BHUNA COOP. SUGAR MILLS LTD.versusCOMMISSIONER OF INCOME TAX, ROHTAK AND ANR.

                  BHUNA COOP. SUGAR MILLS LTD.                                  A
                                     v.
      COMMISSIONER OF INCOME TAX, ROHTAK AND ANR.

                           FEBRUARY 11, 2005

              [N. SANTOSH HEGDE AND S.B. SINHA, H.]                             B


      Income Tax Act, 1961-Sections 43B, 141(1) (A) & 143(1) (a)-AYs
1992-93 and 1993-94-Appellant-assesseejiled returns claiming loss-While
computing the loss, it sought for deduction of interest payable to creditors-   C
Claim disallowed by both Tribunal and the High Court-On appeal, held:
both the courts erred in not giving opportunity to assessee to establish its
case-Matter therefore remanded to Tribunal.

      Appellant-assessee, a cooperative sugar mill filed returns of income
declaring loss. While computing the loss, assessee sought for deduction of      D
the interest payable to the creditors and debited in the profit and loss
account. Assessing Officer while processing the returns under Section
143(l)(a) disallowed the deduction claimed by assessee and also imposed
penal additional tax. The order of Assessing authority was set aside by
the Appellate Commissioner but restored by the Appellate Tribunal. Writ         B
petitions and appeals challenging the order of Tribunal were dismissed
by High Court. Hence the present appeals.
                      ',
      The assessee contended 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 438, and that the Tribunal as well       p
as the High Court on an erroneous appreciation of fact and without giving
an opportunity to the assessee to establish its case came to the conclusion
that the money borrowed by the assessee was from the institutions
enumerated in Section 43B(d), and disallowed the deduction.

    Allowing the appeals and remanding the matter to the Tr-ibunal, the         G
Court

     HELD : 1. There was some confusion in the mind of the Tribunal
when it proceeded to consider the case of the assessee for deduction on a
ground that the loan in question was taken from HFC which is a Bank             H.'
                                     83
    84                    SUPREME COURT REPORTS                   [2005] 2 S.C.R.

A contemplated under Section 43B(d) and since the assessee 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 438,
    in the interest of justice, an opportunity should be given to the assessee to
    prove its case. (86-E-FJ

B        2. Since the Tribunal or the High Court have not taken into
    consideration the contention of the assessee in regard to the liability to
    pay additional tax under section 141(l)(A) of the Act, an opportunity
    should be given to the assessee to argue its case on this issue also. 186-F~

C         Commissioner of Income Tax, Bhopal v. Hindustan Elector Graphites
    Ltd, Indore, (2000) 3 SCC 595 and Asstt. Commissioner of Income Tax, New
    Delhi v. J.K. Synthetics Ltd. etc., (2003) 10 SCC 623, referred to.

         CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1100-l IO I
    of 2005.
D
         From the Ju.dginenf and Order dated 19.9.2003 of t.he Punjab and
    Haryaria High Court in LT.A. No. 80/2002 and C.W.P. No. 6372 of 2002.

                                       WITH

E        C.A. Nos. 1116-1117 of2005.

          Anoop Choudhary, S.P. Singh, Amit Veer Singh and D. Mahesh Babu
    for the Appellant.

         M.L. Verma, Arijit Prasad, Preetesh Kapoor and B.V. Balaram Das for
F   the Respondents.

         The Judgment of the Court was delivered by

         SANTOSH HEGDE, J. The appellant, a cooperative sugar Mill, filed
  its return of income for the assessment year 1992-93 declating a loss of Rs.
O 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 proce~sed the returns filed by the appellant under
B
             BHUNA COOP. SUGAR MILLS LTD. v. C.l.T. [HEGDE . .I.]                 85

    section 143(1)(a) of the Income Tax Act (the Act) and disallowed the deduction       A
    of Rs. l ,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
                                                                                         B
-   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
                                                                                         C


    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         D
    deduction of interest payable on the loans taken by it from bodies other than
    the financial institutions as provided under Section 438 of the Act. Learned
    counsel sub.mitted that the tribunal as well as the High Court on an erroneou·s
    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             E
    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
    Joan from Haryana Financial Corporation. On the contrary, the loans taken            F
    by it were all from IFCI, IDBI, ICICI and Harcoo Bank and under the act
    interest payable to these banks are entitled to 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       G
    had succeeded before the Commissioner of Income Tax (Appeals) on other
    grounds there was no need for it to ha,ve 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(l)(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            H
    86                     SUPREME COURT REPORTS                     [2005] 2 S.C.R.

A   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.

B          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 438 of the Act, therefore unless the appellant proves that such interest
    had actually been paid, it was not entitled to claim deduction on interest
C   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 438. Therefore, the
D   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(I)(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
E   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 438, in the interest of justice we think an
F   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 l4l(l)(A) of the Act, an opportunity should be given to the
    appellant to argue its case on this issue also.

G          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 Asst!. Commissioner of Income Tax, New Delhi v. J.K.Synthetics Ltd
H   etc:, [2003] IO sec 623.
             BHUNA COOP. SUGAR MILLS LTD. v. C. l.T. IHEGDE, J.]               87

          In the view of the fact that we are remanding the matter to the tribunal A
    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   B
    of the High Court in appeals and writ petitions are set aside.

         Ordered accordingly.

    B.B.B.                                                      Appeals allowed.




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