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TMI Blog2019 (5) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... ability 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. - ITA No. 38/Asr./2017, ITA No. 77/Asr./2017, ITA No. 119/Asr./2018 - - - Dated:- 19-3-2019 - Sh. N. S. Saini, Accountant Member A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is accrued, but not payable in the current A.Y. and therefore it should be allowed as business expenditure. 9. A perusal of RBI guidelines (RBI/2012- 13/39DBOD.No.BP.BC.9/21.04.048/2012-13) indicate that RBI has instructed banks not to take any interest on NPA accounts to the income account. Infact if any interest has accrued in past periods and not actually been realized; and has been booked as income by Banks, the same also has be reversed. It is clear therefore that RBI has clearly advised PSU Banks not to take interest on NPA assets into their books of accounts under the head income. 10. RBI has also advised banks to keep a record of accrued interest in a Memorandum account. Even for the purpose of accounting gross advances, such interest recorded m the memorandum account is not to be taken into account. Thus for the Bank, interest on NPA assets is nothing but notional interest, neither charged to income account, nor even shown as part of gross advances. 11. In consonance with RBI guidelines on NPA assets, various courts have a ready held that .merest income on NPA assets will be part of a Bank s taxable income only when is rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied interest on any of assessee s loans. Under explanation 3(d) to sec 43B, assessee has the window within the IT Act to claim this expense as and when interest is paid to the Bank. 17. I therefore have no hesitation in holding that the Assessing Officer has correctly disallowed interest debited as expenditure by the assessee when it is not even applied by the Bank. 6. Before us, the AR of the assessee filed written submissions which are as under: The assessee is a manufacturer of Rubber Transmission and Conveyor Belts. Income Tax Return for this year was filed on 25.09.2013 declaring net loss of Rs: 12,47,782. However, after the case was taken in scrutiny, it was assessed at ₹ 20,99,900/- by making addition of ₹ 32,40,830/- disallowing accrued interest due to bank under section 43B besides some other disallowances. Before the AO as also before the CIT(A), it was explained that the assessee had availed credit facilities from State Bank of Patiala, Jalandhar of Rs: 270.75 lakhs. During the FY 2011-12, all the accounts were declared NPA by the bank. That being so, as per the RBI guidelines, the bank did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. The crux of Sec 43B is that deduction is to be allowed on the basis of discharge of liability by way of payment and not the basis of accrual. The Explanation 2 to Sec 43B which has the effect of synchronizing the accrual of liability with payability of such liability is confined to only clause (a) of section 43B which deals with payment of tax, duty, cess or fees, and not to clause (d) which deals with payability of interest on loans from any public financial institutions. Keeping in view the distinction between the ''sum payable and accrual of liability it would be easy to conclude that because the liability had accrued, the Assessee was correct in debiting the interest accrued in Profit and loss account. Close reading to clause (d) makes it dear that any sum payable as interest on loan has been linked with the terms and conditions of the agreement governing such loan. Unless there is information about the agreement governing such loan and further information to the effect that the interest has become payable during the year under consideration provision of sec 43B (d) cannot be invoked (Copy of decision enclosed at Page 32-33 of Paper book). Relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The crux of Sec 43B is that deduction is to be allowed on the basis of discharge of liability by way of payment and not the basis of accrual. The Explanation 2 to Sec 43B. which has the effect of synchronizing the accrual of liability with playability of such liability is confined to only clause (a) of section 43B which deals with payment of tax, duty, cess or fees, and not to clause (d) which deals with payability of interest on loans from any public financial institutions. Keeping in view the distinction between the sum payable and accrual of liability it would be easy to conclude that because the liability had accrued, the Assessee was correct in debiting the interest accrued in Profit and loss account. Close reading to clause (d) makes it dear that any sum payable as interest on loan has been linked with the terms and conditions of the agreement governing such loan. Unless there is information about the agreement governing such loan and further information to the effect that the interest has become payable during the year under consideration provision of sec 43B (d) cannot be invoked . iii) Taking a consistent view, the Calcutta Bench, in yet another decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstallments commencing from 15th May, 1990. The said order deferring the payment of interest was issued on 12th July, 1989, i.e., after the completion of the accounting period. The assessee contended that the as per the cl. (d) of s. 43B whether any sum was payable as interest on any loan or borrowing from any public financial institution should be determined in accordance with the terms and conditions of the agreement governing such loans or borrowing. In view of the order dt. 12th July, 1989, of ICICI Ltd. no interest was payable by the assessee. Hence, the returned loss was sought not be reduced by ₹ 1,26,79,130/- for non-payment of interest. It was in the backdrop of these facts that the Bench held that the interest had not become payment in terms of clause (d) of sec 43B of the Act. vii) It is contextually important to examine Explanation 2 of sec. 43B, which defines any sum payable for the purpose of clause (a) of sec. 43B to mean a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law . There is no such Explanation for clause (d) or (e) in the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. Further, in