AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 615
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....ar 2013-14, Rs. 24,95,755/- in assessment years 2012-13 and Rs. 36,62,148/- in assessment years 2014- 15. 4. The brief facts are that in the assessment year 2013-14, the Assessing Officer observed that the assessee has debited interest of Rs. 32,47,463/- paid to State Bank of Patiala. Since, the assessee had not paid the interest during the financial year, therefore, he disallowed the deduction for the same by invoking the provisions of Section 43B(e) of the Income Tax Act, 1961. Similarly, the claim for interest paid to State Bank of Patiala of Rs. 24,95,755/- in assessment year 2012-13 and Rs. 36,99,103/- in assessment year 2014-15 was disallowed by the AO. 5. The assessee carried the matter is in appeal before the CIT(A) who confirmed the action of the AO and observed as under: "7. Assessee has filed return claiming a loss of Rs. 12,47,782/- after debiting interest of Rs. 32,47,463/- as his business expenditure. Assessing Officer allowed interest expenditure of Rs. 6,333/- paid to Axis Bank. But Assessing Officer disallowed an amount of Rs. 32,40,830/- u/s 43B since it was not paid by the assessee during the previous year. 8. Aggrieved over this disallowance assessee is ....
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...., (2001) 73 TTJ 28, adjustment had been made u/s/143(1)(a). ICICI bank had entered into an agreement with the assessee and had deferred interest on loans given to assessee. No such agreement or deferment of interest has been brought on record or pleaded by the assessee. Similarly in case of Neo Pipes and Tubes Co Ltd, the adjustment was u/s 143(1)(a), which is not the case in the instant appeal. In other cases cited by assessee, provisions of sec 43B of the IT Act are not the subject matter, and therefore are of no help to the assessee. 15. Allowability of expenditure under the IT Act, is distinct from the provisions of sec 43B. Certain deductions which are expressly allowable under other provisions of the Act will be allowed u/s 43B only on payment. This is irrespective of whether liability to pay these sums was accrued during the previous year. 16. There is no question over the fact that interest has not been paid by the assessee to State Bank of Patiala. All accounts including car loan, two term loans, cash credit, and medium term loans have been treated as NPA by the bank. In fact, letter of manager of State Bank of Patiala indicates that it has not even applied interest on....
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.... sense. Payability implies a right on the part of the condition of enforcing the payment and also of recourse to legal action as considered necessary. Even under banking norms, whenever the amount of interest is debited to the account of the loanee party, the interest is treated as payable by the loanee party. Therefore, when the bank had not debited the interest to assessee's account, but kept in a suspense account on accrued basis, the same had not become payable. A bank certificate to this effect was also placed before the AO/CIT(A) (page No.26 of paper book). The assessee placed wholesome reliance on the decision of ITAT E-Bench, Kolkatta in the case of Deputy CIT Vs. Tele link Nieco Ltd. (2001) 73 TTJ 28 (Cal). Though it dealt with clause (d) of sec 43B, being akin to clause(e), it was directly relevant to this case. In para 9.01, the Bench held as under:- "Accrual of Liability and payability of such Liability are two different events. The accrual of liability normally precedes in point of time the discharge of such liability. The crux of Sec 43B is that deduction is to be allowed on the basis of discharge of liability by way of payment and not the basis of accrual. Th....
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....est had been paid to the bank, it was disallowable, with a window given to assessee under explanation 3(d) to sec 43B to claim it when actually paid. SUBMISSIONS BEFORE THE BENCH i) It is undisputed that no interest had been charged by the Bank in the loan account of assessee but kept in a suspense account. Obviously therefore, it had accrued but not become payable. Unless it becomes payable, it cannot be paid, and for that matter, it cannot be disallowed u/s.43B(e), and its claim as an expense on accrued basis, following mercantile system of accounting, cannot be disallowed. ii) As held by the ITAT Bench of Calcutta in the case of Telelink (supra), "Accrual of Liability and payability of such Liability are two different events. The accrual of liability normally precedes in point of time the discharge of such liability. The crux of Sec 43B is that deduction is to be allowed on the basis of discharge of liability by way of payment and not the basis of accrual. The Explanation "2" to Sec 43B. which has the effect of synchronizing the accrual of liability with playability of such liability is confined to only clause (a) of section 43B which deals with payment of tax, duty, ces....
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....a), out of the interest payable for the period 1st Nov., 1987, to 30th April, 1988, the assessee could not pay Rs. 62,63,542 due to financial stringency. Out of the total interest payable of Rs. 1,61,67,796 for the period 1st May, 1988, to 31st March, 1989, the assessee-company capitalized Rs. 34,88,666 and debited Rs. 1,26,79,130 in the P&L a/c. This amount was also not paid due to shortage of funds. The assessee-company however, preferred the request before 31st March, 1989, to the financial institutions to defer the payment of the concerned interest. The ICICI Ltd. agreed to defer the collection of interest and other charges falling due upto 20th June, 1989, subject to the consideration that the deferred interest will be repayable in equal quarterly installments commencing from 15th May, 1990. The said order deferring the payment of interest was issued on 12th July, 1989, i.e., after the completion of the accounting period. The assessee contended that the as per the cl. (d) of s. 43B whether any sum was payable as interest on any loan or borrowing from any public financial institution should be determined in accordance with the terms and conditions of the agreement governing suc....
