2001 (8) TMI 275 - AT - Income Tax

Summary

Issues:
1. Disallowance of interest under section 43B for non-payment within due date.
2. Interpretation of "any sum payable" under section 43B(d) for interest on loans from public financial institutions.
3. Disallowance of interest debited in the Profit and Loss account by the Assessing Officer (AO).
4. Legality of disallowance without proof of payment by the taxpayer.

Issue 1: Disallowance of interest under section 43B:
The Revenue filed an appeal against the CIT(A)'s order allowing Rs. 1,26,79,130 under section 43B for non-payment within the due date. The AO disallowed this amount from the returned loss, and a proceeding under section 154(1)(b) was initiated. The assessee argued that the interest was not paid due to financial constraints and requested deferment from the financial institution. The AO revised the intimation under section 143(1)(a) to further reduce the amount. The CIT(A) concluded that the matter required discussion and debate, not a rectification order. The Tribunal held that the interest was not payable as per the terms of the agreement, and the disallowance was not justified.

Issue 2: Interpretation of "any sum payable" under section 43B(d):
The contention revolved around the interpretation of "any sum payable" under section 43B(d) for interest on loans from public financial institutions. The assessee argued that payability should be understood commercially and legally, and since the financial institution deferred the payment, no payability existed as of the due date. The Tribunal agreed that without proof of payability, the AO could not invoke section 43B(d) for disallowance.

Issue 3: Disallowance of interest debited by the AO:
The AO disallowed the interest debited in the Profit and Loss account under section 143(1)(a) and section 154(1)(b) due to lack of evidence of payment. However, the Tribunal held that unilateral disallowance without proof was impermissible. Citing precedents, it emphasized that the AO should request proof before making any adjustments, making the AO's action unsustainable.

Issue 4: Legality of disallowance without proof of payment:
The Tribunal dismissed the Revenue's appeal, emphasizing that disallowances or adjustments cannot be made unilaterally without proof of payment. It referenced legal precedents to highlight that the AO must request proof from the taxpayer before disallowing any claims. The AO's failure to request proof rendered the adjustment inoperative, making the disallowance unsustainable.

In conclusion, the Tribunal ruled in favor of the assessee, highlighting the importance of proof of payment before disallowing claims under section 43B and emphasizing the need for a legal basis for disallowances to be upheld.