2019 (5) TMI 615 - AT - Income Tax

Addition u/s 43B(e) - claim for interest paid to State Bank of Patiala - loans was classified as NPA - HELD THAT - 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 expense 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 becoming due does not depend on the accounting entries passed by the bank or the creditor in its books of account but the same depends upon the terms of agreement. We, therefore, do not find force in the above contention of the assessee. The assessee has brought no material either before the lower authorities or before us to show that as per any agreement entered into by the assessee with the bank though the interest in question accrued during the year under consideration but its payability was deferred to any point of time in future. In absence of such an evidence, submission of the assessee cannot be agreed to. Case the assessee furnished an agreement dated 12.07.1989 entered into with ICICI Bank whereby the payability of interest was deferred by the bank. No such agreement could be produced by the assessee in the instant case. The assessee also relied upon the decision M/s Bharat Earth Movers Vs CIT 2000 (8) TMI 4 - SUPREME COURT where the issue was not of Section 43B but was in relation to accrual of liability even when the actual quantification of liability could not be made. The above decision does not help the case of the assessee as in the instant case, the issue is not of accrual of liability but the issue relates to adding back of unpaid liability u/s 43B(e). Similarly, the other decision relied upon by the assessee also does not touch upon the issue under consideration which is of Section 43B(e). We thus, confirm the orders of the lower authorities and dismiss the grounds of appeal of the assessee.

Issues Involved:
1. Whether the CIT(A) erred in confirming the addition of unpaid interest disallowed under Section 43B(e) of the Income Tax Act for assessment years 2012-13, 2013-14, and 2014-15.

Issue-Wise Analysis:

1. Applicability of Section 43B(e) and Accrual vs. Payability of Interest:

The primary issue in these appeals is whether the CIT(A) was correct in confirming the disallowance of unpaid interest under Section 43B(e) of the Income Tax Act. The assessee had claimed interest expenses as business deductions for the assessment years in question, but these were disallowed by the Assessing Officer (AO) because the interest had not been paid during the financial year.

The AO disallowed the interest expenses by invoking Section 43B(e), which mandates that certain expenses, including interest on loans from scheduled banks, can only be deducted when actually paid. The CIT(A) upheld the AO's decision, stating that the interest had not been paid by the assessee during the relevant financial years.

2. Arguments by the Assessee:

The assessee argued that the interest had accrued but had not become payable because the loans were classified as Non-Performing Assets (NPA) by the bank. According to the Reserve Bank of India (RBI) guidelines, the bank did not debit the interest to the loan account but kept it in a suspense account. The assessee contended that since the interest had not become payable, Section 43B(e) should not apply.

The assessee relied on various judicial precedents, including the cases of Tele Link Nieco Ltd. and Neo Pipes and Tubes Co. Ltd., where the courts had held that interest not payable during the year could not be disallowed under Section 43B. The assessee also cited Supreme Court decisions that distinguished between accrual and payability of liabilities.

3. Analysis by the Tribunal:

The Tribunal examined the facts and found that the assessee had debited interest expenses in its books of account but had not paid the interest to the bank. The Tribunal noted that the payability of interest depends on the terms of the loan agreement, not on the accounting entries made by the bank. Since the assessee did not provide any agreement deferring the payability of interest, the Tribunal concluded that the interest had become due and payable during the relevant financial years.

The Tribunal distinguished the cases cited by the assessee, noting that in those cases, there were agreements deferring the payability of interest, which was not the case here. The Tribunal also clarified that the issue was not about the accrual of liability but about the applicability of Section 43B(e), which specifically addresses the disallowance of unpaid interest.

4. Conclusion:

The Tribunal upheld the CIT(A)'s decision, confirming the disallowance of interest expenses under Section 43B(e) for the assessment years 2012-13, 2013-14, and 2014-15. The Tribunal found that the assessee had not provided sufficient evidence to show that the interest had not become payable during the relevant financial years. The appeals of the assessee were dismissed.

Final Judgment:
The appeals of the assessee are dismissed, and the orders of the lower authorities are confirmed. The interest expenses disallowed under Section 43B(e) for the assessment years 2012-13, 2013-14, and 2014-15 are upheld.

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