Income Tax Appellate Tribunal - Amritsar
Shri Vijay Kumar Aggarwal, Jalandhar vs Income Tax Oficer,Ward Ii(4), ... on 19 March, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH, AMRITSAR
Before Sh. N. S. Saini, Accountant Member
And
Sh. N. K. Choudhry, Judicial Member
ITA No. 38/Asr./2017 : Asstt. Year : 2013-14
ITA No. 77/Asr./2017 : Asstt. Year : 2012-13
ITA No. 119/Asr./2018 : Asstt. Year : 2014-15
Sh. Vijay Kumar Aggarwal, Vs Income Tax Officer,
C/o S.K. Gupta & Co., Ward-II(2),
Chartered Accountant, EG, 934, Jalandhar
2nd Floor, N.G. Road,
Jalandhar-144001
(APPELLANT) (RESPONDENT)
PAN No. ADHPA5106D
Assessee by : Sh. J. S. Bhasin, Adv.
Revenue by : Ms. Shivani Bansal, DR
Date of Hearing :21.02.2019 Date of Pronouncement : 19.03.2019
ORDER
Per N. S. Saini, Accountant Member:
These are the appeal s fil ed by the assessee agai nst the orde r of CIT(A)-1, J al andhar dated 28.10.2016 for the assessment year 2013-14, dated 29.11.2016 for the assessment year 2012-13 and dated 14.12.2017 for the assessment year 2014-15.
2. At the time of heari ng, the l d. AR of the assesse e submi tted that the facts and i ssue i nvol ved i n all these appeal i s common and therefore, he will be argui ng for appeal for assessment year 2013-14 and the same arguments shoul d be 2 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal taken for the other two assessment years, namel y, the assessment years 2012-13 and 2014-15.
3. The sol e i ssue invol ved i n all these three appeal s i s that the CIT(A) erred i n confi rmi ng the addi ti on of Rs.32,40,830/- i n assessment year 2013-14, Rs.24,95,755/- i n assessment years 2012-13 and Rs.36,62,148/- i n assessment years 2014-
15.
4. The bri ef facts are that i n the assessment year 2013-14, the Assessi ng Offi cer observe d that the assessee has debi ted i nterest of Rs.32,47,463/- pai d to State Bank of Pati al a. Si nce, the assessee had not pai d the interest duri ng the financi al year, therefore, he di sall owed the deducti on for the same by i nvoking the provi si ons of Secti on 43B(e) of the Income Tax Act, 1961. Si mil arl y, the cl ai m for i nterest pai d to State Bank of Pati al a of Rs.24,95,755/- i n a ssessment year 2012-13 and Rs.36,99,103/- i n assessment year 2014-15 was di sall owed by the AO.
5. The assessee carri ed the matter i s i n appeal before the CIT(A) who confi rmed the acti on of the AO and observed as under:
"7. Assessee has filed return clai ming a loss of Rs. 12,47,782/- after debiting interest of Rs. 32,47,463/- as his business expenditure. Assessing Officer allowe d interest expenditure of Rs. 6,333/ - paid to Axis Ban k. But Assessing Office r disallowed an amount of Rs. 32,40,830/- u/s 43B since it w as not paid by the assessee during the previous year.3 ITA Nos.38 & 77/Asr./2017
ITA No. 119/Asr./2018 Vijay Kumar Aggarwal
8. Aggrieved over this disallowa nce assessee is in appeal. The main contention is that the bank ha s written to the assessee stating that the liability is accrued, but not payable in th e current A.Y . and therefore it should be allowed as business expenditure.
9. A pe rusal of RBI guidelines (RBI/2012- 13/39DBOD.No.BP.BC.9/21.04 .048/2012-13) indicate that RBI has instructed banks n ot to take any interest on NPA a ccounts t o the income account. Infact if any interest has accrued in past peri ods and not a ctually been realized; and has been booked as income by Banks, the same also has be reversed. It is clear therefore that R BI ha s clea rly adv ised PSU Ban ks n ot to take interest on NPA a ssets into their books of accounts under the head income.
10. RBI has also a dvised ban ks t o 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 ta ken into account. Thus for the Ban k, interest on NPA assets i s nothing but notional interest, neither charged t o income account, n or ev en shown as part of gross advances.
