Interest accrued but not due u/s 37 of the Income Tax Act, 1961

Last updated: 28 August 2021

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The Income Tax Appellate Tribunal ruled that interest accrued but not yet due on loans is an allowable business expense for deduction. The Assessing Officer had disallowed this expense, but the CIT (Appeals) deleted the addition. The Tribunal upheld the CIT's decision, confirming that the nature of the liability, not its due date, determines deductibility.

Court :
ITAT Delhi

Brief :
This appeal is filed by the ld. Dy. Commissioner of Income Tax, Circle 17 (2) New Delhi (the Ld. AO) against the order of the Ld. Commissioner of Income Tax (Appeals)–38, New Delhi, dated 8.09.2017 for assessment year 2005-06.

Citation :
ITA No. 7866/Del/2017

INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “E”: NEW DELHI
BEFORE MS SUCHITRA KAMBLE, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
(Through Video Conferencing)
ITA No. 7866/Del/2017
(Assessment Year: 2005-06)

DCIT,
Circle-17(2),
New Delhi

(Appellant)

National Projects
Construction Corporation
Ltd,
30-31, Raja House,
Nehru Place, New Delhi
PAN: AAACR6117Q

(Respondent)

Department by : Shri Gaurav Pundir, Sr. DR
Assessee by: Shri Ram Avtar Sharma, CA
Date of Hearing 29/07/2021
Date of pronouncement 23/08/2021

O R D E R

The brief facts of the case shows that assessee is a company engaged in the business of construction of dams etc. for Central and State Governments. It filed its return of income on 24.10.2005 at a loss of Rs. 54,24,37,245/-. On account of selection of scrutiny the assessment was passed under Section 143(3) of the Income Tax Act, 1961 (the Act) at a loss of Rs. 52,38,83,750/-.

2. The assessee preferred an appeal before the ld. CIT (Appeals0 who deleted the addition. Therefore, the Revenue is in appeal.

3. The ld. DR supported the order of the ld. Assessing Officer whereas the ld. AR supported the orders of the ld. CIT (Appeals).

4. It is also apparent that the ld. Assessing Officer got confused because of the disclosure of the requirement of Schedule VI of the Companies Act, 1956. Undisputedly the interest accrued and due as well as interest accrued but not due both are allowable to the assessee as deduction as assessee has accrued liability of interest on the above loans. Merely because of the interest is not due for the payment it cannot be disallowed. Therefore, we do not find any merit in the appeal of the ld. Assessing Officer and, therefore, we confirm the order of the ld. CIT (Appeals) in deleting the disallowance of Rs.2.45 crores on account of interest accrued but not due as allowable expenses.

5. In the result, appeal by the ld. Assessing Officer is dismissed.
Order pronounced in the open court on 23/08/2021.

Please find attached the enclosed file for the full judgement

FAQ :

Yes, interest accrued but not yet due on loans is an allowable deduction for businesses under Section 37 of the Income Tax Act, 1961.

The issue was whether interest that had accrued on loans but was not yet due for payment could be claimed as a deductible business expense.

The Assessing Officer disallowed the deduction for interest accrued but not due, causing confusion regarding Schedule VI of the Companies Act.

The Tribunal confirmed the order of the CIT (Appeals), allowing the deduction for interest accrued but not due, as it represented an accrued liability.