IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 26.11.2014 CORAM HON'BLE MR.JUSTICE R.SUDHAKAR AND HON'BLE MR.JUSTICE R.KARUPPIAH T.C.(A).Nos.775 and 808 of 2014 Commissioner of Income Tax Chennai. .. Appellant Vs. Prakash Foods & Feed Mills P. Ltd. JVL Towers, II Floor B, 117 Nelson Manickam Road Aminjikarai, Chennai 600 029 Respondent PRAYER: Appeals under Section 260A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal 'A' Bench, Chennai, dated 10.2.2014 made in I.T.A.Nos.695 and 696/Mds/2012 for assessment years 2004-2005 and 2005-2006 respectively. For Appellant : Mr.A.P.Srinivas for Mr.T.R.Senthil Kumar JUDGMENT (Delivered by R.SUDHAKAR, J.) These appeals are filed by Revenue challenging order of Income Tax Appellate Tribunal 'A' Bench, Chennai, dated 10.2.2014 made in I.T.A.Nos.695 and 696/Mds/2012 for assessment years 2004-2005 and 2005-2006 respectively, raising following question of law: (2) Whether on facts and in circumstances of case, assessee is eligible for deduction under Section 43B of Income Tax Act, 1961 on interest amount paid from Over Draft or Cash Credit Account towards liability of term loan, while Explanation 3C and 3D to Section 43B specifically deems that interest paid from loan or borrowing and loan or advance as not to have been actually paid? 2.1. facts in nutshell are as under: assessee is maintaining Cash Credit/Over Draft account with bank. For assessment years 2004-2005 and 2005-2006, interest was credited to said account of assessee. During re-assessment proceedings, Assessing Officer held that term 'paid' means that amount should have been actually paid and mere transfer of amount from one account to another account cannot be treated as 'paid' and accordingly, he made disallowance under Section 43B of Act, interest amount. 2.2. assessee preferred appeals to Commissioner of Income Tax (Appeals), who dismissed appeals confirming order passed by Assessing Officer. 2.3. Challenging said order, assessee preferred further appeals before Tribunal. Tribunal allowed appeals filed by assessee holding that interest amount has actually been 'paid' by assessee through Over Draft/Cash Credit account and that interest amount has not (3) been converted into loan or advance. 2.4. Calling in question said order, present appeals are filed by Revenue on question of law, referred supra. 3. We have heard learned Standing Counsel appearing for Revenue and perused orders passed by Tribunal and authorities below. 4. Before adverting to merits of case, it would be apposite to refer to relevant portion of Section 43B of Act, which reads as under: Section 43B. Certain deductions to be only on actual payment: Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of - (a) *** (b) *** (c) **** (d) any sum payable by assessee as interest on any loan or borrowing from any public financial institution or State Financial Corporation or State Industrial Investment Corporation, in accordance with terms and conditions of agreement governing such loan or borrowing, or (e) any sum payable by assessee as interest on any loan (4) or advances from scheduled bank in accordance with terms and conditions of agreement governing such loan or advances, or (f) *** Explanation 3C.- For removal of doubts, it is hereby declared that deduction of any sum, being interest payable under clause (d) 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 loan or borrowing shall not be deemed to have been actually paid. Explanation 3D.- For removal of doubts, it is hereby declared that deduction of any sum, being interest 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 loan or advance shall not be deemed to have been actually paid. 5. department declined to grant benefit of deduction on interest paid primarily on plea that amount has not been actually paid and transfer of amount from one account to another account cannot be treated as paid. However, Tribunal repelled said plea by interpreting Section 43B of Act and held that overdraft/cash credit accounts are not similar to loan accounts. Tribunal further observed that interest amount has been actually paid by assessee through Overdraft/Cash Credit account and, therefore, set aside disallowance made under Section (5) 43B of Act. 6. bare reading of Explanations 3C and 3D to Section 43B of Act provides answer to problem by making it clear that where interest amount has not been converted into loan or borrowing (or) loan or advance, as case may be, there is no question of denying benefit of deduction. In case on hand, interest amount has been actually paid by assessee through Overdraft/Cash Credit account and same has not been converted into loan or borrowing (or) loan or advance, as case may be. 7. For foregoing reasons, these appeals are dismissed by answering question of law against Revenue and in favour of assessee. (R.S.J.) (R.K.J.) 26.11.2014 Index : Yes Internet : Yes sasi (6) To: 1. Assistant Registrar, Income Tax Appellate Tribunal Chennai Bench "A", Chennai. 2. Secretary, Central Board of Direct Taxes, New Delhi. 3. Commissioner of Income Tax (Appeals)-V, Chennai 34. 4. Assistant Commissioner of Income Tax Company Circle V(2), Chennai. (7) R.SUDHAKAR,J. and R.KARUPPIAH,J. (sasi) T.C.(A).Nos.775 and 808 of 2014 26.11.2014 Commissioner of Income-tax, Chennai v. Prakash Foods & Feed Mills P. Ltd