HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 132 / 2017 Pr. Commissioner of Income Tax, Ajmer. Appellant Versus Ajmer Zila Dugdh Utpadak Sahakari Sangh Ltd., Opp. HMT, Beawar Road, Ajmer. ----Respondent For Appellant(s) : Ms. Parinitoo Jain. For Respondent(s) : HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 25/07/2017 1. By way of this appeal, appellant has challenged judgment and order of Tribunal whereby tribunal has allowed appeal of assessee. 2. counsel for appellant has framed following substantial question of law. (i) Whether Tribunal is justified in ignoring that interest payable of Rs.1,95,12,835/- to RCDF is not allowable as deduction u/s.43B(d) of Act, because this section allows interest actually paid as deduction not otherwise. (ii) Whether Tribunal is justified in ignoring findings of fact and law given in para 6.3 of CIT(A) order through which disallowance of Rs.1,95,12,835/- on account of interest payable made in assessment order has been confirmed. 3. Taking into consideration observation made by Tribunal in para no.6.2 wherein it has been held as under:- (2 of 4) [ITA-132/2017] 6.2. We have heard rival contentions, perused material available on record and gone through orders of authorities, below. AO made disallowance by observing as under:- submissions of asseessee perused and same is not acceptable for reasons that it has failed to make payment of Rs.1,95,12,835/- (23,61,083 + 1,71,51,752). assessee has not furnished any evidence in support of dispute between both parties and also failed to submit copy of Profit & Loss Account proving that income of Rs.23,61,083/- was offered in A.Y. 2009-10. Further no document in respect of unpaid interest of Rs.1,71,51,752/- was furnished regarding settlement of interest. Therefore, unpaid interest of Rs.1,95,12,835/- is disallowed and added to total income. ld. CIT (A) confirmed above finding in para 6.3 of his order as under :- 6.3. I have considered contentions of appellant as well as assessment order. It is seen that assessee has given brief details regarding dispute between Ajmer Zila Dugdh Utpadak Sahkari Sangh Ltd. (AZDUSS Ltd.) and Rajasthan Cooperative Dairy Federation (RCDF). assessee mentioned that milk plant was separated from assessee concern and transferred to RCDF in 1979 and it was again merged with assessee concern on 01.09.1991. difference in assets and liabilities could not be settled in time and assessee had no choice or right to transfer or adjust any amount without approval from State Government. funds were initially received at RCDF from NBDB. Further, assessee also claimed that amount of credit lying in name of RCDF dues is share capital amount. assessee himself has also mentioned that after obtaining approval from State Government, amount of Rs. 23,61,083/- has been credited as income in FY 2008-09 and further sum of Rs. 71,00,000/- has been credited as income in FY 2010- 11 and assessee has submitted copy of balance sheet/profit and loss account in respect of above amounts in support of this claim. From above description, it is apparent that assessee has not been able to justify creation of liability which has been shown by assessee as unpaid interest noted by AO in assessment order of Rs. 23,61,083/- and Rs. 1,71,51,752/-. Further, assessee himself has offered sum of Rs. 23,61,083/- and Rs. 71,00,000/- out of above amount as income in profit and loss account in later years. This itself shows that assessee has not been (3 of 4) [ITA-132/2017] able to justify exact nature of dispute between RCDF and assessee company has pointed by AO. So existence of liability itself has not been proved by assessee by any confirmation from corresponding party and assessee has merely pointed out to dispute between RCDF and assessee concern. Further assessee s claim that RCDF dues are for share capital amount has not been confirmed by any shares issued by assessee against it or specific amount given to it by RCDF. So this claim is also unsubstantiated. assessee has shown above amount as unpaid interest of Rs. 23,61,083/- and Rs. 1,71,51,752/- towards RCDF. RCDF is undertaking controlled by Government o Rajasthan as mentioned by assessee. It has not been shown that above interest liability is not covered by provisions of Sec. 43B(d) and (e) of I.T. Act. AO has pointed out that above interest liability remains unpaid liability of assessee about which assessee has merely claimed that this amount represents contribution towards share capital which is not supported by evidence. In view of above discussion and findings of AO, addition made by AO is confirmed and this ground of appeal is dismissed. ld. Counsel for assessee has drawn our attention to letter dated 25.08.2003 to demonstrate that amount of Rs. 87 lacs was due to Ajmer Zila Dugdh Utpadak Sahkari Sangh Ltd., Ajmer. contention of assessee is that provisions of section 43B has been wrongly applied by authorities below as these provisions would be applicable only when AO establishes that assessee has taken loan/borrowing from any public financial institution etc, some interest of relevant year is payable and in accordance with terms and conditions of related agreement. As per section 43B(d), first requirement is that any sum is payable by assessee as interest on any loan or borrowing from any public financial institution or state financial corporation or state industrial investment corporation in accordance with terms and conditions of agreement governing such loan or borrowing. In present case, AO was required to demonstrate that assessee has obtained any loan or made any borrowing from any public financial institution as defined in Explanation-4 to section 43B. As per this explanation, public financial institution shall have meaning assigned to it in section 4A of Companies Act, 1956. In our considered view RCDF does not fall within definition of public (4 of 4) [ITA-132/2017] financial institution. Therefore, we find force in contention of ld. Counsel that AO was not justified in invoking provisions of section 43B of Act. touch stone for invoking provisions of section 43B is that any sum is payable by assessee as interest on any loan or borrowing from any public financial institution or state financial corporation or state industrial investment corporation. Now first question would arise is whether RCDF is public financial institution within definition of Explanation- 4 to section 43B. said explanation has adopted same definition as given in section 4A of Companies Act, 1956. Section 4A of Companies Act, 1956 does not include RCDF in category of public financial institution. Therefore, in our considered view, AO as well as ld. CIT (A) were not justified in making addition. Thus, we direct AO to delete addition. 4. We are in complete agreement with view taken by tribunal. 5. No substantial question of law arises in appeal. appeal stands dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Mohit Grover Sr. No.37. Pr. Commissioner of Income-tax, Ajmer v. Ajmer Zila Dugdh Utpadak Sahakari Sangh Ltd