What did the Tribunal hold?

The Tribunal held that the assessee failed to prove that the interest claim pertained to the year under consideration or that it crystallized during the year. No evidence was produced to support the claim under the mercantile system of accounting.

The assessee made a provision for interest expenditure of Rs. 38,56,748/-. The Assessing Officer disallowed this provision invoking Section 43B(e) as the interest was not paid before the due date for filing the return of income.

What were the issues?

Whether the provision for interest expenditure is allowable when the interest liability did not crystallize during the year and the provisions of Section 43B(e) are applicable.

M/S. Maharashtra Hardware Stores vs DCIT | ITAT Mumbai 2016

Income Tax Appellate Tribunal, “B” BENCH, MUMBAI

Before: SHRI B.R. BASKARAN (AM) & SHRI AMIT SHUKLA (JM)

For Appellant: Shri Prakash K. Jotwani

For Respondent: Shri Piyush Sonkar (DR)

Hearing: 12.04.2016Pronounced: 04.05.2016

The appeal filed by the assessee is directed against the order dt. 18.5.2007 passed by CIT(A)-13, Mumbai and it relates to Assessment Year 2004-05. The solitary issue urged in this appeal relates to disallowance of interest provision of Rs.38,56,748/-.

We heard the parties and perused the record. The assessee is a firm engaged in the business of trading in iron and steel hardware,

2 M/s. Maharashtra Hardware Stores ITA No. 5513/Mum/2007 general suppliers etc. The assessee had borrowed loan from Madhavapura Mercantile Co-operative Bank Ltd. Due to a scam that took place in the above said bank, it was not functioning since 2001 onwards. Further, the loan account of the assessee was also classified as Non-Performing Asset. Therefore, the assessee did not make any interest provision for financial year 2002-03. However, the assessee made a provision for interest expenditure to the tune of Rs. 38,56,748/-. The Assessing Officer, however, disallowed the same by invoking the provisions of Sec. 43B(e) of the Income Tax Act, 1961 (in short „the Act‟), since the assessee did not pay the interest amount before the due date for filing return of income.

Before the CIT(A), the assessee contended that the provisions of Sec. 43B(e) of the Act was introduced from Assessment Year 2005-06 onwards and accordingly prayed for cancellation of the addition of interest claimed. However, the Ld. CIT(A) took the view that the liability to pay interest did not crystallize during the previous year under consideration and accordingly, confirmed the addition.

Before us, the Ld. Counsel on behalf of the assessee reiterated the point that the provisions of Sec. 43B(e) of the Act is not applicable for the year under consideration. However, the Ld. DR pointed out that the assessee is not in a position to show that the interest claim of Rs.38,56,748/- pertained to the year under consideration. The Ld. Counsel also could not controvert the said fact. Under these circumstances, we are of the view that the observations of the Ld. CIT(A) that the impugned interest claim did not crystallize during the year under consideration remains uncontroverted. Further no evidence was produced before us that the impugned interest expenditure can be 3 M/s. Maharashtra Hardware Stores ITA No. 5513/Mum/2007 claimed under mercantile system of accounting. Accordingly, we do not find any reason to interfere with his order on this issue.

In the result, appeal filed by the assessee is dismissed.

Order pronounced in the open court on 04.05.2016.

M/S. MAHARASHTRA HARDWARE STORES,MUMBAI vs. DY. CIT CIR,13(2), MUMBAI

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