The Mumbai bench of Income Tax Appellate Tribunal ( ITAT ) held that no disallowance shall be made on interest expense claimed in respect of ST RRB Credit Refinance Fund of National Bank for Agriculture & Rural Development.
The Assessee National Bank for Agriculture & Rural Development is engaged in development of agricultural and rural activities throughout the Country. Its business consisted of providing and regulating credit to agricultural and rural areas, providing grants, subsidies and other facilities for the promotion and development of agriculture, small scale industries, cottage and village industries, rural infrastructure, handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promote rural development in an integrated way.
The AO during the assessment proceedings of assessment years 2014-15 and 2015-16 made disallowance of interest expense claimed in respect of ST RRB Credit Refinance Fund.
Aggrieved by the order the assessee filed an appeal before the CIT(A) who allowed the appeal. Therefore the revenue filed another appeal before the tribunal.
Jehangir D. Mistry, the counsel for assessee submitted that the facts relating to ST RRB Credit Refinance Fund is identical with the facts relating to RIDF & STCRCF funds, i.e., the assessee is acting as nodal agency only in respect of this fund and holding the same in fiduciary capacity on behalf of Government of India.
Accordingly, he submitted that the interest income attributable to the said fund gets diverted at source. Accordingly, the decision rendered in respect of RIDF & STCRCF funds will equally apply to ST RRB Credit Refinance Fund.
S. Srinivasu,counsel for revenue supported the order of assessing officer submitted that the assessee is only trustee of funds and cannot bind the revenue.
It was viewed by the tribunal from the assessment order passed for AY 2014-15, the assessing officer has also clubbed the RIDF, STCRCF and ST RRB Credit Refinance Fund for making disallowance of interest expenditure claimed by the assessee, i.e., the AO has given identical reasoning for making disallowance for all the three funds.
Hence while considering the decision related to RIDF and STCRCF funds, the tribunal pointed out that said reasoning would equally apply to ST RRB Credit Refinance Fund also,i.e “the interest income attributable to RIDF and STCRCF funds would get diverted at the source itself”
After reviewing the facts the ITAT bench of Justice (Retd.) C.V. Bhadang, (President) and B.R. Baskaran,(Accountant Member) held that no disallowance shall be made on interest expense claimed in respect of ST RRB Credit Refinance Fund of National Bank for Agriculture & Rural Development.
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