11. In consonance with RBI guidel ines on NPA assets, various cou rts have a rea dy held that .merest income on NPA assets will be part of a Ba nk's taxa ble income only when is received. Accrued i nterest or recorde d interest, not applied on NPA accounts will not be part of a Bank's income . Thus as far as the Bank is concerned, interest income from NPA accounts is only to be kept record of. It is not to be included in the income of the Bank.
12 On the other hand the intent of sec 43 B is quite clear. Provisi ons of sec 43 B apply on expenses which are otherwise allowable unde r the Act. It mandate s disallowance of specific expenses otherwise allowa ble if they are not paid. These are to be allowed only on payment, irrespe ctive of whether expenses accrued or 4 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal arose during the a ssessment year. Thus se c 43 B clearly provides for allowing such expenses only as and when they are paid.
13. Irrespective of the method of accounting followin g by the assessee, interest expenses of the nature referred to section 43 B(d) of the Act can be allowe d as a de duction only m the year in which such interest are actually paid.
14. The assessee has cited various judgments particularly related to a ccrua l of liability of expenditure, judgments cited by t he assessee do n ot apply to the instant case. In case of Telelink Neco Ltd., (2001) 73 TTJ 28, adjustment had been made u/s/143(1)(a). ICICI bank had entered into an agreement with the assessee and had deferre d interest on l oans given to a ssessee. No such agreement or deferment of interest has been brought on record or pleaded by the assessee. Similarly in case of Ne o Pi pes and Tubes Co Ltd, the adjustment was u/s 143(1)(a), which is not the case in the instant appeal. In other cases cited by asse ssee, provisi ons of sec 43B of the IT Act are not the subject matter, and therefore a re of no help to the assessee.
15. Allowa bility of expenditure u nder the IT Act , is distinct from the provisions of sec 43B. Certain deductions which a re expressly all owable unde r othe r provisi ons of the Act will be allow ed u/s 43B only on payment. This is irrespective of whether liability to pay these sums was accrued durin g the previous year.
16. There is no question over th e fact that interest has not been paid by the assessee to State Bank of Patiala. All accounts including car loan, tw o term loans, ca sh cre dit, and medium te rm loans have been treated as NPA by the bank. In fact, letter of manage r of State Bank of Patiala indicates that it has not even applied 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.5 ITA Nos.38 & 77/Asr./2017
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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 fil ed wri tten submi ssi ons whi ch are as under:
"The assessee is a manufacturer of Rubbe r 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 Rs.20,99,900/- by making a ddition of Rs.32,40 ,830/- disallowing accrued interest due to ban k under section 43B besides some other di sallowances.
Before the AO a s also bef ore t he 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 declare d NPA by th e bank. That being so, as pe r the RBI guidelines, the bank did cal culate interest as 'accrued interest' on th e entire amount of loan, but did not de bit it to the loan account of assessee. The assessee however, working under the mercantile system of accounting, debited Rs.32,40,830.00 a s interest accrued, due t o the bank, in P & L Account for the year under a ppeal, and credite d to the St ate Ban k of Patiala interest account. The said claim wa s ju stified before the authorities below, by laying stress on the word "payable" used in Section 43B clau se (e) which reads as follow:-
"(e) any sum payable by the Assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances".
It was argued that only when the amount becomes payable, that it has t o be actuall y paid in te rms of section 43B before the filing of return. However, in 6 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal this case, when the accounts of the assessee were declared NPA, and no interest was debited to its loan account by the Bank, the amoun t had not become payable, though it had accrued as an expense under the mercantile system of accounting. Therefore, the term 'any sum payable' used in section 43B(e), was emphasized to be underst ood for the purpose of sai d clause (e) in pure commerci al and accounting sense. Payability implies a right on the part of the condition of enforcing the payment and also of recou rse to legal action as conside red nece ssary. Even under banking norms, whenever the am ount of interest is debited to the account of the loanee party, the interest is treated as payable by the loanee party. Therefore, when the bank ha d not debited the interest to assessee's a ccount, but kept in a suspense account on accrued ba sis, the same had not become payable. A ban k certif icate to this effect was also placed bef ore the AO/CIT (A) (page No.26 of paper book) . The assessee placed wh olesome reliance on the decision of ITAT E -Bench, Kolkatta in the case of Deputy CIT Vs. Tele link Nieco Ltd. (2001) 73 TTJ 28 (Cal). Th ough i t dealt with clause
(d) of sec 43B, being akin to clause(e), it was directly relevant to this case. In para 9.01, the Bench held as under:-
"Accrual of Liability and payability of such Liability are two different events. The accrual of liability normally precedes in point of time the discharge of such liability. The crux of Sec 43B is that deduction is to be allowed on the basis of discharge of lia bility by way of payment and not the basis of accrual. The Explanation "2" t o Se c 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 t o conclude that because the 7 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal liability had accrued, the Assesse e was correct in debiting the interest a ccrued in Profit and l oss account. Close rea ding to clause ( d) makes it dea r that any sum payable as interest on loan has been linked with the terms and conditions of the agreement gove rning such loan. Unless there is information about the agreement governing such loan and further information to the effect that the interest has become payable durin g the year under consideration provision of sec 43 B (d) cannot be invoked" (Copy of decision enclosed at Page 32-33 of Paper book).
