Urjaa Metalics Pvt. Ltd. vs ACIT

The captioned appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-XXX, New Delhi (‘CIT(A)’ in short) dated 06.02.2023 arising from the assessment order dated 07.06.2021 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2018-19.

The grounds of appeal raised by the assessee read as under:

“1. On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad both in the eye of law and on facts.

(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the payment of Rs. 90,33,565/- made by the AO on account of deduction of interest to Bank as claimed by the assessee under the provisions of section 43B of the Income-tax Act holding the same as unpaid on or before the due date of filing of return of income.

(i) That the disallowance has been confirmed rejecting the detailed submission and explanation given by the assessee along with the evidences available on record which proves that the payments have been made before the due date of filing of return of income.

On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the abovesaid disallowance ignoring the contention of the assessee that the AO has erred in making the above disallowance without exercising the power under section 133(6) of the Act.”

As per the grounds of appeal, the assessee has challenged the disallowance of Rs.90,33,565/- on account of interest paid on loan to bank under Section 43B of the Act.

When the matter was called for hearing, the ld. counsel for the assessee submitted as under:

4.1 The assessee is engaged in the business of manufacturing, processing, import and export of all kind of steel products. The assessee filed return of income on 31.10.2015 declaring a loss of Rs.54,70,57,984/-.

4.2 The assessee had claim deduction under Section 43B in its computation of income at Rs.93,64,051/-. Out of total deduction claimed under Section 43B, Rs.90,33,565/- pertains to bank interest which was outstanding as at the beginning of the financial year, relevant to Assessment Year 2018-19 under consideration and which was duly paid during the Financial Year 2017-18 relevant to Assessment Year 2018-19. A reference was made to Tax Audit Report in this regard wherein at row number 26(i)(A)(a)(4), such fact clearly emerges on record. The case of the assessee was selected for scrutiny. Details of interest along with extract of bank statement and loan account statement were provided in the course of the assessment proceedings. The Assessing Officer however disallowed the claim under Section 43B having regard to the non-descript narrations of the entries in the loan account and held that such payments are in the nature of rebate or discount received by the assessee which was credited in the loan account statement.

4.3 Aggrieved, the assessee preferred appeal before the CIT(A).

4.4 It was pointed out before the CIT(A) that the liability preexisted at the beginning of the Financial Year 2017-18 and was not allowed in the tax computation of the preceding previous year. The liability towards interest has been actually paid during the year as vouched by the Tax Audit Report. It was further explained to the CIT(A) that this interest of Rs.90,33,565/- pertains to ‘term loans’ and ‘buyers credit’ from Andhra Bank, breakup of which is stated to be (i) interest on term loan - Rs.70,60,808/- and; (ii) interest on buyers credit -19,72,757/- aggregating to Rs.90,33,565/-.

4.5 As regards interest on term loan of Rs.70,60,808/-, it is the case of the assessee that such interest component was paid along with repayment of Rs.70 lakhs, thereby a total repayment of Rs.1,40,60,808/- has been made by the assessee to the bank. The date-wise entries were provided to the CIT(A) aggregating to Rs.1,40,60,808/-.

4.6 As regards interest of buyers credit of Rs.19,72,757/-, it is the case of the assessee that such interest component was paid along with other sum of Rs.19,56,030/-, thereby making total repayments of Rs.39,28,787/-. Date-wise breakup of such transaction has also been provided to the CIT(A) as tabulated at page no.19 of the appellate order.

4.7 The ld. Counsel thus contends that credit entries in the loan account are duly appearing in the bank statement of the assessee which would mean that repayments have been made by the assessee during the year under consideration to justify the claim of deduction under Section 43B of the Act.

4.8 The ld. counsel asserted that the CIT(A) has however ignored the detailed submissions and evidences furnished by the assessee and confirmed the additions made by the assessee while interpreting the narration of the entries in the loan account.

4.9 The ld. counsel submitted that the assessee has furnished detailed submission to substantiate its claim of deduction under Section 43B of the Act. Such deduction is reenforced and corroborated by Tax Audit Report, reflecting that payments were made during the year as claimed. The extract of bank statement evidencing details of payment made from bank qua loan account statement also affirms the claim of the assessee. Date-wise details of repayment were also submitted and no defect has been pointed out. In the absence of any adverse report from the Tax Auditor, the Revenue Authorities were not justified in taking a different stance.

4.10 The ld. counsel submitted that the AO as well as CIT(A) has acted merely on the basis of inadequate narrations appearing in the loan account statement and have ignored all the explanations and evidences furnished by the assessee. The ld. Counsel thus submitted that the disallowance carried out by the AO and confirmed by the CIT(A) calls for its reversal and restoration of the position taken by the assessee.

The ld. DR for the Revenue, on the other hand, strongly relied upon the findings given in the assessment order and the endorsement thereof made in the first appellate order. The ld. DR for the Revenue referred to the bank statement sought to be relied upon and submitted that the narration such as ‘2% cut back till 11.04.2012 amounting to Rs.2,02,000/-‘ and similar entries in the bank account does not provide any confidence that the assessee has actually repaid the interest during the year as required under Section 43B of the Act. The onus lies on the assessee to substantiate its claim by the clinching evidence. It was further pointed out that there are many entries which are not reflected in the tabulation and therefore, it is difficult to gauge the bona fides of the claim made in the return of income. The ld. DR further submitted that the deduction allowed in the Tax Audit Report is the sole basis to substantiate the claim. The AO is entitled in law to verify the claim and the particulars mentioned in the Tax Audit Report are not conclusive and amenable to inquiries and verifications. The ld. DR thus submitted that where the primary onus which lay upon the assessee was discharged, no fault can be found with the order of the lower authorities.

We have carefully considered the rival submissions and perused the material available on record.

The disallowance of claim of Rs.90,33,565/- claimed under Section 43B of the Act is in controversy.

As noted in the preceding paragraphs, the assessee has attempted to justify the correctness of the claim based on entries in the bank statement and the Tax Audit Report. The case of the assessee is that the bank has deducted 2% of the amount received against sales to recoup the principal amount of the liability and interest thereon. The entries, if aggregated, as tabulated in the submissions, would give rise to the conclusion that interest has actually been paid indeed while claiming deduction under Section 43B of the Act. While we observe that the transaction, as pointed out, are reflected in the bank statement, it is not very clear as to whether such transaction of deduction on 2% etc. relates to repayment of loan and interest thereon and not anything different. Simultaneously however, the effect of 2% cut back credit entries etc. in the books of account also requires to be understood. The issue is factual in nature. A bank certificate showing repayment of loan and interest attributable to Financial Year 2018-19 in question could be handy to clinch the claim of the assessee.

While the manner of entries passed by the bankers is not within the control of the assessee, it is the duty of the assessee to provide requisite corroboration while making its claim. The AO is also expected to make inquiries from the bank if so needed.

Thus, in the totality of the circumstances, we consider it expedient to set aside the first appellate order and restore the matter back to the file of the AO for examination of the issue afresh. It shall be open to the assessee to furnish such evidence as may be required to justify the deduction claimed under Section 43B of the Act. The AO may also make suitable inquiries from the bank to ascertain the propriety of claim made under Section 43B of the Act.

Without any expression on merit, we thus restore the issue back to the file of the AO for adjudication of the issue afresh in accordance with law.

In the result, the appeal of the assessee is allowed for statistical purposes.