Prakash Foods & Feed Mills P.Ltd., CHENNAI V. ACIT, CHENNAI

ITA 695/CHNY/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73663 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-02-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 03-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: C ANANDA KUMAR
• Section: 43B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , ! , ' # $ BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ I.T.A. NO. 695/MDS/2012 / ASSESSMENT YEAR : 2004-05 ./ I.T.A. NO. 696/MDS/2012 / ASSESSMENT YEAR : 2005-06 PRAKASH FOODS & FEED MILLS P. LTD., JVL TOWERS, II FLOOR-B, 117, NELSON MANICKAM ROAD, AMINJIKARAI, CHENNAI 600 029 [PAN: AAACP 5551 G] ( !% /APPELLANT) VS ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(2), CHENNAI-34 ( &'!% /RESPONDENT) / APPELLANT BY : SHRI C.ANANDA KUMAR, CA., / RESPONDENT BY : SHRI GURU BHASHYAM , JCIT / DATE OF HEARING : 10-02-2014 /DATE OF PRONOUNCEMENT : 10-02-2014 #( / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE AFORESAID TWO APPEALS HAVE BEEN FILED BY THE A SSESSEE FOR THE ASSESSMENT YEARS (AYS) 2004-05 & 2005-06. IN BOTH THE ITA. NOS. 695 & 696/MDS/12 2 APPEALS, THE COMMON ISSUE IS DIS-ALLOWANCE U/S.43B OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT ) OF INTEREST AMOUNT PAID BY THE ASSESSEE. 2. THE ASSESSEE IS MAINTAINING CASH CREDIT/OVER DRA FT ACCOUNT WITH THE BANK. IN BOTH THE AYS, INTEREST WAS CREDI TED TO THE SAID ACCOUNT OF THE ASSESSEE. DURING RE-ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER HELD THAT THE TERM PAID MEANS T HAT THE AMOUNT SHOULD HAVE BEEN ACTUALLY PAID. TRANSFER OF AMOUNT FROM ONE ACCOUNT TO ANOTHER ACCOUNT CANNOT BE TREATED AS PA ID. THE ASSESSING OFFICER MADE DIS-ALLOWANCE U/S.43B OF THE INTEREST AMOUNT IN BOTH THE AYS. AGGRIEVED AGAINST THE ASSESSMENT ORDER FOR THE RESP ECTIVE AYS, THE ASSESSEE PREFERRED APPEALS BEFORE THE CIT( APPEALS). THE CIT(APPEALS) PLACED RELIANCE ON THE DECISION IN THE CASE OF EICHER MOTORS LTD VS. CIT, INDORE REPORTED AS 315 ITR 312 (MP) AND THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT I N THE CASE OF KALPANA LAMPS & COMPONENTS LTD., VS. DCIT REPORTED AS 255 ITR 491 (MDS). IN BOTH THE JUDGMENTS, THE HONBLE HIGH COURTS HAVE OBSERVED THAT CONVERSION OF INTEREST INTO LOAN WOULD NOT TANTAMOUNT TO ACTUAL PAYMENT OF INTEREST AMOUNT AND THEREFORE NO ITA. NOS. 695 & 696/MDS/12 3 DEDUCTION IS ALLOWABLE ON SUCH FUNDED INTEREST U/S. 43B. THIS ONLY RESULT IN POSTPONEMENT OF LIABILITY AND DOES NOT AM OUNT TO DISCHARGE WHETHER ACTUAL OR CONSTRUCTIVE. THE CIT( APPEALS) DISMISSED BOTH THE APPEALS OF THE ASSESSEE. AGGRIEVED AGAINST THE ORDERS OF THE CIT(APPEALS) FO R THE AYS. 2004-05 & 2005-06 BOTH DATED 28-02-2012, THE A SSESSEE HAS COME IN APPEAL BEFORE THE TRIBUNAL. 