Reliance was also placed on anoth er decision of ITAT Kolkotta "A" Bench in the case of Neo Pipes of tubes Co. Lt d., Vs Deputy CIT (2004) 086 T.T.J . 0609 (Cal), wherein the above decision was also followed. (Copy of decisi on enclose d at Page 34 of paper book).
In addition to a bove, t o buttress its point, the assessee also placed heavy reli ance on f ollowing judicial authorities:
i) Bharat Ea rth Movers Vs CIT (2000) 245 ITR 428(SC)
ii) Metal Box Company Ltd., Vs Their Workmen (1969) 73 ITR 53(SC)
iii) Taparia Tools Ltd. Vs Joint CIT (2015) 372 ITR 605(SC)
iv) CIT Vs Modern Spinners Ltd., (2016) 382 ITR 472 (Del)
v) Taparia Toos Ltd., Vs Joint CIT (2015) 372 ITR 605 (SC).
But the Id.CIT(A), without addressing the real issue that the interest had not become payable even in terms of section 43B(e), in para 9 of her order took note of the RBI guidelines instructing the banks not to apply interest on NPA accounts, and not to book the same as the income of the bank. Against this, she held in pa ra 1 2 that section 43B mandates disallow ance of specific expenses 8 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal otherwise allowable if they are not paid, which were to be allowed only on actual payment whether expenses accrued or arose du ri ng the year. She distinguished the judicial authorities with comforta ble ease on one or t he other pretext. Finally, in para 16, she held tha t since no interest had been paid to the bank, it wa s disallowable , with a window given to assessee under explanation 3(d) to sec 43B to claim it when actually paid.
SUBMISSIONS BEFORE THE BENCH
i) It is undisputed that no interest had been charged by the Bank in the loan account of assessee but kept in a suspense account. Obviously therefore, it had accrued but not become payable. Unless it becomes paya ble, it cannot be paid, and f or that matter, it cannot be disallowed u/s.43B(e), and its claim as an expense on accrue d basis, f ollowing mercantile system of accounting, cannot be disallowed.
ii) As held by the ITAT Bench of Calcutta in the case of Telelink (supra), "Accru al of Liability and payability of such Liability are two different events. The accrual of lia bility normally precedes in point of time the discharge of such liability. The crux of Sec 43B is that deduction is to be allowed on the basi s 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 ea sy to conclude that because the liability had accrued, the Assessee wa s correct in debiting the interest accrued in Profit and loss a ccount. Close rea ding to cl ause (d) ma kes it dear that any sum payable a s interest on loan ha s been linked with the terms and con ditions of the 9 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal agreement governing such loan. Unless there is information about the agreeme nt governing such loan and further information t o the effect that the interest has become payable duri ng the year under consideration provision of se c 4 3B (d) cannot be invoked".
iii) Taking a consistent view, the Calcutta Bench, in yet another decision, in the case of Neo Pi pes of Tubes Co Ltd. vs Dy. CIT (2004) 86 TTJ (Cal) 609 , again held that unless the interest becomes payable, it could not be disallowed u/s.43B(d), more so u/s.143(1)(a).
