2021 (9) TMI 455 - AT - Income Tax

ITAT Delhi rules in favor of Assessee on bank interest disallowance under section 43B

The ITAT Delhi allowed the appeal of the Assessee, ruling that the disallowance of bank interest under section 43B of the Income Tax Act was unwarranted. ... Disallowance u/s 43B - Addition on account of bank interest - interest on CC limit - as submitted that the amount of pre-structured term loan was paid out of Cash credit limit (CC account) and therefore interest on pre-structured term loan should be treated as being actually paid - HELD THAT:- As submission of the Ld AR that bank has charged interest on term loan on month to month basis and the same has been recovered by debiting it to the cash credit (CC) account of the assessee. AR has also contended that the amounts of credits (deposits) in the cash credit account are much more than the amount of interest debited by bank. The aforesaid contentions of the AR have not been controverted by Revenue nor has it been found to be untrue. In the case of CIT vs. Shreekant Phumbhra [2016 (11) TMI 796 - CALCUTTA HIGH COURT] CIT(A) had decided the issue in favour of the assessee by holding that the interest accrued on month to month basis had been paid on month to month basis as the deposit of each month was much more than the corresponding interest debited in respective month and as such no part of such interest remained which could be said to have been converted into any loan or advance as on the close of the previous year so as to be deemed not actually paid. The order of CIT(A) was held by Tribunal and upheld by Hon’ble Calcutta High Court.AO was not justified in disallowing the expenses u/s 43B - Decided in favour of assessee. Issues:1. Disallowance of bank interest under section 43B of the Income Tax Act.Analysis:The appeal before the Appellate Tribunal ITAT Delhi pertained to the disallowance of bank interest by the Assessing Officer (AO) under section 43B of the Income Tax Act for the Assessment Year 2014-15. The Assessee, a company engaged in the business of manufacturing food items, bottling beverages, and drinking water, had filed its return of income declaring a loss of Rs. 5,71,06,719. The AO determined the total loss at Rs. 46,41,990, which was contested by the Assessee before the Commissioner of Income Tax (A) and subsequently before the ITAT Delhi. The main issue raised by the Assessee was the disallowance of Rs. 5,23,64,733 made by the AO on account of bank interest under section 43B of the Act.The AO disallowed the interest payable on loans from Allahabad Bank as the interest is allowable as a deduction only on a payment basis as per Section 43B(e) of the Act. The Assessee contended that the interest on pre-structured term loans and cash credit limit had been paid before the filing of the income tax return. The Assessee argued that the interest on term loans was paid by debiting the cash credit account, and the amounts of credits in the account exceeded the interest debited by the bank. The Assessee also highlighted that the bank had reclassified different loans under various heads, and it was not a case of converting bank interest into a loan account but restructuring the limits under different heads.The ITAT Delhi, after considering the submissions and precedents, held that the interest amount had actually been paid by the Assessee through the cash credit account and that the interest had not been converted into a loan or advance. The Tribunal referred to similar cases where interest accrued on a monthly basis had been paid on a monthly basis, and the deposits in the account were more than the corresponding interest debited. The ITAT Delhi found that the AO was not justified in disallowing the expenses under section 43B of the Act and set aside the order of the AO, allowing the Assessee's appeal.In conclusion, the ITAT Delhi allowed the appeal of the Assessee, emphasizing that the interest on term loans paid through the cash credit account constituted actual payment of interest, and the disallowance under section 43B of the Act was unwarranted based on the facts and legal precedents cited.