Unreported Decisions – July 2022

By Ajay R. Singh, Advocate and CA Rohit Shah

1. Business disallowance under section 43B(d)/(e) read with ‘Explanation 3D – Deduction on actual payment – Bank interest expenses

Assessee debited bank interest expenses of Rs. 1,93,79,723 in profit and loss account. On being queried that as to why said interest expenditure may not be disallowed in case the same was not actually paid within the meaning of section 43B(d)/(e) read with ‘Explanation 3D’, it was submitted that as interest charged by the bank was fully recovered from his bank accounts and nothing was pending for payment since entire amount of interest was paid in the subsequent month thus, the provisions of section 43B(d)/(e) read with ‘Explanation 3D’ were duly complied with. AO was of the view that claim of the assessee that the interest had been actually paid was not factually correct and also not in accordance with the definition of ‘actual payment’ provided in ‘Explanation 3D’ to section 43B of the Act. Insofar the certificate issued by the bank of having received the amount towards interest element was concerned, AO was of the view that same was issued by bank as per their internal accounting adjustments as per RBI guidelines and same had nothing to do with application of provisions of section 43B. In the backdrop of his aforesaid deliberations, AO under section 43B(d)/(e) read with ‘Explanation 3D’ disallowed assessee’s claim for deduction of interest expenditure.

Section 43B(d)(e) read with ‘Explanation 3D’ contemplates that any sum inter alia payable by assessee on any loan or advances from a scheduled bank in accordance with terms and conditions of agreement governing such loan or advances would 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. Further, as per ‘Explanation 3D’ it has been clarified that a deduction of any sum, inter alia being interest payable on any loan or advance from a scheduled bank would be allowed if such interest has been actually paid and any interest which had been converted into a loan or advance shall not be deemed to have been actually paid. The controversy in assessee’s case emerged from the different manner in which section 43B(d)/(e) read with ‘Explanation 3D’ had been construed by assessee and the revenue. A bare reading of Explanations 3C and 3D to section 43B 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 instant case interest amount had been actually paid by assessee through Overdraft/Cash Credit account and the same had not been converted into loan or borrowing (or) loan or advance. Therefore, AO was directed to vacate disallowance of the interest expenditure made by him under section 43B(d)(c) read with ‘Explanation 3D’.

ACIT v. Ashok Radhakishen Mehra

[ITA No.5096/Mum/2019 ; Bench A ; A.Y. 2015-16 ; dt 18/2/2021 ]

2. Capital Gains- No Cost of Acquisition – No Capital Gains

The assessee filed return in response to notice u/s 148 declaring Long Term Capital Gains and other income by considering Cost of Acquisition as FMV of land as on 01/04/1981 as land was acquired by the original owner prior to 1-4-1981. No such plea that land came into the possession of the appellant in the circumstances that cost of land was not conceivable was taken before the AO. During the course of appellate proceedings, it was claimed that appellant was in possession of land for a long period and therefore, owner of the land had requested the revenue authorities to delete their name and put the name of the appellant as owner in the land records. One report of advocate regarding the investigation of the title of the property along with certified copy of mutation entry was furnished. The assessee had also relied on the decision of the courts where in case of adverse possession for a long period, cost to the encroacher was not found determinable, hence, on sale of property by such owners (encroachers) was not held liable to the capital gain tax. Revenue contended that, no material whatsoever was brought on record to show that assessee was in forcible possession of the land and there was any litigation Civil or Criminal between the heirs of G. B. Patwardhan and the appellant. Also, there was no evidence to hold that it was forcible and adverse possession in the hands of the appellant. Therefore, it was held that land was gifted to the appellant on 12.09.1973 and accordingly, cost of acquisition in the hands of appellant can be taken at the option of the appellant either the cost in hands of late G. B. Patwardhan or the FMV as on 01.04.1981.

Accordingly, as per GST provisions, the importer of goods located in India is deemed service recipient of ocean transportation service and accordingly liable to pay IGST under reverse charge on said services. The Respondent did not dispute the IGST liability under reverse charge on ocean transportation when it imported goods on Free on Board (FOB) basis since in such cases the Respondent contracted for ocean transportation services.

Hon’ble ITAT, held that section 49(1)(i) to (iv) prescribing cost; with reference to certain modes of acquisition wherein if it is found that the capital asset in issue has been acquired under the specified mode; gift herein is to be taken for which the previous owner had acquired the same for valuation consideration followed by Explanation thereto inserted by Finance Act, 1965 w.e.f. 1-4-1965, the dept failed to rebut the clinching fact that the learned lower authorities could not find the actual cost of acquisition paid by way of valuable consideration. However, as the same could not be done, appeal of the assessee was allowed and the Assessing Officer was directed to frame his consequential computation after adopting the cost of the asset’s acquisition in issue as “NIL”

The Tribunal followed the decision in case of CIT Vs. Sambhaji Nagar Co-op. Hsg. Society Ltd. (2015) 370 ITR 325 (Bom) as well as CIT Vs Markapakula Agamma (1987) 165 ITR 386 (AP) .
Baban G. Kumbharkar v. ITO

[ITA No. 2315 & 2316/PUN/2016 ; Bench : A Pune ITAT ; dated 18/6/2022 ; AY 2007-08 & 2008-09 ]