iv) The emphasis of the Hon'ble Calcuatta Bench in the above two case s has bee- on the point that provisi ons of clause (d) of sec 43B, unlike the provisi ons of clause (a) of sect ion 43B, a re not absolute but qualify 'any sum pay able' a s interest on any loan or borrowing from any public financial institution or State Financial Corpn . or State Industrial Investment Corpn., in a ccordance with the terms and conditions of the agreement governing such loan or borrowing. The Ben ch therefore, held that only the interest payable during the year in accordance with the terms and conditions of the agreement could be disallowed under s. 43B if the same was not pai d during the year. Unless there was information in the return of income or the documents accompanying with it about the agreement governing such loan and further information to the effect that interest had become paya ble duri ng the year under consideration, the provisions of s. 43B(d) could not be invoked.
v) In the case of Neo Pipes (supra ), it was clea r that the amount was debited to P&L a/c and not paid during the year, but it was not clear as to whether the said am ount had become paya ble during the year itself in accordance with the term s and conditions of the agreement. Therefore , the disallowance ma de u/s. 143(1) was held to be not sustainable.
10 ITA Nos.38 & 77/Asr./2017ITA No. 119/Asr./2018 Vijay Kumar Aggarwal
vi) However, in the case of Telelink (supra), out of the interest payable for the period 1st Nov., 1987, to 30th April, 1988, the assessee could not pay Rs. 62,63,542 due to financial strin gency. Out of the total interest payable of R s. 1 ,61,67,796 for the period 1 st May, 1988, to 31st March, 1989, the assessee-com pany capitalize d R s. 34,88,666 and debited Rs 1,26,79,130 in the P&L a/c. This amount was also not paid due to shortage of funds. The assessee-com pany however, pref erred the request before 31st March, 1989 , to the financial institutions to defer the payment of the concerned interest. The ICICI Ltd. a greed to defer the collection of interest and other charges falling due upto 20th June, 1989, subject to the consi derati on t hat the deferred interest will be repayable in equal quarterly installments commencing from 15th May, 1990. The said order deferring the payme nt of interest was issued on 12th July, 1989, i.e., af ter the completion of the accounting peri od. The a ssessee contended that the as per the cl. ( d) of s. 43 B whether any sum was payable as intere st 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 Lt d. no interest was payable by the assessee. Hence, the returned l oss was sought not be reduced by Rs. 1 ,26,79,130/- f or 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 n o such Explanation for clause (d) or (e) in the Act. Sans any such explanation, "any sum payable" has to be understood for the purpose of clause (d) & (e), in a 11 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal pure commercial and accountancy sense. Payability implies a right on the part of the condition of enforcing the payment and also of recourse to legal action as conside red necessa ry. Neither the bank had thus created a right to recove r nor the assessee had incurred a responsibility to pay the said amount in this year.
viii) In the case of this a ssessee , as al ready stated in facts narrate d earlie r, the loan accounts we re declared NPA by the Bank and as per the guidelines of RBI, governing such loans, no interest was charged to the l oan a ccount, but kept se parately in suspense account. The assessee is covere d by clause
(e) of sec 43B inasmuch as he had raised l oans from a scheduled ban k. The RBI guidelines operate as binding conditions on such loan s and the parties involved thereto. The refore , the provisions of clause
(e) being akin to clause (d) of sec 43B, the RBI guidelines, governing such loans, have to be taken due cognizance of in determining whether or n ot the interest had become payable during the year. Needless to reiterate , when no interest had been charged to the assessee's loan a ccount, it ha d not become payable. Cont rary to this, since the assessee had been consi stently following mercantile system of accountancy, it ha d t o de bit the i nterest on a ccrual basis t o his P&.L account. Under such circumstances and the language of clause (d) of sec 43B, no disallowance was called for.
ix) What emerges clear from the above findings of Calcutta Bench is that in any case, unless the interest becomes payable in accordance with the agreement governing such loan , it would not invite disallowance u/s.43B( d) of the Act ibid.
x) Before the authorities below, the assessee also drew support from the decisi on of Hon'ble Su preme Court in the case of " M/S Bha ra t Earth Movers Vs Commissioner of Income Tax (2 000) 245 ITR 428 ISCL In para 4 of this order, their Lordships held that:-
12 ITA Nos.38 & 77/Asr./2017ITA No. 119/Asr./2018 Vijay Kumar Aggarwal "The law is settled that if a business liability has definitely arisen in the accounting year, the deduction should be allowed, although the liability may have to be quantified and discharge d at a future date. What sh ould be certain is the incurring of the liability. It should also be capa ble of being 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 discha rged at a future date. It does not make any difference if the future date on which the liability shall have to be discharge d is not certain."
