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2016 (12) TMI 1839 - AT - Income TaxDisallowance u/s 43B - disallowance of interest claimed on OD/CC Account u/s 43B(d)/(e) r.w. Explanation 3D - CIT-A deleted the addition - HELD THAT - Tribunal repelled the said plea by interpreting Section 43B and held that overdraft/cash credit accounts are not similar to loan accounts. Tribunal further observed that the interest amount has been actually paid by the assessee through Overdraft/Cash Credit account and, therefore, set aside the disallowance made u/s 43B. A bare reading of Explanations 3C and 3D to Section 43B provides an answer to the problem by making it clear that where interest amount has not been converted into loan or borrowing (or) loan or advance, as the case may be, there is no question of denying the benefit of deduction. In the case on hand, the interest amount has been actually paid by the assessee through Overdraft/Cash Credit account and the same has not been converted into loan or borrowing (or) loan or advance, as the case may be. These appeals are dismissed by answering the question of law against the Revenue and in favour of the assessee
Issues:
1. Interpretation of section 43B of the Income-tax Act regarding the deduction of interest payable. 2. Disallowance of interest claimed on OD/CC Account under section 43B(d)/(e) r.w. Explanation 3D. 3. Assessment of closing balance in the OD account and its implications. 4. Requirement of furnishing documentary evidence to support the claim of interest payment. Issue 1: Interpretation of section 43B of the Income-tax Act regarding the deduction of interest payable: The appeal by the Revenue was directed against the order of the Ld. Commissioner of Income-tax (Appeals) for Assessment Year 2011-12. The primary contention was the interpretation of Explanation 3D to clause (e) of section 43B, which states that a deduction on interest payable shall be allowed only if the interest has been actually paid. The appellant argued that the interest payments were made during the year, thus disallowance under section 43B(d)/(e) was not applicable. The AO disallowed the interest, prompting the appeal before the ITAT Mumbai. Issue 2: Disallowance of interest claimed on OD/CC Account under section 43B(d)/(e) r.w. Explanation 3D: The AO disallowed the interest claimed on the OD/CC Account by the assessee under section 43B(d)/(e) r.w. Explanation 3D. The appellant contended that the deposits in the CC account justified the interest and principal payments. The AO observed an increased debit balance in the CC Account but failed to consider that the balance was within the OD limit provided by the bank. The ITAT, considering the facts and decisions cited, deleted the addition made by the AO, emphasizing that the interest was paid and not converted into a loan. Issue 3: Assessment of closing balance in the OD account and its implications: The ld. CIT(A) analyzed the bank statements and observed that interest amounts were debited in the OD Account, followed by sufficient deposits every month. The AO's contention that interest was converted into a loan was refuted based on the increase in the OD limit. The closing balance in the OD Account was found to be on account of a principal loan and not interest, as it was within the OD limit. The ITAT, citing the Madras High Court decision, upheld the deletion of the addition made by the AO. Issue 4: Requirement of furnishing documentary evidence to support the claim of interest payment: The AO had questioned the actual payment of interest and requested proof from the assessee. The appellant submitted a reply and ledger copies of bank charges and interest paid. The AO, however, disallowed the interest, citing lack of documentary evidence. The ITAT, after considering the submissions and bank statements, concluded that the interest was paid, leading to the deletion of the addition made by the AO. In conclusion, the ITAT Mumbai dismissed the Revenue's appeal, upholding the decision of the ld. CIT(A) based on the interpretation of section 43B, the assessment of interest payments on the OD/CC Account, and the sufficiency of documentary evidence provided by the assessee. The judgment highlighted the importance of actual payment of interest and the implications of the closing balance in the OD account within the specified limits.
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