No sec. 43B disallowance if interest was recovered by debiting cash credit account of assessee: ITAT

Case Details: Iceberg Foods Ltd. v. ACIT - [2021] 133 taxmann.com 190 (Delhi - Trib.)

Judiciary and Counsel Details

• • Anil Chaturvedi, Accountant Member and Kuldeep Singh, Judicial Member
  • Ved Jain and Ashish Goel, Advs. for the Appellant. 
  • Ms. Anima Baranwal, Sr. D.R. for the Respondent.

Facts of the Case

Assessee was a company stated to be engaged in manufacturing food items, bottling of beverages, and drinking water. It filed its return of income for assessment year 2014-15, declaring loss.

It was noted that the assessee had taken loans from Allahabad Bank, and those loans were restructured during the year. The assessee claimed that interest on a pre-structured term loan was paid out of the Cash credit limit (CC account), and thus same should be treated as being actually paid.

However, Assessing Officer (AO) claimed that the interest payable on restructured loans that were paid through CC account could not be deemed to have been actually paid by the assessee. The CIT(A) confirmed the order of AO. The aggrieved assessee filed the instant appeal before the Tribunal.

ITAT Held

The Delhi Tribunal held that a similar issue arose before the Madras High Court, in case of Prakash Foods & Feed Mills (P.) Ltd. [T.C. (A) Nos. 775 and 808 of 2014, dated 26-11-2014. The Madras High Court had upheld the order of Tribunal wherein it was held that overdraft/cash credit accounts are not similar to loan accounts. When the interest was paid through an overdraft/cash credit account, the disallowance made under section 43B was set aside.

In the instant case, the bank had charged interest on the term loan on a month-to-month basis, and the same was recovered by debiting it to the assessee’s cash credit (CC) account. Further, the amounts of credits (deposits) in the cash credit account are much more than the amount of interest debited by the bank.

Following the ruling of Madras High Court, the Delhi Tribunal held that the interest amount which had ‘paid’ by debiting Overdraft/Cash Credit account is deemed to be have been paid by assessee. The benefit of section 43B couldn’t be denied when such interest amount had not been converted into a loan or advance.

Case Review

• • CIT v. Prakash Foods & Feed Mills (P.) Ltd. [T.C. (A) Nos. 775 and 808 of 2014, dated 26-11-2014] (para 12) and
  • CIT v. Shreekant Phumbhra [2017] 79 taxmann.com 40/[2016] 387 ITR 523 (Cal.) (para 12) followed.

List of Cases Referred to

• • M.M. Aqua Technologies Ltd. v. CIT [2021] 129 taxmann.com 145/282 Taxman 281/436 ITR 582 (SC) (para 7)
  • CIT v. Prakash Foods & Feed Mills (P.) Ltd. [T.C. (A) Nos. 775 and 808 of 2014, dated 26-11-2014] (para 7)
  • CIT v. Shreekant Phumbhra [2017] 79 taxmann.com 40/[2016] 387 ITR 523 (Cal.) (para 7).