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2015 (11) TMI 1194 - AT - Income TaxDisallowance of prior period expenses” and “prior period salary" - Held that:- The rate of tax applicable upon the assessee in this assessment year remains the same. It has been reporting loss in the earlier years and in subsequent years. As far as taxability part is concerned, there is no substantial effect upon the assessee in this year because it show losses. Only effect is that the assessee can be exposed to penalty on account of reduction of loss than the one returned in the income. The assessee could not demonstrate as to how loss has also been incurred in this year. The expenses do not pertain to this year, therefore, they are not allowable. We do not find any error in the findings of the Revenue authorities- - Decided in favour of revenue. Disallowance of payment as per section 43B - whether the issuance of equity shares of the assessee-company to the financial institutions amounts to actual payment of interest liability or not? - Held that:- The conversion of interest into loan, and issuance of equity shares in lieu of interest payment being very basic similarity, therefore, does not amount to actual payment. in our opinion, Explanation 3C only prohibits an assessee for recognizing the actual payment of interest by converting its interest into loan or borrowings. In other words, if an assessee has interest liability, and he converts that interest liability in further loan, then that will not amount to payment of interest under section 43B as per Explanation-3C. If an assessee has issued equity shares, which anyone can acquire, and it has a trading value, it would not construe that the interest liability has been converted into loan. The financial institutions can independently trade those equity. Therefore, the assessee has made payment of interest liability in money’s worth. It has not re-negotiated in such a way that its interest liability has been ceased. We allow this ground of appeal and delete the disallowance.- Decided in favour of assessee. Disallowance of expenses amortized under section 35D - Held that:- When in the first year no disallowance was made, and thereafter, in subsequent two years this 1/5th has been allowed, the AO is not justified to ask the assessee to establish its genuineness. Therefore, taking into consideration past history, we delete the disallowance. - Decided in favour of assessee.
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