TaxTMI 
TaxTMI 
2019 (5) TMI 615
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....he addition of Rs. 32,40,830/- in assessment year 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 ....
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....ty of expenditure, judgments cited by the assessee do not apply to the instant case. In case of Telelink Neco Ltd., (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 tr....
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....fore, the term 'any sum payable' used in section 43B(e), was emphasized to be understood for the purpose of said clause (e) in pure commercial and accounting 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 tim....
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....ich were to be allowed only on actual payment whether expenses accrued or arose during the year. She distinguished the judicial authorities with comfortable ease on one or the other pretext. Finally, in para 16, she held that since no interest 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....
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....paid during the year, but it was not clear as to whether the said amount had become payable during the year itself in accordance with the terms and conditions of the agreement. Therefore, the disallowance made u/s. 143(1) was held to be not sustainable. vi) However, in the case of Telelink (supra), 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., a....
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....antile system of accountancy, it had to debit the interest on accrual basis to his P&.L account. Under such circumstances and the language of clause (d) of sec 43B, no disallowance was called for. ix) What emerges clear from the above findings of Calcutta Bench is that in any case, unless the interest becomes payable in accordance 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....
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....ncurred" according to the method of accounting, the sum would be treated as "paid". (Copy of Judgment is enclosed at page 37-44 of paper book). xii) Also, in the case of CIT Vs Modern Spinners Ltd., (2016) 382 ITR 472(SC), the Hon'ble Supreme Court, dismissing the revenue's appeal, affirmed the following decision of Hon'ble Delhi High Court: "Even if the amount of loan was not paid by the Assessee 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....
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....nowledged and agreed to be met arises in the year it is stated to be so incurred and met."To arrive at this conclusion, the Hon'ble Court relied on the Apex Court decisions in Bharat Earth Movers vs CIT, Metail Box Co of India Ltd vs Workmen and Calcutta Co Ltd vs. CIT (1959) 37 ITR 1. CONTENTIONS OF LD.SR.DR AND DECISIONS RELIED UPON BEFORE THE HON'BLE BENCH whether relevant ? Section 43D of the Income Tax Act, is again a special provision, which provides 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/do....
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.... the interest was debited in the books of accounts maintained on mercantile basis would not mean that the interest had become due and accrued because admittedly the interest liability would become due not during the relevant previous year but only for the first time on 18th Nov., 1996. Thus, interest cannot be said to have accrued to become due and payable in the relevant previous year. The concept of debiting the books maintained on mercantile basis is on the principle that the payment has become due and payable and 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 t....
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....ourt in the case of Vinir Engineering P Ltd vs. DCIT (2009) 313 ITR 154 (Kar) had held that 'conversion of outstanding interest into a fresh loan during the relevant assessment year must be treated as deemed payment of interest, allowable u/s.43B. This decision, thus dilutes the effect of the Board Circular. The Hon'ble Kolkata High Court in the case of CIT Vs. National Standard Duncan Ltd (2003) 260 ITR 97(Mad) held that where the Bombay Sales Tax Act 1959 and the rules thereunder allows the assessee to set-off sales tax paid on the purchase of raw 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....
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....in dispute that the said interest was not paid by the assessee till the date of furnishing of return u/s 139(1) of the Act. 9. On the above undisputed fact, the Assessing Officer has added back Rs. 32,47,463/- in assessment year 2013-14, Rs. 24,95,755/- for the assessment 2012-13 and Rs. 36,62,148/- in assessment year 2014-15 to the income of the assessee while computing its business income by invoking provisions of Section 43B(e) of the Act. 10. On appeal, the CIT(A) confirmed the action of the AO. 11. The AR of the assessee submitted that all its loans with State Bank of Patiala were classified as NPA by the bank. Interest of 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 b....