Further, in para 5 of the said orde r, the Hon'ble Apex Court al so reiterated the foll owing princi ples as were laid down in the case of M/S Metal Box Company Ltd., Vs Their W orkmen (1969) 73 ITR 53(SC) the relevant of which for ou r pu rpose a re extracted and reproduce d as under:-
i) For an Assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discha rged at a future date, would be a proper de duction while working out the profits and gains of his business, regard being had to the accepted principles of commerci al pra ctice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or pai d.
ii) Just as receipts, though n ot actual receipts but accrued due a re brought in for Income Tax Assessment, so also liabilities accrued due w ould be taken into account while worki ng out the profits and gains of the business.
iii) A conditi on subse quent, the fulfillment of which may result in the reduction or e ven extinction of the liability, would not have the effect of converting that liability into a contingent liability.13 ITA Nos.38 & 77/Asr./2017
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iv) A trade r computing his t axable profits for a particular yea r may prope rly deduct not only the payments actually made to his employees but also the present value of any payme nts in respe ct of their services in that year t o be made in a subsequent year if it can be satisfactory estimated.
(Copy of decisi on is enclosed at page 35-36 of paper book).
Hon'ble Supreme Cou rt in the case of Tapa ria Tools Ltd. Vs Joint CIT (2015) 372 ITR 605 has held that:-
"Normally, the ordina ry rule nam ely, that revenue expenditure incurred in a pa rticular year is to be allowed in that year, the depa rtm ent cannot deny it. However, in a case where the Assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of matching concept" is satisfied, which upto now has been rest ricted to cases of debenture."
The Hon'ble court further held that:-
"According t o the definition of paid in section 43(2) of the Act even if the amou nt is not a ctually paid but is "incurred" a ccording t o the method of accounting, the sum would be treated as "paid".
(Copy of Judgment is enclosed at page 37-44 of paper book).
xii) Also, in the case of CIT Vs Modern Spinners Ltd., (2016) 382 ITR 472(SC), the Hon'ble Supreme Court, di smissing the revenue's a ppeal, affirmed the following decision of Hon'ble Delhi High Court:
"Even if the amount of loan was not paid by the Assessee as per the a greement, t he liability could not cease to exist that the bilateral consented action on behalf of the pa/ties was binding in 14 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal terms of the agreement, and that therefore, the interest liability was not a contingent liability but an ascertained liability".
(Copy of Judgment is enclosed at page 37-44 of paper book).
xiii) In the case of CIT vs. Hindustan Construction Co. Ltd (2015) 374 ITR 101(Bom) , the assessee had availed loan on December 26, 2002 for one yea r an d it was payable with interest. H owever, on a ccrued basis, the interest upto 31.3 .2001, had been charge d to P&L but not pai d. On disallowa nce 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 an d i t was paya ble with interest. Hence, the question of relying on sec 43B to disallow the claim did not arise. On appeal, the Hon'ble High C ourt held that " (ii) That by plain language of the provisions of sect ion 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 Su preme Court de cision 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 discharge d at future date, was deductible expenditure.
xv) Of late, Hon'ble P&H High C ourt in its recent decision in the case of CIT vs. Ha ryana Warehousing Corporation (2016) 97 CCH 0090 PHHC, was seized of a matter with rega rd t o all ow ability of an adh oc provisi on of R s. 12 .88 crores, ma de by a ssessee for discharge of a rrea rs of pay. Ha ryana State notified revision of pay scales of its employee in view of 6th pay commission . In the light of a l etter issued by the 15 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal concerned authority, the assessee made provision of the entire arrear in current Financial Year i.e. 2008- 09 relevant to AY 2009-10, though as per the Govt Policy, 40% of arre ars we re to paid in current year and balance in future. Though the claim was allowed by AO, the CIT(A) set aside the a ssessment u/s.263 with direction to allow only 40% of the arrea rs in current year. The matter travelled before the High Court. The Hon'ble High Court after taking detailed note of all the facts and legal position, interalia held (in para 16) that "concluding part of the Minutes adopted the letter dated 07.01.2009. The Minutes also referred to the a rrea rs. As the word "a rrea rs"
absent anything else, indicates that the liability had been incurred and had also be en agreed t o be discharge d. The liability, thus, arose in praesenti and not in futuro. A pa rt of the liability was to be discharge d in future. The accrual of a liability and the time for the discharge the reof are different matters. In the mercantile system, the mere postponement of the date of pay ment of a liability already incurre d, acknowledged and agreed t o be met arises in the year it is stated to be so incurred and met."To arrive at this conclusion, the Hon'ble Court relied on the Apex Cou rt decisions in Bha rat Earth Movers vs CIT, Metail Box Co of India Ltd vs Workmen and Calcutta Co Ltd vs. CIT (1959) 37 ITR
1.
