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2015 (8) TMI 365 - AT - Income TaxInitiation of re-assessment proceedings - change of opinion - report of audit party - Held that:- Close look at the audit objection divulges that the audit party simply suggested that the interest of ₹ 2.54 crore was not actually paid, but, only transferred to a subsidiary company and the same should have been disallowed and this omission on the part of the AO resulted in over assessment of loss of ₹ 2.45 crore. This shows that the AO was simply informed about the fact which had escaped his attention during the course of assessment proceedings to the effect that a sum of ₹ 2.45 crore was not allowable u/s 43B of the Act which is nothing, but, a communication of law to the AO. We are not confronted with a situation in which the AO, after due consideration of the matter in the original assessment proceedings interpreted section 43B as allowing deduction for a sum of ₹ 2.45 crore in respect of interest not paid to the financial institutions, but, transferred to the assessee’s wholly owned subsidiary company, but, the audit party interpreted this provision in a different manner from the way in which it was interpreted by the AO and then suggested that the amount ought to have been charged to tax. The instant case is fully covered by the ratio of the judgment in the case of PVS Beedis Pvt. Ltd. ( 1997 (10) TMI 5 - SUPREME Court) read with the exception carved out by the Hon'ble Supreme Court in Indian & Eastern Newspapers Society (1979 (8) TMI 1 - SUPREME Court ) drawing a line of distinction between communication of law and interpretation of law. The argument of the ld. AR on this issue, being devoid of any merit, is hereby jettisoned. It is, therefore, held that the audit objection in the instant case constituted an `information’ about the escapement of income to the AO, thereby justifying the initiation of reassessment. - Decided against assessee. Deduction of interest u/s 43B - Transfer of interest liability - AR argued that when the assessee transferred all the assets and liabilities of its paper board unit to M/s RT Paper Board Ltd., and the liabilities also included interest payable to financial institutions at ₹ 2.45 crore, such transfer of interest liability should be considered as discharge of the interest obligation - Held that:- Two things are palpable from the prescription of Explanations 3C and 3D. First is that the interest payable to banks and other financial institutions can be allowed as deduction only ‘if such interest has been actually paid’ and second is that where such interest ‘has been converted into loan or borrowing/advance, (it) shall not be deemed to have been actually paid.’ In the light of the main provisions of section 43B read with Explanations 3C and 3D, it is crystal clear that deduction of interest u/s 43B cannot be allowed in the present case because such interest has not been actually paid by the assessee to the banks/financial institutions. - Decided against assessee.
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