IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION Civil Appeal No(s). 5347/2010 COMMISSIONER OF INCOME TAX, AHMEDABAD Appellant(s) VERSUS M/S GUJARAT CYPROMET LTD. Respondent(s) ORDER We have heard Mr. Sanjay Jain, learned ASG appearing for appellant. Despite service, no one is present on behalf of respondent. This appeal has been filed against judgment dated 31.08.2006 passed by High Court of Gujarat in Tax Appeal No. 231 of 2006, whereby High Court dismissed Tax Appeal filed by appellant. respondent assessee filed return of income showing total loss of Rs.3,76,70,656 on 31.10.2001. said return was processed and statutory notice was issued. assessment order was passed on 17.03.2004 for assessment year 2001-02. In present case, High Court had admitted appeal only on following question of law: Whether on facts and circumstances of Signature Not Verified case, Appellate Tribunal was right in law and Digitally signed by SANJAY KUMAR Date: 2019.02.25 on facts in deleting addition made u/s 43B of 18:01:27 IST Reason: Income Tax Act, 1961 on conversion of upaid interest into funded interest loan treating same as interest payment? 1 Assessing Officer disallowed deduction claimed by assessee with regard to payment of interest amounting to Rs.2,51,31,154/- to IDBI Bank. Assessing Officer has referred to Circular dated 16.12.1988 as well as judgment of Madhya Pradesh High Court in Eicher Motors Ltd. v. CIT [(2009) 315 ITR 312]. assessee, aggrieved by order of Assessing Officer, filed appeal before Commissioner of Income Tax (Appeals), which was partly allowed. It is useful to refer to para 2.2 of CIT (Appeals) order, which is to following effect:- 2.2 I have perused case laws cited and also above sanction letter from IDBI and also auditor s note referred by Assessing Officer. I have perused Schedule 3 of balance sheet as on 31.03.2001 and find that above loan appears as on 31.03.2001 and is part of total secured loans of Rs.75,26,10,769/-. fact that entry pertaining to interest element outstanding to financial institutions referred at page 2 of order by Assessing Officer has been reversed after receipt of funds of Rs.8 crores from IDBI substantiates contention of appellant company that entries relating to interest outstanding with reference above institutions have been squared up and its place new credit entry of loan of IDBI is now appearing in balance sheet as on 31.03.2001. plea of appellant s counsel Shri Tanna that since no interest payment is outstanding now and amount is paid off, expenditure of interest is allowable u/s 43 B. It is further added that in case loan had been disbursed in 2 parts one to meet interest outstanding and balance for financial assistance still entries in books of account would have remain same and outstanding interest would have 2 been NIL. Having regard to above facts and also case laws cited by appellant s representative, I am inclined to hold that disallowance made by Assessing Officer is contrary to substance of transaction and provisions of Section 43B of Income Tax Act and same cannot be sustained and therefore directed to be deleted. appeal was filed before ITAT against order of CIT (Appeals), which was dismissed by ITAT on 24.06.1985. It is against order of ITAT, appeal was filed in High Court. Shri Sanjay Jain, learned ASG appearing for appellant contends that High Court has not adverted to statutory provision of Explanation 3C to Section 43B which was inserted by Finance Act of 2006 w.e.f. 01.04.1989, which statutory provision re-stated what was earlier contained in Circular relied by Assessing Officer. It is submitted that Explanation 3C to Section 43B was added to take care of such claim of payment of interest which actually are not paid and camouflage in way of loan or other type of financial advance. He submits that in facts of present case, assessee instead of payment of interest liability occurring in year in question has got sanctioned further loan of Rs.8 crores and claims that interest was adjusted in said loan which is squarely covered by Explanation 3C to Section 43B. He has placed reliance on judgment of Madhya Pradesh High Court in Eicher Motors Limited v. Commissioner of Income Tax [(2009) 315 3 ITR 312] and judgment of Delhi High Court in Commissioner of Income Tax, Delhi v. MM Aqua Technologies Ltd. [(2015) 376 ITR 498]. He submits that High Court erred in relying on judgment of Gujarat High Court in Commissioner of Income Tax v. Bhagwati Autocast Ltd. [261 ITR 481], which was case not referring to Section 43B(d) and was not appropriate to be relied on in facts of present case. He further submits that case of Bhagwati Autocast Ltd. (supra) relates to deferment of sales tax under State Government scheme falling under Section 43B(a). We have considered submissions made by learned counsel for appellant and perused record. Section 43B, which is relevant for present case, is as follows: 43B Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of - (a) any sum payable by assessee by way of tax, duty, cess or fee, by whatever name called, under any law for time being in force, or (b) any sum payable by assessee as employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees, or (c) any sum referred to in clause (ii) of sub-section (1) of Section 36, or (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 ------------- 4 shall be allowed (irrespective of previous year in which liability to paysuch sum was incurred by assessee according to method of accounting regularly employed by him) only in computing income referred to in section 28 of that previous year in which sum is actually paid by him. As noted