CONTENTIONS OF LD.SR.DR AND DECISIO NS RELIED UPON BEFORE THE HON'BLE BENCH whether relevant ?
Section 43D of the Income Ta x Act, is again a special provision, which provides that in the case of a Public Financial Institution or a Scheduled Bank, the income by way of intere st in relation to prescribed categories of ba d or doubtful debts, having regard t o the guidelines issued by the RBI in relation to such debts, shall be chargeable t o tax in the previous year in which it is credited by the Public Financial Institution or the scheduled bank, to its profit & loss account for that year, or as the ca se 16 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal may be in which it is actually received, whichever is earlier. This provision , if seen in close focus, rather lends supports to asse ssee's stand point that when the Bank itself is not to charge the interest to its P&L a ccount in view of RBI guide lines in respect of such bad/doubtful debts, how it would become payable for asse ssee to pay the same in the said year. It would become paya ble only in the year, when it is either credited to P&L a/c or received by the bank, whichever i s earlie r. 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 Lt d, 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 allowa bility 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 th e previous year. It was finally held that credit balance as such does not amount to payment of excise duty per se, but it was in fact a payment made towards th e purchase cost .
Importantly, this decisi on of the Hon'ble Bench was primarily addressing the issue of excise duty payable in terms of clause (a) of se c 43B, which was held to have not been paid, when the a ssessee sou ght its adjustment against Modvet credit available to assessee at the last day of the previous year. In this decision before the Bench, neither clause (d) nor clause (e) of sec 43B was brought in close focus, so as to define the terms 'any sum payable' as used in these two clauses. The language of clause (a) is different from the language of clause (d) & (e) read with Explanation 2 thereof.
Therefore, this decisi on as such, would not apply to facts of this ca se being on a different point of contention.17 ITA Nos.38 & 77/Asr./2017
ITA No. 119/Asr./2018 Vijay Kumar Aggarwal
2. Triveni Engineering & Industrie s Ltd vs. CIT New Delhi in ITA No.410/2004 dated 11.9.2009 of Delhi High Court.
This case pertains t o AY 1991-92. As per facts, the assessee ha d raised l oans f rom Industrial Finance Corporation of India (IFCI) and its repayment with interest was to be made in five yearly installments payable on 18.11.1996, 18.11.1997, 18.11.1998, 18.11.199 & 18.11.2000. The assessee claimed interest on accrued basis. H owever, AO made disallowance of Rs.21,15 ,615/- being aggregate amount of interest accrued but not due upto 31.3.1991, holding that it was payable only on 18.11.1996. CIT(A) upheld the disallowance u/s.43B(d). The Hon'ble High Court held that merely because the interest was debited in the books of accounts maintained on mercantile basis would not mean that the interest had becom e due and a ccrued because admittedly the interest liability would become due not during the rele vant previous year but only for the first time on 18th Nov., 1996. Thus, interest cannot be said t o have accrued t o be come due and payable in the relevant previous yea r. The concept of de biting the books maintained on mercantile basis is on the principle that the payment has become due and payable and since it has become payable it is therefore de bited in the books of accounts. Admittedly, in the present case the interest was not due and payable from the relevant previous year. It is in the backdrop of this find that the Hon'ble Court further held that the provision of sec. 43B(d) di rectly and categorically disentitles the assessee company t o 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 t o have accrued to become due and payable in the relevant previous year even when the accounts are 18 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal 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 C o 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 Cou rt, even while holding that the deduction was not all owable u/s.43B(d), being per incuriam, when it did n ot consider the law laid down by Hon'ble Apex Court supra, can not be relied upon, for its initial view that the interest had not a ccrue d in this year even under mercantile basis of accounting.