para 5 of the said order, the Hon'ble Apex Court also reiterated the following principles as were laid down in the case of M/S Metal Box Company Ltd., Vs Their Workmen (1969) 73 ITR 53(SC) the relevant of which for our purpose are extracted and reproduced as under:- i) For an Assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid. ii) Just as receipts, though not actual receipts but accrued due are brought in for Income Tax As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on December 26, 2002 for one year and it was payable with interest. However, on accrued basis, the interest upto 31.3.2001, had been charged to P L but not paid. On disallowance made u/s.43B, the Tribunal found that there was no question of sec 43B being invoked and at the stage when the interest not payable. The loan itself was availed of on 26.12.2002 for one year and it was payable with interest. Hence, the question of relying on sec 43B to disallow the claim did not arise. On appeal, the Hon'ble High Court held that (ii) That by plain language of the provisions of section 43B and given the factual and admitted position, the Tribunal had not erred in the view that that it had taken. The view taken was neither perverse nor vitiated by any error of law apparent on the face of the record. xiv) Hon'ble Rajasthan High Court in CIT vs OM Metals and Minerals P Ltd (2015) 373 ITR 406 (Raj), taking note of the effect of Supreme Court decision in Bharat Earth Movers vs CIT (2000) 245 ITR 428 and Rotork Controls India P Ltd vs. CIT (2009) 314 ITR 62, held that Liability accrued but to be discharged at future date, was deductible expenditure. xv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its profit loss account for that year, or as the case may be in which it is actually received, whichever is earlier. This provision, if seen in close focus, rather lends supports to assessee's stand point that when the Bank itself is not to charge the interest to its P L account in view of RBI guidelines in respect of such bad/doubtful debts, how it would become payable for assessee to pay the same in the said year. It would become payable only in the year, when it is either credited to P L a/c or received by the bank, whichever is earlier. Hence, when the interest had not become payable, its claim on accrued basis could not be disallowed u/s.43B(e) of the Act ibid merely because it was unpaid. 1. Dy.CIT 4(1) Chandigarh vs. M/s Glaxo Smithkline Concumser Healthcare Ltd, Nabha (Spl Bench, ITAT Chandigarh) in ITA No.343/Chd/05 for AY 2001-02. The controversy involved in this case was with regard to allowability of assessee's claim of payment of excise duty, when it was sought by way of adjustment of Modvet Credit available to the assessee as on the last day of the previous year. It was finally held that credit balance as such does not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B(d) directly and categorically disentitles the assessee company to claim benefit of interest deduction because with respect to interest due and payable to a financial institution such as the IFCI till the interest is actually paid, the same cannot be allowed as a deduction. With due respect, the initial findings of the Hon'ble Court to the effect that interest cannot be said to have accrued to become due and payable in the relevant previous year even when the accounts are maintained on mercantile basis, is not consistent with the law laid down bv Hon'bie Supreme Court in series of cases cited above i.e. Bharat Earth Movers vs CIT, Metail Box Co of India Ltd vs Workmen, Calcutta Co Ltd vs. CIT (1959) 37 ITR 1 and Taparia Tools Ltd. Vs Joint CIT. Therefore, this decision of Hon'ble Delhi High Court, even while holding that the deduction was not allowable u/s.43B(d), being per incuriam, when it did not consider the law laid down by Hon'ble Apex Court supra, cannot be relied upon, for its initial view that the interest had not accrued in this year even under mercantile basis of accounting. Furthermore, the finding of the Hon'ble Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts, availing such set off by the assessee should be treated as actual payment of sales tax liability for Section 43B purposes. Hon'ble P H High Court, in the case of CIT vs. Maha Luxmi Bricks Mfg. Moulding Fabricating Inds (P) Ltd (2005) 273 ITR 190(P H), following the decision of Gujrat High Court in CIT vs Bhagwati Autocast Ltd (2002) 261 ITR 481(Guj), also held that where under the 'deferred payment scheme' formulated by the State Government, assessee was allowed to retain the amount of sales tax collected by it and the payment was to be made after certain number of years and the assessee was not required to make payment under the relevant sales tax law, the department shall treat the sales tax as actually paid for all purposes and benefit given u/s.43B can be claimed by assessee. The Hon'ble Jharkhand High Court in CIT Vs. Shakti Spring Industries (P) Ltd. (2013) 84 CCH 0293, in the context of interest payment u/s 43B(d), held that even book adjustments constitute actual payment for Section 43B. It is noteworthy that in view of the above decisions of various High Courts, it cannot be held that 'actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iala were classified as NPA by the bank. Interest of ₹ 32,47,463/- in assessment year 2013-14, ₹ 24,95,755/- in assessment year 2012-13 and ₹ 36,62,148/- in assessment year 2014-15 relates to these NPA accounts. The bank has not accounted for these interests as its income and has not applied these interests in the accounts of the assessee maintained by the bank in its books of account. As the bank has not applied these interests in their books and has not shown the said amount as receivable from the assessee, the contention of the assessee is that therefore, the amounts were not due or payable by the assessee and accordingly provisions of Section 43B(e) of the Act is not applicable in its case. 12. On the other hand, the ld. DR supported the orders of the lower authorities. 13. 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 income 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 B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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