ASST CIT CIR 3, KALYAN vs. ASHOK R. MEHRA, DOMBIVALI

ACIT Cir 3 Ashok R. Mehra 2nd floor, Rani Mansion, W-11, MiDC Phase-II बिधम/ Murbad Rd. Kalyan (w), Manpadda Indl. Area, Vs. Dombivali (East) Dist-Thane, Kalyan, Pin - Pin-421301. स्थायीलेखासं./जीआइआरसं./ PAN No. AAAFH7347B (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Shri Chaudhary Arun Kumar Singh, DR प्रत्यथीकीओरसे/Respondentby : Shri Anant N. Pai, AR सुनवाईकीतारीख/ : 12/09/2018 Date of Hearing घोषणाकीतारीख / 17.09.2018 : Date of Pronouncement आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

Ashok R. Mehra 1) Whether on the facts and in the circumstances of the case, and in law, the Ld. CIT(A) has erred in ignoring the legal position envisaged in explanation 3D to clause (e) of section 43B, which states that deduction on any sum, being interest payable shall be allowed only if such interest has been actually paid and any interest referred in the said clause which gets further converted into loan or advance shall not be deemed to have been actually paid.

2) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the assessee did not have positive balance in his cash credit account on a single date prior to the filing of return.

3) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the closing balance of Rs. 3.06 crores as on 31.03.2012 in the OD account being less than the OD limit of Rs. 6 crores, indicates that the same is on account of principle loan and not on account of interest.

4) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the assessee has failed to Ashok R. Mehra furnish any documentary evidence in support of his claim that interest had been paid.

5) The appellant craves leave to add, amend, alter or delete any ground of appeal.

6) The order of the CIT(A) may be vacated and that of the Assessing Officer may be restored.

Ground No. 1 to 4

3. These grounds raised by the revenue are inter connected and inter related and relates to challenging the order of Ld. CIT(A) in deleting the disallowance of Rs. 89,04,538/- by ignoring the provisions of Section 43B(e) read with explanation 3D, therefore we thought it fit to dispose of these grounds by this common order.

4. At the very outset, Ld. AR appearing on behalf of the assessee submitted before us that the AO made disallowance of interest on OD account maintained by the assessee on the ground that every month, the interest amount was debited to the OD

Ashok R. Mehra account which only resulted in increasing the amount of loan/advance due to the bank from the assessee. But Ld. CIT(A) deleted the disallowance while relying on various judicial decisions and relying on the order of his predecessors in assessee’s own case for AY 2011-11 by holding that the assessee had made payment of interest with respect to the OD /CC account and therefore was not covered by the provision of section 43B(e) r.w explantation 3D of the I.T. Act. It was also pointed out that the identical ground has already been decided on merits in favour of assessee by the order of the Coordinate Bench of ITAT in for AY 2011-12 in assessee’s own case.

5. On the other hand, Ld. DR relied upon the orders passed by AO.

Ashok R. Mehra We find that the identical ground has already been decided by the Coordinate Bench of Hon’ble ITAT in for AY 2011-12in assessee’s own case. The operative portion of the order of Hon’ble ITAT contained in para no. 3 to 6, which is reproduced below:-

4. We have considered the rival contentions of the parties and gone through the orders of authorities below. We have seen that during the assessment from the P&L A/c the AO has observed that assessee has debited an amount of Rs. 57,88,447/- towards bank interest. The assessee was asked to furnish the proof of actual payment and also show-caused as to why the same should not be disallowed, if the same was not actually paid within the meaning of the provision of section 43B(d)/(e) r.w. Explanation 3D thereto. The Ashok R. Mehra assessee filed his reply dated 22.01.2014 and contended that all the payments are made during the year, hence the disallowance u/s 43B(d)/(e) is not applicable. The assessee also filed the ledger copy of bank charges and bank interest paid to UBI. The AO not accepted the explanation furnished by assessee and disallowed the interest. Before the ld. CIT(A) it was submitted that the assessee has CC running account, wherein a lot of withdrawal as well as number of deposits. The deposits justify the payments of interest as well as principal amount. On the year ending on 31.03.2011 the total withdrawal were Rs. 42,36,65,395/0 and the deposits were shown at Rs. 39,56,40,419/- and having closing balance of Rs. 2,80,24,975/-. The payments in respect of term loan were also paid. The ld. CIT(A) while considering the appeal of the assessee concluded as under:

“7. I have carefully considered the facts of the ea e, the findings of the AO, the submissions of the AR of the appellant and material placed on record. As per the bank statement, it is seen that during the year under consideration, the bank had provided the following amount of interest against CC Account with UBI:

Date Interest debited Rs. 30.04.2010 94,573 31.05.2010 84,967 30.06.2010 95,701 31.07.2010 2,92,934 31.08.2010 2,22,761 30.09.2010 2,46,311 31.10.2010 2,73,797 30.11.2010 3,36,301 31.12.2010 4,15,025 31.01.2011 3,80,428 28.02.2011 3,16,063 31.03.2011 3,28,139 TOTAL 46,68,742 Immediately, after the above entries, under the head 'Interest Account', the appellant has deposited number of cheques in CC Account, in every month. The AO, however, disallowed the above interest on the ground that the said interest was not paid by the appellant and the payments were made only against principle amount. The AO, however, observed that the debit balance in Ashok R. Mehra the CC Account has increased from Rs. 74.61 lakhs to Rs. 2.80 crores. The AO, did not considered the fact that the OD limit of the appellant was increased to Rs. 3 crores. Therefore, the debit balance of Rs. 2.80 crores, was well within the OD limit provided by the bank.

7.1. The perusal of OD Accounts reveals that interest amount were debited in the OD Account and sufficient amount was deposited after debit of interest, in every month. Therefore, the observation of the AO that said interest was not paid during the year and converted into loan, is not factually correct. 7.2. The contention of the AO that the interest has been converted into loan, on the ground that the balance in OD Account was always remained a debit balance, is not correct as the OD limit of the CC Account was increased from Rs. 1.5 crores to Rs. 3 crore, which was not considered by the AO. Since the Closing balance i.e. (-) Rs. 2.80 crores, as on 31.03.2011, in the OD Account is less than the OD limit of Rs. 3 crores, indicate that the same is on account of principle loan and not on account of interest. Considering the facts of the case in entirety, above discussion and respectfully

Ashok R. Mehra following the above decisions quoted, the addition made by the AO, on this account is hereby, deleted. This ground of appeal is allowed accordingly.”

5. The Hon’ble Madras High Court in CIT vs. Prakash Foods & Feed Mills P. Ltd. (supra) while deciding the similar ground held as under:

“3. We have heard the learned Standing Counsel appearing for the Revenue and perused the orders passed by the Tribunal and the authorities below.

Ashok R. Mehra institution or a State Financial Corporation or a 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 advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances, or (f) *** Explanation 3C.- For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (d) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing shall not be deemed to have been actually paid. Explanation 3D.- For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (e) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or advance shall not be deemed to have been actually paid.

Ashok R. Mehra that the amount has not been actually paid and transfer of amount from one account to another account cannot be treated as paid. However, the Tribunal repelled the said plea by interpreting Section 43B of the Act and held that overdraft/cash credit accounts are not similar to loan accounts. The Tribunal further observed that the interest amount has been actually paid by the assessee through Overdraft/Cash Credit account and, therefore, set aside the disallowance made under Section 43B of the Act.

6. A bare reading of Explanations 3C and 3D to Section 43B of the Act provides an answer to the problem by making it clear that where interest amount has not been converted into loan or borrowing (or) loan or advance, as the case may be, there is no question of denying the benefit of deduction. In the case on hand, the interest amount has been actually paid by the assessee through Overdraft/Cash Credit account and the same has not been converted into loan or borrowing (or) loan or advance, as the case may be.

Ashok R. Mehra against the Revenue and in favour of the assessee.”

6. Thus, in view of the ration of the decision of Madras High Court (supra), we find that the ground of appeal raised in the present appeal is covered against the revenue, thus we do not find any illegality or infirmity in the order passed by ld. CIT(A).

After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and Hon’ble ITAT as mentioned above in assessee’s own case, we find that the identical issues have already been decided by the Hon’ble ITAT in assessee’s own case for AY 2011-12 in ITA 2230/Mum/15. Therefore,respectfully following the decision of the Coordinate Bench of Hon’ble ITAT and in order to maintain judicial consistency, we apply the same findings in the present case which are applicable mutatis mutandis in the present case. Resultantly, these grounds raised by the revenue stands dismissed.

Ashok R. Mehra Ground No. 5 & 6. 7. These grounds raised by the revenue are general in nature, thus requires no specific adjudication.

8. In the net result, the appeal filed by the revenue stands dismissed with no order as to cost. Order pronounced in the open court on 17th September 2018 Sd/- Sd/- (ShamimYahya) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 17.09.2018 Sr.PS. Dhananjay आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant प्रत्यथी/ The Respondent 2. 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned 5. यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT, Mumbai गार्डफाईल / Guard File 6. आदेशधिुसधर/ BY ORDER,