Furthermore, the finding of the Hon'ble C ourt that interest had not be come due a nd payable in the relevant previous year is also not consistent with the settled law, as reiterated by the Hon'ble P&H High Court in CIT vs. Haryana Warehousing Corporation (2016) 97 CCH 0090 PHHC, in the light of various Supreme Court decisi ons, when it categorically held that " The accrual of a lia bility and the time for the discharge thereof are different matters. In the mercantile system, the mere postponement of the date of payment of a liability already incurred, acknowledged and agreed to be met arises in the year it is stated to be so incurred and met."
Also, in this deci sion, the term 'a ny sum payable' as used in clause (d) of sec 43B has not been thrashed vis a vis Explanation 2 thereof. Therefore, this decision also cann ot be relied upon to negate the assessee's claim when it does not address the real issue in correct perspective.
3. BOARD CIRCULAR NQ.07/2006 DATED 17.07.2006 This board ci rcular cla rifies that any unpaid interest on any loan or borrowing or adv ance, if converted into a loan or a dvance or a borrowing, shall not be allowed a s 'actually paid' in terms of u/s.43 B(d). Different instances with examples have been cited 19 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal therein to clarify this standpoint of the Board. T o say the least, even this circular, doe s not address the issue that has been brought for a djudication in this case before the Hon'ble Bench. Even otherwise, it is settled law that the Boa rd ci rcula rs a re not binding on Appellate authorities. It is w orth mentioning that Hon'ble Karnata ka High C ourt in the case of Vinir Engineering P Ltd vs. DCIT (2009) 313 ITR 154 (Kar) had held that 'conversi on of outst anding interest into a fresh loan du ring the relevant assessment year must be treated as deemed pa yment of interest, allowable u/s.43B. This de cision, thus dilutes the effect of the Board Circular.
The Hon'ble Kolkata High C ourt i n the case of CIT Vs. National Standa rd Duncan Lt d (2003) 260 ITR 97(Mad) held that where the Bombay Sales Tax Act 1959 and the rules thereunder allows the assessee to set-off sales tax paid on the purchase of raw material used for the finished products, then such assessee would be entitled to set off or adjustment of its liability to pay sales tax payable on the sale of such finished products, availing such set off by the assessee should be treate d as actual payment of sales tax liability for Section 43B purposes.
Hon'ble P&H High Court , in the ca se of CIT vs. Maha Luxmi Bricks Mfg. Moulding & Fa bricating In ds (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 unde r 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 w as n ot require d t o ma ke payment under the relevant sa les 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 Indust ries (P) Ltd. (2013) 84 CCH 0293, in 20 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal 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 'actual payment' of any sum payable u/s.43B is essential in all situations and the Boa rd i tself has allowed relaxation in certain ca ses, which paves way for the assessee to claim that the interest it charged to P&L account, even if not paid because of the RBI norms, cannot be disallowed u/s.43 B. In the light of above detailed discussion, it cannot be held that the issue raised by assessee has been conclusively decided against the assessee by any binding judicial authority. More over, it is also settled legal position, as laid down by Hon'ble Apex Court in under noted cases, that an interpretation in favour of the assessee has to be taken when there are two possible interpretations to a Secti on.
(a) Vegetable Products Ltd., 88 IT R 192 (S.C.)
(b) Baja j Tempo Ltd. vs. CIT(19 92) 196 ITR 188 (S.C.)
(c) CIT vs. Gw alior Rayon Silk Mfg. Co. Ltd. (1992) 196 ITR 149, 153 (SC)
(d) CIT 1/5. K.E.Sundara Mudaiiar (1950) 18 ITR 259 (Mad.) 18 ITR 259.
Therefore, the appe al of the assessee, in the light of facts and the judicial authorities relied upon supra, deserves to be allowed in full."
7. On the other hand, the departmen tal representati ve reli ed on the orders of the l ower authori ti es.
8. We have heard the ri val submi ssi ons and peruse d the orde rs of the l ower authori ties and materi al s avail abl e on record. The undi sputed facts of the case a re that the assesse e has debi ted Rs.32,47,463/- in assessment year 2013-14, 21 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal Rs.24,95,755/- in assessment year 2012-13 and Rs.36,62,148/- in assessment year 2014-15 under the head bank inte rest and claiming the same as business deduction. Furt her, it is also not i n dispute that t he said i nterest was not paid b y the assessee til l the date of furnis hi ng of ret urn u/s 139(1) of the Act.