3. SHRI C.ANANDA KUMAR, APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT FOR THE AY.2004-05, DIS-ALLOWANCE TO THE TUNE OF ` 21,35,626/- AND FOR THE AY.2005-06, DIS-ALLOWANCE O F ` 87,73,661/- HAS BEEN MADE U/S.43B OF THE ACT. THES E AMOUNTS HAVE BEEN CREDITED TO THE CASH CREDIT/OVERDRAFT ACC OUNT OF THE ASSESSEE MAINTAINED WITH THE STATE BANK OF INDIA. THE ASSESSEE HAS MADE ARRANGEMENT WITH THE BANK FOR THE PAYMENT OF INTEREST AMOUNT FROM THE CASH CREDIT/OVERDRAFT ACCOUNT. THE INTEREST AMOUNTS HAVE ACTUALLY BEEN PAID AND THE INTEREST EX PENDITURE HAS NOT BEEN CONVERTED INTO ANY TERM LOAN AS ALLEGED BY THE AUTHORITIES BELOW. THE CASE OF THE ASSESSEE DOES NOT FALL WITH IN THE AMBIT OF EXCLUSIONS GIVEN IN EXPLANATION 3C OR 3D OF SECTION 43B. ITA. NOS. 695 & 696/MDS/12 4 4. ON THE OTHER HAND, SHRI GURU BHASHYAM, APPEARING ON BEHALF OF THE REVENUE SUBMITTED THAT THE ASSESSEE H AS NOT ACTUALLY PAID THE INTEREST AMOUNT. THERE IS NO D ECREASE IN THE LIABILITY RATHER THE LIABILITY OF THE ASSESSEE HAS INCREASED BY THE CREDIT OF THE AMOUNT IN THE CASH CREDIT ACCOUNT OF THE ASSESSEE. THE ASSESSEE HAS MERELY POSTPONED THE LIABILITY. T HE LD.DR VEHEMENTLY SUPPORTED THE ORDERS OF THE CIT(APPEALS) AND PRAYED FOR THE DISMISSAL OF THE APPEALS OF THE ASSESSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE ALSO PER USED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER HA S MADE ADDITION OF INTEREST AMOUNT ` 21,35,626/- FOR THE AY.2004-05 AND ` 87,73,661/- FOR THE AY.2005-06 U/S.43B OF THE ACT. IN APPEAL, THE CIT(APPEALS) HAS CONFIRMED THE FINDINGS OF THE ASSE SSING OFFICER. THE CIT(APPEALS) HAS RELIED ON THE DECISION OF THE HONBLE MADHYA PRADESH HIGH COURTS IN THE CASE OF EICHER MOTORS LTD VS. CIT, INDORE (SUPRA) AND HONBLE MADRAS HIGH COURT IN THE CASE OF KALPANA LAMPS & COMPONENTS LTD., VS. DCIT (SUPRA). ITA. NOS. 695 & 696/MDS/12 5 6. BEFORE WE PROCEED WITH THE MERITS OF THE CASE, L ET US EXAMINE THE RELEVANT PROVISIONS OF SECTION 43B OF T HE ACT. THE SAME ARE RE-PRODUCED HEREUNDER: SECTION 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWA BLE UNDER THIS ACT IN RESPECT OF (A) XXXXXXXXXXX (B) XXXXXXXXXXXX (C)XXXXXXXXXXXXX (D) ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN OR BORROWING FROM ANY PUBLIC FINANCIAL INSTITUTION OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPOR ATION, IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGR EEMENT 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 T HE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR ADVANCES, OR (F) XXXXXXXXXXXXXXXX EXPLANATION 3C. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT A DEDUCTION OF ANY SUM, BEING INTERES T PAYABLE UNDER CLAUSE (D) OF THIS SECTION, SHALL BE ALLOWED IF SUCH INTEREST ITA. NOS. 695 & 696/MDS/12 6 HAS BEEN ACTUALLY PAID AND ANY INTEREST REFERRED TO IN THAT CLAUSE WHICH HAS BEEN CONVERTED INTO A LOAN OR BORROWING S HALL 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 INTERES T 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 SHA LL NOT BE DEEMED TO HAVE BEEN ACTUALLY PAID. A BARE PERUSAL OF THE EXPLANATION 3C AND 3D MAKES I T CLEAR THAT ANY INTEREST ON LOAN FROM PUBLIC FINANCIAL INSTITUT ION OR SCHEDULED BANK WHICH HAS NOT BEEN ACTUALLY PAID AND HAS BEEN CONVERTED INTO LOAN OR BORROWINGS OR ADVANCE SHALL NOT BE DEE MED TO HAVE BEEN PAID. 7. IN THE JUDGMENTS REFERRED TO BY THE CIT(APPEALS) , THE ASSESSEES HAD MADE INTEREST PAYMENTS AFTER BORROWIN GS IN THE FORM OF TERM LOAN ACCOUNT OR CONVERSION OF INTEREST INTO LOAN. THE HONBLE HIGH COURTS IN SUCH LIKE CASES HAS