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....cordance with the agreement governing such loan, it would not invite disallowance u/s.43B(d) of the Act ibid. x) Before the authorities below, the assessee also drew support from the decision of Hon'ble Supreme Court in the case of "M/S Bharat Earth Movers Vs Commissioner of Income Tax (2000) 245 ITR 428 ISCL In para 4 of this order, their Lordships held that:- "The law is settled that if a business liability has definitely arisen in the accounting year, the deduction should be allowed, although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain." Further, in para 5 of the said order, the Hon'ble Apex Court also reiterated the following principles as were laid down in the case of M/S Metal Box Company L....
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....e as per the agreement, the liability could not cease to exist that the bilateral consented action on behalf of the pa/ties was binding in terms of the agreement, and that therefore, the interest liability was not a contingent liability but an ascertained liability". (Copy of Judgment is enclosed at page 37-44 of paper book). xiii) In the case of CIT vs. Hindustan Construction Co. Ltd (2015) 374 ITR 101(Bom), the assessee had availed loan on December 26, 2002 for one year and it was payable with interest. However, on accrued basis, the interest upto 31.3.2001, had been charged to P&L but not paid. On disallowance made u/s.43B, the Tribunal found that there was no question of sec 43B being invoked and at the stage when the interest not payable. The loan itself was availed of on 26.12.2002 for one year and it was payable with interest. Hence, the question of relying on sec 43B to disallow the claim did not arise. On appeal, the Hon'ble High Court held that "(ii) That by plain language of the provisions of section 43B and given the factual and admitted position, the Tribunal had not erred in the view that that it had taken. The view taken was neither perverse nor vitiated by a....
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....ovides that in the case of a Public Financial Institution or a Scheduled Bank, the income by way of interest in relation to prescribed categories of bad or doubtful debts, having regard to the guidelines issued by the RBI in relation to such debts, shall be chargeable to tax in the previous year in which it is credited by the Public Financial Institution or the scheduled bank, to its profit & loss account for that year, or as the case may be in which it is actually received, whichever is earlier. This provision, if seen in close focus, rather lends supports to assessee's stand point that when the Bank itself is not to charge the interest to its P&L account in view of RBI guidelines in respect of such bad/doubtful debts, how it would become payable for assessee to pay the same in the said year. It would become payable only in the year, when it is either credited to P&L a/c or received by the bank, whichever is earlier. Hence, when the interest had not become payable, its claim on accrued basis could not be disallowed u/s.43B(e) of the Act ibid merely because it was unpaid. 1. Dy.CIT 4(1) Chandigarh vs. M/s Glaxo Smithkline Concumser Healthcare Ltd, Nabha (Spl Bench, ITAT Chand....
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.... since it has become payable it is therefore debited in the books of accounts. Admittedly, in the present case the interest was not due and payable from the relevant previous year. It is in the backdrop of this find that the Hon'ble Court further held that the provision of sec. 43B(d) directly and categorically disentitles the assessee company to claim benefit of interest deduction because with respect to interest due and payable to a financial institution such as the IFCI till the interest is actually paid, the same cannot be allowed as a deduction. With due respect, the initial findings of the Hon'ble Court to the effect that interest cannot be said to have accrued to become due and payable in the relevant previous year even when the accounts are maintained on mercantile basis, is not consistent with the law laid down bv Hon'bie Supreme Court in series of cases cited above i.e. Bharat Earth Movers vs CIT, Metail Box Co of India Ltd vs Workmen, Calcutta Co Ltd vs. CIT (1959) 37 ITR 1 and Taparia Tools Ltd. Vs Joint CIT. Therefore, this decision of Hon'ble Delhi High Court, even while holding that the deduction was not allowable u/s.43B(d), being per incuriam, whe....
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....w material used for the finished products, then such assessee would be entitled to set off or adjustment of its liability to pay sales tax payable on the sale of such finished products, availing such set off by the assessee should be treated as actual payment of sales tax liability for Section 43B purposes. Hon'ble P&H High Court, in the case of CIT vs. Maha Luxmi Bricks Mfg. Moulding & Fabricating Inds (P) Ltd (2005) 273 ITR 190(P&H), following the decision of Gujrat High Court in CIT vs Bhagwati Autocast Ltd (2002) 261 ITR 481(Guj), also held that where under the 'deferred payment scheme' formulated by the State Government, assessee was allowed to retain the amount of sales tax collected by it and the payment was to be made after certain number of years and the assessee was not required to make payment under the relevant sales tax law, the department shall treat the sales tax as actually paid for all purposes and benefit given u/s.43B can be claimed by assessee. The Hon'ble Jharkhand High Court in CIT Vs. Shakti Spring Industries (P) Ltd. (2013) 84 CCH 0293, in the context of interest payment u/s 43B(d), held that even book adjustments constitute "actual payme....
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.... Rs. 32,47,463/- in assessment year 2013-14, Rs. 24,95,755/- in assessment year 2012-13 and Rs. 36,62,148/- in assessment year 2014-15 relates to these NPA accounts. The bank has not accounted for these interests as its income and has not applied these interests in the accounts of the assessee maintained by the bank in its books of account. As the bank has not applied these interests in their books and has not shown the said amount as receivable from the assessee, the contention of the assessee is that therefore, the amounts were not due or payable by the assessee and accordingly provisions of Section 43B(e) of the Act is not applicable in its case. 12. On the other hand, the ld. DR supported the orders of the lower authorities. 13. We find that in spite of the fact that the Bank has not shown amount of interest in question as receivable from the assessee, the assessee claimed the said amount as its business income of the period under consideration. The assessee has claimed because as per the terms of loan agreement, the said interest accrued. As per the very same loan agreement with the Bank, the amount also become due or payable by the assessee. The payability or amount becomin....