- (1.) This appeal is directed against the judgement and order dated 28th March, 2008 by which the learned Income Tax Appellate Tribunal, "D" Bench, Kolkata allowed an appeal being ITA No. 1818/Kol/2007 preferred by the Assessee and dismissed an appeal being ITA No. 2105/Kol/2007 preferred by the Revenue both pertaining to the assessment year 2004-05.
(2.) The aggrieved revenue has come up in appeal. The following questions were formulated on 29th July, 2009 when the appeal was admitted: "1. Whether the Tribunal below substantially erred in law in rejecting the contention of the revenue asking disallowance of Rs. 22,30,581/- and Rs. 14,294/- made by the assessing officer under section 43B(e) read with explanation 3D of the Income Tax Act ? 2. Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal substantially erred in law in rejecting the contention of the revenue asking for disallowance of Rs. 40,24,262/- made by the assessing officer, being the income as interest on loan utilised for non-business purposes by the assessee ?
(3.) The assessing officer disallowed payment of interest amounting to a sum of Rs. 22,39,581.82 and Rs. 14,292/-, due to the following reasonings: "There is no schedule of repayment drawn by the bank for the purposes of realising the outstanding principal amount. A review of the bank's statement and books of account will show that total amount deposited with the bank during the year far exceeds the total interest of Rs. 22,53,874.43 (Rs. 22,39,581.82 in M/s. Shreekant Phumbhra & Rs. 14,292.61 in M/s. Shreekant Phumbhra & Co.) charged by the bank. The nature of accounts as discussed above has also to be considered for the purpose of applicability of the provisions of section 43B of the Income Tax Act, 1961. In this view of the matter, it is submitted that no question arises of making any disallowance under section 43B. Therefore, it will be seen that there is no violation of the provisions contained in Section 43B. 12(2)(b) The provisions of section 43B runs as under : "43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this act in respect of... (a)... (b)... (c)... (d)... (e) any sum payable by an assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances, Or .... (f) shall be allowed irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him". Explanation 3D-For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (c) 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 shall not be deemed to have been actually paid. The above explanation has been inserted by the Finance Act with retrospective effect from 01.04.1989 and as such is applicable for the previous year 2004-05. The assessee submits that there is no schedule for payment that the total amount deposited exceeds the total interest of Rs. 22,53,874 (Rs. 22,39,581.82 in M/s. Shreekant Phumbhra and Rs. 14,292.61 in M/s. Shreekant Phumbhra and Co.) charged by the bank and that the loan is secured against pledge of shares. The provision is very much clear. Even there had been any agreement for converting the interest into a loan with the obvious effect of enhanced debit balance the same is covered in this provision as the above Explanation 3D. The above interest of Rs. 22,53,874.43 and Rs. 14,292 are allowed and disallowed and added back to the respective Net profit of the above two concerns.";