9911796707
TMI Blog2012 (3) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 145 income under the head 'Profits and gains of business or profession' is to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee considering a person to become entitled to deduction when liability in respect of any expenditure is incurred - in the mercantile system of accounting, deduction is allowed on accrual of liability - when the assessee is admittedly following mercantile system of accounting it cannot be disputed that the impugned interest expenditure has accrued within the year, it is to be allowed irrespective of the fact that assessee has passed necessary entries in the books of account or not - the assessee did not credit such interest in the books of account under any account - rather the deduction has been claimed on the basis of mercantile system of accounting straightway in the computation of income, without routing it through books of account, which has been held by us to be allowable. - Once there is no liability to deduct tax at source u/s 194A, the provisions of section 40(a)(ia) cannot be attracted. - IT APPEAL NO. 5962 (MUM.) OF 2009 - - - Dated:- 25-1-2012 - R. S. Padvekar And R. S. Syal, J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. 4. After considering the rival submissions and perusing the relevant material on record it is found as an admitted position, as recorded by the learned CIT(A) as well, that the assessee has Share capital of ₹ 15.25 crore along with Reserves and surplus amounting to ₹ 19.48 crore thereby totaling Shareholders' fund to the tune of ₹ 35.73 crore. Even if the debit balance of Profit and loss account of ₹ 3.93 crore and the liability of ₹ 24.43 crore towards interest payable to M/s. Sahara India Financial Corporation Limited not debited to profit and loss account is considered, still there is excess of share capital and reserves to the extent of ₹ 7.37 crore {35.73 crore - 28.36 crore (3.93 crore + 24.43 crore)}. As against this excess of Shareholders' fund of ₹ 7.37 crore, the assessee advanced interest free loans to its sister-concerns amounting to ₹ 50.29 lakh. Now the question for our consideration is as to whether under such circumstances can it be said that the assessee advanced interest free loans out of interest free funds available with it? 5. This question has been answered by the Hon'ble jurisdictional High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited, for which no accounting entry was passed in the books of account. Deduction was claimed in the computation of total income. On being called upon to explain as to why the interest should not be disallowed, the assessee tendered its explanation which has been recorded on page 4 of the assessment order. Considering the fact that the assessee followed cash system of accounting in respect of interest on term loans to M/s Sahara India Financial Corporation Limited, the Assessing Officer opined that in the absence of the assessee having made any payment to this extent, the same was not deductible. The learned CIT(A) observed that the assessee had not deducted any tax at source from the interest payable to Sahara India Financial Corporation Limited. Invoking the provisions of section 40(a)(ia), he came to hold that for non-deduction of tax at source on the said amount, the deduction could not be allowed. 8. We have heard the rival submissions and perused the relevant material on record. Primarily the disallowance of interest has been made and sustained jointly by the authorities below on two counts, viz , firstly the non-deductibility of interest in the very first place and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3). Subsequently, the learned CIT, taking recourse of the provisions of section 263, held that the amount of interest was not deductible. The assessee challenged the said order of the ld. CIT before the Tribunal. Vide its order dated 2nd July, 2009 in ITA No. 3649/Mum/2008, the Tribunal has held on page 7 that : Thus, when the assessee is admittedly following mercantile system of accounting and when it cannot be disputed that the impugned interest expenditure has accrued within the year, it is to be allowed irrespective of the fact whether the assessee has passed necessary entries in the books of account or not . It is further relevant to note that the learned CIT again initiated the proceedings u/s 263 on the same issue in respect of immediately preceding assessment year i.e. 2004-2005. On receipt of assessee's reply, he dropped the proceedings u/s 263. Copy of the said order dropping the proceedings is also available on record. In view of the above facts and circumstances, it becomes apparent that the deduction of interest payable to M/s Sahara India Financial Corporation Limited cannot be denied. 11. Now we turn to the second aspect for confirming the disallowance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode whichever is earlier . Explanation to section 194A(1) provides that where any income by way of interest is credited to any account, whether called Interest payable account or Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. On a conjoint reading of sub-section (1) with Explanation to section 194A, it is amply borne out that the event for deduction of tax at source arises when the amount of interest is credited to the account of the payee or when it is paid, whichever is earlier. Even if the amount is not credited to the account of payee but shown under the head 'Interest payable account' or 'Suspense account' etc. it shall still be deemed as credit to the account of payee. Thus the essential requirement is that the amount must be credited in the books of account either in the account of payee or interest payable or any other account by whatever name called such ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
