2014 (2) TMI 1388 - AT - Income Tax

Disallowance u/s.43B - interest amount paid by the assessee - AO held that the term paid means that the amount should have been actually paid. Transfer of amount from one account to another account cannot be treated as paid thus made the disallowance - HELD THAT - The interest amount has been paid from the cash credit account of the assessee in which the balance keeps on varying every day depending upon the receipts and payments of the assessee. The embargo put by Explanation 3C and 3D of section 43B is not attracted in the facts of the present case. The interest amount has not been converted into loan or advance. The interest amount has actually been paid by the assessee through Overdraft/Cash Credit account. In view of our above findings, the dis-allowance made u/s.43B is set aside and the appeals of the assessee are allowed.

Summary

Issues Involved:
Dis-allowance u/s. 43B of the Income Tax Act, 1961 for interest amount 'paid' by the assessee.

Analysis:
1. The assessee maintained Cash Credit/Overdraft account with the bank, and interest was credited to the account. The Assessing Officer disallowed the interest amount u/s. 43B, stating that 'paid' means actual payment, not transfer between accounts. The CIT (Appeals) relied on previous judgments where conversion of interest into loan didn't qualify as payment under section 43B, leading to dismissal of appeals.

2. The assessee argued that the interest amounts were actually paid from the Cash Credit/Overdraft account and not converted into a term loan. The assessee's case didn't fall under the exclusions in Explanation 3C or 3D of section 43B. The Revenue contended that the liability increased as no actual payment occurred, supporting the CIT (Appeals)'s decision.

3. The Tribunal examined section 43B, emphasizing that interest must be actually paid for deduction. Previous judgments highlighted that converting interest into a loan doesn't constitute payment. However, in the present case, the interest was paid from the operational Cash Credit/Overdraft account, not a term loan account, distinguishing it from the cited cases.

4. Cash Credit/Overdraft accounts are for daily business transactions, unlike fixed-term loan accounts. The Tribunal found that the interest was genuinely paid from the fluctuating balance of the Cash Credit account, not converted into a loan. Consequently, the dis-allowance u/s. 43B was set aside, and the appeals of the assessee were allowed.

Conclusion:
The Tribunal ruled in favor of the assessee, determining that the interest amount was genuinely paid from the Cash Credit/Overdraft account, meeting the requirements of section 43B. The distinction between operational accounts and term loan accounts played a crucial role in setting aside the dis-allowance.