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TMI Blog2023 (2) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... re, we agree with the ld.counsel for the assessee that there is no error in the order of the AO allowing the assessee s claim of interest under section 43B Claim of interest u/s 36(1)(iii) - as per CIT there was a huge negative capital balance account of the assessee and on that basis he held that proportionate loans were utilized towards the negative capital account which tantamounted to utilization of the same for non business purposes and accordingly interest expenses relating to the same was not allowable - As noted that the assessee had explained to the ld.Pr.CIT that the loans appearing in his books of accounts were very old loans since 1999 and from RNSB and RCC Bank, and therefore, they could not be attributed to have been utilized for non-business purpose in the impugned year. Despite these explanations given by the assessee to the ld.Pr.CIT, the ld.Pr.CIT being aware of all these facts, he has still gone ahead to hold that interest expenses claimed by the assessee not allowable under section 36(1)(iii) - We are not in agreement with the ld.Pr.CIT on this aspect also, noting that the assessee has duly explained that there was no nexus between the loans and negative c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses of Rs.98,76,033/- under section 43B of the Act, which related to interest of Rajkot Nagrik Sahkari Bank (RNSB) not paid by the assessee, it had claimed deduction under section 43B of the Act of Rs.1,15,36,991/- in respect of bank interest paid relating to another bank RCC Bank which had been paid through assessee s wife account. According to the ld.Pr.CIT this was wrong claim of deduction made under section43B of the Act and needed to be disallowed to this extent of Rs.1,15,36,991/-. 5. With regard to the issue of allowance of interest expenses under section 36(1)(iii) of the Act, the case of the ld.PCIT was that while the assessee had claimed interest expenditure of Rs.1,10,83,468/- in his profit loss account, financial statement of the assessee revealed that the loans to which these interest expenses pertained had been diverted for non-business purpose, as there was huge negative capital balance in the books of the assessee amounting to (-)Rs.13,85,90,715/-. The ld.PCIT was of the view that the assessee had diverted bank loan for non-business purpose and noting that out of the total interest debited to profit loss account of Rs.1,10,83,468/-, the assessee himself ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses on payment basis, and also copy of account of the assessee s wife showing payment to the bank with copy of bank statement showing credit to his account. Our attention was drawn to the submissions made before the AO during the assessment proceedings vide letter dated 5.3.2016 as under: 4. 43B I have disallowed amount of bank interest payable to RNSB amounting to Rs.9876033/- u/s.43B which was not paid by me during the accounting period. I have claimed amount of Rs.67108/- paid to RNSB and Rs.11536991/- paid as interest during the accounting period to RCC Bank as per the judgement given by Board of Registars Nominees, Rajkot Vibhag, Court of Rajkot in case no. 302/2007. The necessary copies of evidences in support of claim are enclosed herewith. and to the ld.Pr.CIT in proceedings under section 263 of the Act vide letter dated 10.3.2018 placed before us at PB Page No.13 as under: 2.1 I had taken a loan from RNSB and RCC bank in 1999. There was a dispute with the bank with regards the interest charged by them. Hence I had stopped paying interest and principal amount to RCC bank. Hence from 2007-08. I have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also gone through the order of ld.Pr.CIT and have also considered the documents referred by the ld.counsel for the assessee before us. On considering all the above facts, we hold that the ld.counsel for the assessee has made a fair case and sufficiently demonstrated before us that there was no error in the order of the AO in allowing the assessee the claim of interest expenses under section 43B of the Act amounting to Rs.1,15,36,991/- and making no disallowance of interest expenditure under section 36(1)(iii) of the Act. As pointed out by the ld.counsel for the assessee, it had been explained during assessment proceedings, and even to the ld.Pr.CITthat the entire amount of interest expenses debited in the profit loss account pertained to loans taken from two banks in 1999 in which dispute had arisen and accordingly the assessee was, though claiming interest expenses pertaining to these amounts in his profit loss account, had been disallowing the same in the computation of income since 2007-08 onwards. That subsequently on resolution of all the disputes the assessee had started making payment, both principal and interest components of loan, and on payment of interest was cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses under section 36(1)(iii) of the Act, the basis of the ld.Pr.CIT for holding so was that there was a huge negative capital balance account of the assessee and on that basis he held that proportionate loans were utilized towards the negative capital account which tantamounted to utilization of the same for non business purposes and accordingly interest expenses relating to the same was not allowable. But we have noted that the assessee had explained to the ld.Pr.CIT that the loans appearing in his books of accounts were very old loans since 1999 and from RNSB and RCC Bank, and therefore, they could not be attributed to have been utilized for non-business purpose in the impugned year. Despite these explanations given by the assessee to the ld.Pr.CIT, the ld.Pr.CIT being aware of all these facts, he has still gone ahead to hold that interest expenses claimed by the assessee not allowable under section 36(1)(iii) of the Act. We are not in agreement with the ld.Pr.CIT on this aspect also, noting that the assessee has duly explained that there was no nexus between the loans and negative capital balance in the impugned year, the loans being very old pertaining to 1999. 11. In v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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