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TMI Blog2021 (3) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Income-tax Act, 1961 admitting loss of Rs. 2,01,87,118/-. Subsequently, the assessee filed a revised return admitting a loss of Rs. 1,81,15,077/-. The aforesaid return was manually selected for scrutiny. ........ 3. After examination and verification of the details and particulars produced / furnished the assessment is completed as under: From the above breakup, it is crystal clear that the above interest expenditure is a mere provision and contingent in nature only and the same was not realised during the year under consideration. Therefore, the same is not allowable business expenditure. It is pertinent to mention here that the assessee had the same practice for AY 2014-15 & 2015-16. While, doing the scrutiny assessment for AY.2014-15 & 2015-16, the AR of the assessee was asked to show-cause as to why the finance cost should not be disallowed under section 43B of the Act. The AR of the assessee furnished a detailed note on the same. The AO has treated the AR's contentions reasonably in that assessment order and disallowed the entire finance cost. Without prejudice to the above proposition, the assessee itself stated in the breakup statement that the above amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a provision and also a contingent liability and not actually paid thus attracting disallowance U/s 43B. In this regard it is submitted that the interest is not a contingent liability as it is payable at the contracted rate on the amount borrowed. There is no contingency involved and it is an ascertained liability. Further since the appellant is a company it is mandatory to follow mercantile system of accounting and therefore interest attributable for the year has to be accounted in the books as expenditure whether actually paid or not. As regards Section 43B is concerned, a reading of the said section clearly shows that the said section is applicable only to loans borrowed from banks and financial institutions and not any and every lender. In the case of the appellant, the loans borrowed are from Government of A.P and some Government companies. Therefore, the provisions of Section 43B are not at all applicable and the disallowance is erroneous. Secondly the assessing officer has disallowed Rs. 4,93,266 U/s 43B being rates and taxes even though evidence has been filed before him for having paid the same. This amount included Rs. 5,676 being leave encashment. The assessee its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he terms-and conditions of the agreement governing such loan or borrowing shall be allowed irrespective of the previous year in which liability to pay such sum. was incurred by the assessee according to the method of accounting regularly employed by him only in computing the income referred to in Section 28 of the previous year in which such sum is actually paid by him. A reading of the above shows that the provisions of Section 43B in so far as interest payment is concerned applied only to borrowings from financial institutions. SFCs and IDCs only and none else. The borrowing on which interest is void by the assessee are from government of AP and Government Corporations like APRDC and APCSC. We therefore submit once again that except interest paid to Binny Limited all other interest is allowable." 4.5.2 The above submissions of the assessee is examined and not acceptable for the following reasons: i. The income from the Profits and Gains of Business or profession is to computed under the provisions of Sec. 28 r.w.s.29 of the Act. The provisions of section says that the income referred to in section 28 shall be computed in accordance with the provisions contained in Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing, [or] e) any sum payable by the assessee as interest on any [loan or advance] from a scheduled bank for a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank in accordance with the terms and conditions of the agreement governing such loan [or advances], [or] shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him". As can be seen from the above section, the disallowance will apply only to loans borrowed from banks, financial institutions and Cooperative banks etc and not from State Government or other Government Corporations. Hence the section has no application tothe facts of the case. Further the assessing officer stated that under the provisions of the Act, any provision for expenditure could not be allowed unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment Corporation, hence the above institutions does not fit into the provisions of Section 43B(d), The ITAT, Delhi in the case of Ramala Sahkari Chini Mills Ltd Vs. ACIT (ITA No. 6452/Del/2014), while deciding a similar issue, observed as under: "We have carefully considered the rival contentions. Assessee that accumulated amount of interest accrued and due but not paid to various unsecured loan and therefore the provisions of section 43(d) was invoked by the Ld.AO. However out of Rs. 3,63,59,677/- only Rs. 15,24,100/- has been charged for the profit and loss account on account of interest accrued and due but not paid. In view of this CTT(A) restricted the disallowance to Rs. "15,24,100/- only. In ITA No. 6157/DEL/2012 for assessment year 2007-08 in para number of 7 of the order it is held that if the interest in question is payable to Government of India and Uttar Pradesh government, section 43Bfdl does not apply. No other contrary decision was brought to our notice. In view of this, following the decision of coordinate bench, we reverse the finding' of CIT(A) confirming the disallowance u/s 43B(d) of Rs. 1524100/-." In view thereof, Section 43B will not apply to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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