above, Explanation 3C was inserted by Finance Act, 2006 w.e.f. 01.04.1989 which is to following effect: 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. Appellate Authority has noticed facts in para 2.2 as extracted above which needs no repetition. interest liability which accrued during relevant assessment year was not actually paid back by assessee rather was sought to be adjusted in further loan of Rs.8 crores which was obtained by IDBI Bank. judgment of Delhi High Court relied upon by learned counsel for appellant refers to Section 43B as well as Explanation 3C and held that Explanation 3C having retrospective effect with effect from 01.04.1989 shall be applicable to year in question. Delhi High Court in its judgment has referred to judgment 5 of Madhya Pradesh High Court in Eicher Motors Limited [supra]. It is useful to refer to paras 11 and 12 of Judgment: 11. In so concluding, this Court is supported by decision of Madhya Pradesh High Court in Eicher Motors Ltd. v. Commissioner of Income Tax, 315 ITR 312 and subsequently, judgment of High Court of Telangana and Andhra Pradesh in Commissioner of Income Tax v. Pennar Profiles Limited, (ITA No. 289 of 2003, decided on 11.02.2015). In Eicher Motors, Court noted: "7. As observed supra, Expln. 3C has now in clear terms provided that such conversion of interest amount into loan shall not be deemed to be regarded as "actually paid" amount within meaning of Section 43B. In view of clear legislative mandate removing this doubt and making intention of legislature clear in relation to such transaction, it is not now necessary for this Court to interpret unamended Section 43B in detail, nor it is necessary for this Court to take note of facts in detail as also submissions urged in support of various contentions except to place reliance on Expln. 3C to Section 43B and answer questions against assessee and in favour of Revenue." Court in Pennar Profiles Limited (supra) considered decisions in Mahindra Nissan (supra), Vinir Engineering (supra) and Eicher Motors (supra) and held as follows: "8. In this backdrop, we have perused provisions contained in Section 43B of Act, in particular, Explanation 3C thereof, which was inserted by Finance Act, 2006 with retrospective effect from 01.04.1989. This provision was inserted in 2006 and ITA 110/2005 Page 10 hence, this Court in Mahindra Nissans case, had no occasion to deal with case in light 6 of this provision. Insofar as Karnataka High Court is concerned, though this provision was existing on date of judgment, it appears that it was not brought to notice of learned Judges and hence, Division Bench proceeded to consider and decide appeal of assessee without referring to Explanation 3C appended to Section 43B of Act. 9. As matter of fact, from reading of Explanation 3C, in our opinion, question as raised in present appeals stands answered without further discussion. This provision was inserted for removal of doubts and it was declared that deduction of any sum, being interest payable under clause (d) of Section 43B of Act, 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. Thus, doubt stands removed in view of Explanation 3C. This provision was considered by Madhya Pradesh High Court in Eicher Motors Limited v. Commissioner of Income Tax to hold that in view of Explanation 3C appended to Section 43B with retrospective effect from 01.04.1989, conversion of interest amount into loan would not be deemed to be regarded as actually paid amount within meaning of Section 43B of Act." 12. In light of introduction of Explanation 3C, this Court does not consider it necessary to discuss precedents relied upon by assessee delivered prior to enactment of Finance Act, 2006. As regards decision in Shakti Spring Industries (supra), interest due in that case was offset against subsidy which assessee was entitled to, and it did not involve instance where it was "converted into loan or borrowing" within meaning of Explanation 3C. It is perhaps for this reason that Explanation 3C was not discussed. In impugned judgment, Gujarat High Court has relied upon Bhagwati Autocast Ltd. (supra) which was not case covered by Section 43B (d) rather was case of 7 Section 43B (a). provision of Section 43B covers host of different situations. statutory Explanation 3C inserted by Finance Act, 2006 is squarely applicable in facts of present case. It appears that attention of High Court was not invited to Explanation 3C, we are, thus, of view that Assessing Officer has rightly disallowed deduction as claimed by assessee. Appellate Authority, ITAT and High Court erred in reversing said disallowance. As result, appeal is allowed. question of law is answered in favour of Revenue. .....J. [ASHOK BHUSHAN] ....J. [K.M. JOSEPH] NEW DELHI; FEBRUARY 21, 2019. 8 ITEM NO.101 COURT NO.13 SECTION III SUPREME COURT OF INDIA RECORD OF PROCEEDINGS Civil Appeal No(s). 5347/2010 COMMR.OF INCOME TAX,AHMEDABAD Appellant(s) VERSUS M/S GUJARAT CYRPOMET LTD. Respondent(s) Date : 21-02-2019 This appeal was called on for hearing today. CORAM : HON'BLE MR. JUSTICE ASHOK BHUSHAN HON'BLE MR. JUSTICE K.M. JOSEPH For Appellant(s) Mr. Sanjay Jain, ASG Mr. Rupesh Kumar, Adv. Mr. Arjun Garg, Adv. Mr. Devansh Srivastava, Adv. Mr. Yuvraj Sharma, Adv. Ms. Saniya Scott, Adv. Mrs. Anil Katiyar, Adv. Mr. B. V. Balaram Das, AOR For Respondent(s) UPON hearing counsel Court made following ORDER appeal is allowed in terms of signed order. Pending application, if any, stands disposed of. (MEENAKSHI KOHLI) (RENU KAPOOR) COURT MASTER COURT MASTER [Signed order is placed on file] 9 Commissioner of Income-tax, Ahmedabad v. Gujarat Cypromet Ltd