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Income Tax Appellate Tribunal, “D”, BENCH KOLKATA
O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned appeal filed by the assessee pertaining to the Assessment Year 2007-08, is directed against the order passed by ld. CIT(A)-21, Kolkata in Appeal No.1339/DCIT.C-Murshidabad/CIT(A)- 21/Kol/14-15, dated 01.03.2016, which in turn arises out of an order passed by the Assessing Officer (AO) Under Section 143(3) of the Income Tax Act 1961, (hereinafter referred to as the ‘Act’), dated 27.11.2009.
Brief facts of the case qua the assessee are that the assessee is engaged in manufacturing, repairing and trading of battery and battery products. The assessee also works as a commission agent. The assessee filed its e-return of income on 29.10.2007 disclosing its total income at Rs.Nil. The assessee’s case was selected for scrutiny and the AO framed the assessment disallowing interest on CC a/c Rs.13,36,747/- and term loan a/c Rs.2,06,389/- u/s.43B(e) of the Act. before the ld. CIT(A), who has confirmed the additions made by the AO observing the followings :-
Observation of CIT(A) for ground No.1
“it may be noted that there was no auto penalty on the WCTL interest of Rs 5,43,973/-and term loan interest of Rs. 2,06,386/- as would be evident from the copies of bank statements submitted herewith. In the case of cash credit limit also no auto penalty was charged in September and October 2006 and the amount of penalty wherever charged varied from Rs. 5 to Rs.602 without having any linkage to the quantum of Interest charged. In the case of penal interest it is always linked to some rate and the amount of such penal interest cannot have such variation. The bank levies the penalties for delay in submission of periodical returns, stock statement and annual accounts in order to ensure that the returns are filed and submitted in time. Without prejudice to this, simply levying of penalty cannot conclude that interest has not been paid but actually accounted for on perusal of the borrowings from banks, when compared to the preceding year, it will be seen that the borrowings have been reduced in the case of Term loan and WCTL whereas in the case of cash credit it has increased by a small amount of Rs. 50,000/-which is within the sanction limit.
Nature of loans Borrowing as on Borrowing as on Increase/Decrease( 31.03.2006(Rs.) 31.03.2007(Rs.) Rs.) Cash Credit 49,44,010.93 49,94,189.93 (50179) WCTL 34,99,427.00 32,87,864.00 2,11,563 Term Loan 14,57,584.00 12,20,156.00 2,37,428 Total 99,01,021.93 95,02,209.93 3,98,812
The above figures are after payment of interest which the bank had charged. Leading to a conclusion that such interest has duly been paid. On perusal of the bank statements it will be seen that there are various credit entries in all the above loans. In the case of WCTL and term Loan there are specific credits against interest charged. In addition, the debits in cash credit account which is a demand loan tantamount to payments so long it does not exceed the sanction limit which in this case has not exceed the sanction limit which in this case has not exceeded." .
The AO has reported "The AO concluded after discussing in details that unpaid interest cannot be allowed debited in the P/L. A/c. as per provision prescribed in section 43B(c) read with Explanation 3D and accordingly disallowed Rs.13,36,747/- and Rs. 2,06,386/- claimed as interest paid by the assessee.
Observation of CIT(A) for ground No.3 The AO has reported that "in the computation of total income for the A.Y.2006-07 the assessee added Rs. 3,92,164/- to the net profit as inadmissible u/s 40(a). But for the assessment year 2007-08, the assessee in his submission before Ld. CIT(A)-XXXVI, Kolkata has claimed deduction of exactly the same amount of Rs.3.92,164/-. In course of hearing, no documentary evidence in support of claim for deduction 40(a) is furnished by the assessee. Even during the course of instant appeal proceeding the appellant failed to substantiate the claim as made in the grounds of appeal. In view of above and the material available on record, the assessing officer was justified in disallowing the claim and appeal on this ground is not allowed.”
Not being satisfied with the order of ld. CIT(A), the assessee is in further appeal before us and has taken the following grounds of appeal :-
(1) that the Commissioner of Income Tax has erred both on the facts and under the circumstances of the case, in disallowing interest on CC a/c Rs.13,36,747/- and term loan a/c.Rs.206389/- u/s.43B(e) (2) That the CIT(A) has further erred likewise in making addition of Rs.2,52,639/- u/s.40(a)(ia) of the I.T.Act.1961. (3) That the CIT(A) has further erred likewise, in making addition of Rs.3,92,164/- u/s.40(a) of the I.T.Act. 1961.
Although in this appeal the assesse has raised three grounds of appeal, but at the time of hearing the main grievance of the assesse has been confined to ground No.1 and ground No.3. The ground No.2 has not been pressed by the assessee.
5.1 Ground No. 1 raised by the assesse relates to disallowance of interest U/s 43B (e) of the Act, in respect of CC Account at Rs. 13,36,747/- and Term Loan account Rs.2,06,389/-. has paid the interest of Rs.13,36,747/-. The assesse had been paying the interest monthly during accounting year 2006-07 relevant to the assessment Year 2007-08. The ld AR for the assesse has produced before us the details of interest paid to UCO Bank for CC Account and interest paid on working capital term loan (WCTL). The same details were produced by the assesse before ld AO and ld CIT(A) but they did not consider the same. Assessee also produced before us the interest paid on term loan. The bank used to charge the penal interest on monthly delay done by the assesse within the year. But the assesse has paid the entire interest within the year, that is, up to March 31,2007 therefore, there is no violation of provisions of section 43B (e ) of the Act 5.3. Ld. DR for the revenue has also primarily relied on the findings of the AO which we have already noted in our earlier para and is not being repeated for the sake of brevity.
5.4. Having heard the rival submissions, perused the material on record, we are of the view that there is merit in the submissions of the assesse, as the proposition canvassed by ld. AR for the assessee are supported by the facts narrated by him above. As Ld. AR for the assessee has rightly pointed out that the bank used to charge the penal interest on monthly delay done by the assesse within the year. But the assesse has paid the entire interest within the year, that is, up to March 31,2007 therefore, there is no violation of provisions of section 43B (e ) of the Act. Therefore, CIT(A) needs to be deleted. Accordingly, we delete the addition.
The third ground relates to addition of Rs. 3,92,164/- U/s 40(a) of the I.T.Act.
6.1 Ld AR for the assessee submitted before us that assesse had paid the amount to various persons and Deducted TDS under section 194A and 194H of the I.T.Act, the so deducted TDS has been paid by the assesse till March 31,2006 therefore, the assesse is entitled to claim the expenditure.
6.2 On the other hand, the ld DR for the Revenue is primarily reiterated the stand taken by the Assessing Officer and ld CIT(A). The AO has reported that “in the computation of total income for the A.Y. 2006-07 the assesse added Rs. 3,92,164/- to the net profit as inadmissible U/s 40(a).
But for the assessment Year 2007-08, the assesse in his submission before ld CIT(A)-XXXVI, Kolkata has claimed deduction of exactly the same amount of Rs. 3,92,164/-. In the course of hearing, no documentary evidence in support of claim for deduction U/s 40(a) is furnished by the assesse. Even during the course of instant appeal proceedings the appellant faild to substantiate the claim as made in the grounds of appeal.”
6.3 Having heard the rival submission, pursed the material available on record, we are of the view that there is merit in the submission of the assesse, as the proposition canvassed by the ld AR for the assesse are supported by the facts narrated by him above. As the ld. AR for the