly held that the expenditure in question i.e additional interest, is a contractual

                                                                 ITA No.6157/Del/2012
                                              ACIT vs. The Baghpat Co-operative Sugar Mills Ltd.

obligation and hence allowable as expenses. He followed his predecessor's order on

the same issue for the assessment year 2002-03 and revenue has accepted this

order. Thus we dismiss this ground of the revenue.

          In the result appeal of the revenue is dismissed.

          Order pronounced in the open court on 7th August, 2015.

                    sd/-                                         sd/-
            (G.C. GUPTA)                             (J. SUDHAKAR REDDY)
          VICE PRESIDENT                             ACCOUNTANT MEMBER
Dated: the    7. 8. 2015

Copy of the Order forwarded to:

1.    Appellant
2.    Respondent
3.    CIT
4.    CIT(A)
5.    DR
6.    Guard File                              By order
                                                         Dy. Registrar

Sl.                    Description                        Date

 1.   Date of dictation by the Author                    4.8.2015

 2.   Draft placed before the Dictating Member           5.8.2015

 3.   Draft placed before the Second Member

 4.   Draft approved by the Second Member

 5.   Date of approved order comes to the Sr. PS

 6.   Date of pronouncement of order

 7.   Date of file sent to the Bench Clerk

 8.   Date on which file goes to the Head Clerk

 9.   Date of dispatch of order

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