HELD THA T CONVERSION OF INTEREST INTO LOAN WOULD NOT AMOUNT TO ACTUAL PAYME NT OF INTEREST. IT IS A MERE POSTPONEMENT OF LIABILITY. IN THE CAS E OF KALPANA LAMPS & COMPONENTS LTD., VS. DCIT (SUPRA), THE HONBLE ITA. NOS. 695 & 696/MDS/12 7 JURISDICTIONAL HIGH COURT HAS HELD THAT AMOUNT PAYA BLE BY THE ASSESSEE AS INTEREST ON BORROWING FROM PUBLIC FINAN CIAL INSTITUTIONS IS TO BE ALLOWED AS A DEDUCTION ONLY I N THE YEAR IN WHICH THE AMOUNT WAS ACTUALLY PAID. MERE POSTPONEM ENT OF LIABILITY DOES NOT AMOUNT TO PAYMENT. IN THE SAID CASE, THE ASSESSEE HAD CONVERTED OUTSTANDING INTEREST INTO A TERM LOAN LIABILITY WHICH WAS TO BE PAID IN INSTALMENTS IN TH E FUTURE YEARS. 8. IN THE PRESENT CASE, UNDISPUTEDLY THE INTEREST P AYMENT HAS BEEN MADE FROM OVERDRAFT/CASH CREDIT ACCOUNT MAINTA INED BY THE ASSESSEE. WE ARE OF THE CONSIDERED OPINION THAT OV ERDRAFT/CASH CREDIT ACCOUNTS ARE NOT SIMILAR TO THE LOAN ACCOUNT S. THE SAID ACCOUNTS ARE OPERATIVE ACCOUNTS FOR THE DEPOSIT OF CASH OR CHEQUES AND TO MAKE PAYMENTS IN THE NORMAL COURSE O F BUSINESS. THE BANKS EXTEND OVERDRAFT FACILITY TO ITS CUSTOMER S FOR THE SMOOTH RUNNING OF THEIR DAY TO DAY BUSINESS. OVERDRAFT FA CILITY IS THE RESULT OF AN AGREEMENT WITH THE BANK BY WHICH A CURRENT AC COUNT HOLDER IS ALLOWED TO DRAW OVER AND ABOVE THE CREDIT BALANC E IN HIS/HER ACCOUNT. THIS FACILITY IS MADE AVAILABLE TO CURREN T ACCOUNT HOLDERS WHO OPERATE THEIR ACCOUNT THROUGH CHEQUES. THE CUS TOMER IS PERMITTED TO WITHDRAW THE AMOUNT OF OVERDRAFT ALLOW ED AS AND ITA. NOS. 695 & 696/MDS/12 8 WHEN HE/SHE NEEDS IT AND TO REPAY IT THROUGH DEPOSI TS IN THE ACCOUNT AS AND WHEN IT IS CONVENIENT TO HIM/HER. T HE OVERDRAFT LIMITS ARE DETERMINED BY THE BANKS ON THE BASIS OF SALES, INVENTORY AND COLLATERAL SECURITY ETC. THE LIMITS ARE REVIEW ED ON YEAR TO YEAR BASIS. WHEREAS IN TERM LOAN, THE LOAN AMOUNT IS FI XED AND DOES NOT VARY ON DAY TO DAY BASIS. THE AMOUNT IS REPAID AFTER THE EXPIRY OF THE SPECIFIED PERIOD IN INSTALMENTS. THE LOAN M ONEY IS GIVEN FOR A DEFINITE PURPOSE AND FOR A PRE-DETERMINED PERIOD. IN OUR CONSIDERED OPINION, THE JUDGMENTS OF THE HON BLE HIGH COURTS IN THE CASE OF EICHER MOTORS LTD VS. CIT, INDORE (SUPRA) AND KALPANA LAMPS & COMPONENTS LTD., VS. DCIT (SUPRA), ARE DISTINGUISHABLE IN THE FACTS AND CIRCUMSTANCES OF T HE CASE IN HAND. 9. THE INTEREST AMOUNT HAS BEEN PAID FROM THE CASH CREDIT ACCOUNT OF THE ASSESSEE IN WHICH THE BALANCE KEEPS ON VARYING EVERY DAY DEPENDING UPON THE RECEIPTS AND PAYMENTS OF THE ASSESSEE. THE EMBARGO PUT BY EXPLANATION 3C AND 3D OF SECTION 43B IS NOT ATTRACTED IN THE FACTS OF THE PRESENT CA SE. THE INTEREST AMOUNT HAS NOT BEEN CONVERTED INTO LOAN OR ADVANCE. THE INTEREST AMOUNT HAS ACTUALLY BEEN PAID BY THE ASSESSEE THR OUGH ITA. NOS. 695 & 696/MDS/12 9 OVERDRAFT/CASH CREDIT ACCOUNT. IN VIEW OF OUR ABOV E FINDINGS, THE DIS-ALLOWANCE MADE U/S.43B IS SET ASIDE AND THE APP EALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON MONDAY, THE 10 TH FEBRUARY, 2014 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VIK AS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 10 TH FEBRUARY, 2014 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR