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TMI Blog2021 (2) TMI 825X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 not appreciating the fact that the assessee failed to furnish any documentary evidence in support of his claim that interest had been paid. (4) The appellant craves leave to add, amend, alter or delete any ground of appeal. (5) The order of the CIT(A) may be vacated and that of the assessing officer may be restored." 2. Briefly stated, the assessee who is engaged in the business of processing and manufacturing of chemicals had e-filed his return of income for A.Y. 2015-16 on 27.09.2015, disclosing a total income of Rs. 44,58,640/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. During the course of the assessment proceedings it was obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual payment' provided in 'Explanation 3D' to Sec. 43B of the Act. Insofar the certificate issued by the bank of having received the amount towards the interest element was concerned, the A.O was of the view that the same was issued by the bank as per their internal accounting adjustments as per the RBI guidelines and the same had nothing to do with the application of the provisions of Sec. 43B of the Act. In the backdrop of his aforesaid deliberations, the A.O under Sec. 43B(d)/(e) r.w 'Explanation 3D' disallowed the assessee's claim for deduction of interest expenditure of Rs. 1,93,79,723/-. At the time of culminating the assessment it was also observed by the A.O that a similar disallowance of interest expenditure was made in the case of the assessee for A.Y 2014-15, and the same was therein carried in appeal by the latter. As regards the reliance placed by the assessee on the order of the Tribunal in his own case for A.Y. 2011-12 wherein a similar disallowance of interest expenditure made by the A.O under Sec.43B(d)/(e) r.w 'Explanation 3D' was vacated by the Tribunal, it was observed by the A.O that the department had not accepted the said order of the Tribunal and had carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest expenditure made by the A.O under Sec. 43B(d)/(e) r.w 'Explanation 3D' thus, no infirmity therein did emerge from the view taken by the CIT(A). Further, the ld. A.R in order to buttress his claim that no disallowance of the interest under Sec. 43B(d)/(e) r.w 'Explanation 3D' was liable to be made in the hands of the assessee relied on the CBDT Circular No. 07/2006, dated 17.07.2006. 7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements/circular that have been pressed into service by them to drive home their respective contentions. Before adverting any further, we think it apt to cull out the relevant extract of the statutory provision under which the interest expenditure had been disallowed by the A.O i.e under Sec. 43B(d)/(e) r.w 'Explanation 3D', which reads as under: "43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of : (a) to (c) ........................................................................................................ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creased in the overdraft account thus, any payment of an amount towards interest would partake the character as that of repayment of the existing amount of the principal loan and not the interest claimed by the assessee. We find that the aforesaid issue had been looked into by the Hon'ble High Court of Madras in CIT Vs. Prakash Food & Feed Mills Pvt. Ltd., T.C(A) Nos. 775 and 808 of 2014, dated 26.11.2014, wherein the Hon'ble High Court not finding favour with the view taken by the A.O had observed, that as the interest amount paid by the assessee through overdraft/cash credit account was not similar to loan accounts, thus, the 'Explanation 3C' or 'Explanation 3D' to Sec. 43B would not be applicable insofar the interest amount had been actually paid by the assessee through overdraft/cash credit account and the same has not been converted into loan or advance, as the case may be. Backed by its aforesaid observation the Hon'ble High Court had dismissed the appeal of the revenue. We find that following the aforesaid judgment of the Hon'ble High Court of Madras, a coordinate bench of the Tribunal i.e ITAT, Bench 'I', Mumbai in the assessee's own case for A.Y: 2011-12 in ITA No. 220/Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, 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. 7. For the foregoing reasons, these appeals are dismissed by answering the question of law 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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