9. On the above undi sputed fact, t he Assessing Officer has added back Rs.32,47,463/- in assessment year 2013-14, Rs.24,95,755/- for t he assessment 2012-13 and Rs .36,62,148/- in assessment year 2014-15 to the income of t he assessee whi le computing its bus iness inc ome by invoki ng p ro visi ons of Secti o n 43B(e) of the Act.
10. On appeal, the CI T(A) confirmed the action of t he AO.
11. The AR of t he assessee submitte d that all its loans wit h State Bank of Patia la were clas sifie d as NPA by the bank. I nterest of Rs.32,47,463/- in assessment year 2013-14, Rs. 24,95,755/- in assessment year 2012-13 and Rs.36,62,148/- in assessment year 2014-15 relates to these NPA accounts . The bank has not accounted f or these i nterests as it s inc ome and has not appl ied these interests i n the acco unts of t he assessee maintained by the bank in it s books of acco unt . As the bank has not appl ied these interests in t heir boo ks and has not sho wn t he said amo unt as receivable from the assessee, the contenti on of the assessee is that the refore , t he amounts were not due or payable by the assessee and accord ingl y p ro visi ons of Section 43B(e) of the Act is not app licable i n its case .
12. On the other hand , the ld . DR sup ported the orde rs of the lower a utho rit ies.
22 ITA Nos.38 & 77/Asr./2017ITA No. 119/Asr./2018 Vijay Kumar Aggarwal
13. We find that in spite of the fact t hat the Bank has not s ho w n amount of interest i n questio n as receivable from the assessee, the assessee claimed the said amount as its busi ness income of the period under co nsiderat ion. The assessee has claimed because as per t he terms of loan agreement, the said i nteres t accrued . As pe r t he ve ry same loan agreement wit h t he Bank, the amount also become due or payable by the assessee. The payabilit y o r amount becoming d ue does not depend on t he account ing e ntries passed by the ba nk o r t he cred itor in its b ooks of acco unt b ut t he same depends upon the te rms of ag reement . We, t herefo re, d o not fi nd f orce i n the ab ove c ontent ion of the assessee. The assessee has b roug ht no material eit her befo re the lower aut ho rities or befo re us to show that as per any agreement entered into b y the assessee with t he bank thoug h the inte rest i n question accrued duri ng the year under considerat ion b ut it s payabilit y was deferred to a ny p oint of time in f uture. I n absenc e of suc h an e vidence, submis sio n of the assessee cannot be agreed to.
14. The assessee placed reliance on the decision in t he case of DCI T Vs Tele Link Nieco Ltd . (2001) 73 TTJ 28 (Cal.). Ho wever, we find that the facts of t hat case are disting uis hable from the facts of t he i nstant case as in that case the assessee furnished a n agreement dated 12.07.1989 entered into wit h I CI CI Bank whereby t he payabilit y of interest was deferred by the bank. No such agreement could be produced by the assessee in the instant case.
15. The assessee also placed relia nce on the deci sio n in the case of Neo Pipes and T ubes Co. Lt d. Vs DCI T (2004) 86 TTJ 609 23 ITA Nos.38 & 77/Asr./2017 ITA No. 119/Asr./2018 Vijay Kumar Aggarwal (Cal.) wherei n also the re was an agreement with the bank and the assessee for deferment of paya bilit y of i nterest.
16. The assessee also relied upon t he decisio n of Ho n'ble Supreme Court i n the case of M/s Bharat Ea rth Move rs Vs CI T (2000) 245 ITR 428 (SC) where the issue was not of Sectio n 43B but was i n relat ion to ac crual of l iabilit y even w hen t he actua l quantif icatio n of liabi lit y co uld not be made. The above decis io n does not help the case of the assessee as in the instant case, the issue is no t of ac crual of liab ilit y b ut the issue relates to adding back of unpaid l iabil ity u/s 43B(e) of the Act.
17. Similarl y, the other decisi on relie d upon by the assessee also does not touc h upo n the issue under considerati on w hic h is of Section 43B(e) of the Act . We t hus , co nfi rm the orde rs of the lower a uthorit ies and d ismiss t he grounds of appeal of the assessee.
18. I n the result , the appeals of the ass essee are dismissed. (Order Prono unced in t he Open Court on 19/03/2019) Sd/- Sd/-
(N. K. Choudhry) (N. S. Saini)
Judicial Member Accountant Member
Dated: 19/03/2019
*Subodh*
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1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
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