2022 (6) TMI 400 - AT - Income Tax

Disallowance u/s. 43B - interest expenses on secured loans - unpaid bank interest on secured loans - HELD THAT - As far as invoking of provisions of section 43B is concerned, if an assessee claims certain deductions against revenue/income and. If such deductions include any bank interest payable to schedule bank on secured loan, the same is allowable only if it is actually paid. The assessee gets liberty if, in case, interest is not paid during the FY in which the assessee claims, but paid before the due date of filing of return u/s. 139(1) of the Act. Before us, on the basis of submissions made by assessee as well as the comments of the Ld. AO, forming part of statement of facts, we find that out of total alleged amount the assessee has only claimed interest expenses in its P L account and remaining amount has been shown as pre-operative expenses and assessee has not claimed this expenditure. We find that so far as interest as concerned undisputedly since the same has been claimed in the P L account, but not paid by the assessee during the financial year 2013-14 and even not before the due date of filing of return u/s. 139(1) of the Act, the same deserves to be disallowed u/s. 43B of the Act and thus, the disallowance to this extent at Rs. 54,07,413/- is confirmed. But, for the remaining amount since the assessee is not claiming deduction in the P L account and showing it as pre-operative expenses, we confirm the finding of Ld. CIT(A) deleting the disallowance. However, we direct the revenue authorities to take note of this fact that in subsequent years if the assessee claims the Bank interest transferred to pre-operative expenses as an expenditure in the P L account, the same can be allowed only if the assessee is able to prove with documentary evidences that the said bank interest on secured loans has actually been paid. Appeal of revenue partly allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal by the revenue.
2. Disallowance of interest expenses on secured loans under sections 43B and 40(a)(ia) of the Income Tax Act.
3. Assessment of income for the appellant for the assessment year 2014-15.
4. Appeal against the order of Ld. Commissioner of Income-tax (Appeals)-10, Kolkata.

Condonation of Delay:
The registry reported a 3-day delay in filing the appeal by the revenue. The revenue provided a reasonable explanation for the delay, stating it was not willful. The tribunal, after reviewing the explanation, condoned the delay and admitted the appeal for adjudication.

Disallowance of Interest Expenses:
The appellant, engaged in property development, filed a return of income for AY 2014-15 declaring total income as Nil. The assessing officer disallowed bank interest of Rs. 3,55,54,116 under section 43B for non-payment before the due date. Additionally, a disallowance of Rs. 1,07,15,143 was made under section 40(a)(ia) for non-deduction of tax at source on interest expenses, resulting in an assessed income of Rs. 4,62,83,270. The Ld. CIT(A) confirmed the disallowance under section 43B but allowed other grounds and depreciation. The revenue appealed against the deletion of the disallowance under section 43B for unpaid bank interest.

Assessment of Income:
The revenue contended that the unpaid interest on secured loans was not paid by the assessee before the due date, justifying the disallowance under section 43B. The appellant argued that only a portion of the total bank interest was claimed in the profit and loss account, with the remainder shown as preoperative expenses in the balance sheet. The tribunal found that the disallowance under section 43B should only apply to the claimed amount in the profit and loss account that was unpaid before the due date, confirming the disallowance of Rs. 54,07,413. The remaining amount not claimed in the profit and loss account was not subject to disallowance under section 43B.

Appeal Against CIT(A) Order:
The tribunal upheld the CIT(A)'s decision to delete the disallowance of the unclaimed bank interest transferred to preoperative expenses. However, it directed the revenue authorities to verify the payment of such interest in subsequent years if claimed as an expenditure in the profit and loss account. The appeal of the revenue was partly allowed based on these findings.

This detailed analysis covers the issues of delay condonation, disallowance of interest expenses, assessment of income, and the appeal against the CIT(A) order in the Appellate Tribunal ITAT Kolkata judgment.