TMI Blog1995 (6) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... (Rs.11,559-Rs.5,000 under section 37(2A) 6,559 (c) Articles presented in excess - Rule 6B 12,950 (d) Interest debited to Profit Loss a/c - added under section 43B(d) (i) Industrial Finance Corpn. 22,85,821 (ii) Industrial Development Bank 45,61,824 96,25,616 --------- --------- Balance loss 48,71,723 Depreciation as per rules (admissible 75% as per Amendmend Act, 91) 20,63,064 --------- Total loss 69,34,787 --------- Consequent to the adjustments made, an additional tax of Rs. 6,95,755 was levied under section 143(1)(a) of the Income-tax Act. On receipt of the intimation, the appellant filed a petition under section 154 seeking rectification of the adjustments made in the intimation sent to it and requesting for waiver of additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of prima facie adjustments. Therefore, the levy of additional tax in respect of these amounts was uncalled for. Sri Kesavan further submitted that the company is bound to account for the interest on accrual basis and, therefore, the interest amounts referable to the loans obtained from the above financial institutions were rightly debited to the profit and loss account. However, in order to merit disallowance under clause (d) of section 43B, it has to be seen whether the interest has become payable to the public financial institutions in accordance with the terms and conditions of the agreement governing the loan or borrowing. From the statements which accompanied the return it could not be said that there was any material to say that the interest had become payable by the assessee on the loans from IFCI and IDBI. Therefore, the disallowance of interest in terms of clause (d) of section 43B cannot be viewed as a prima facie adjustment. He also relied on the Board's Circular No. 689, dated 24th August, 1994 in support of the contention that only in the circumstances specified in the Circular prima facie adjustments can be countenanced and not in any other case. 4. Sri Kesava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso in the annexure to the tax audit report had stated that the impugned amount had not been paid during the year. The appellant also does not question the remarks of the tax auditor. In the circumstances, the Assessing Officer had rightly invoked clause (d) of section 43B. Even under section 143(1)(a) of the Income-tax Act, total income has to be determined in accordance with the provisions applicable to the computation of total income. Therefore, the disallowance made under section 43B would certainly form part of the prima facie adjustments. 6. Thus we have heard rival submissions and perused the records placed before us. The return in this case was accompanied by provisional profit and loss account, provisional balance-sheet and tax audit report thereon under section 44AB of the Income-tax Act. Merely because the accounts were not subjected to regular audit under the provisions of the Companies Act and to audit by the Comptroller and Auditor General of India, (the appellant being a Government company,) it cannot be held that the return filed by the assessee was a defective return or an invalid return. The reasons are that (a) the accounts in the case of the appellant stood au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning such loan or borrowing ; shall be allowed irrespective of the previous year in which the-liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (a) which is actually paid by the assessee on or before the due date applicable in his case or furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return : Explanation 2 -- For the purpose of clause (a), as in force at all material times, " any sum payable " means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law." There is always a distinction between accrual of liability and payability of such liability. Accrual of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax auditor in his report in form No. 3CD had remarked or indicated that the amount had become payable during the year, but not paid. The remark is only to the effect that the impugned sums have been debited to the profit and loss account, but not paid during the year. We have already indicated that the debit has to be made on account of the accrual of liability as the corporation was maintaining its accounts on mercantile basis. We have also indicated that a mere debit in the profit and loss account on the basis of accrual of liability is not sufficient evidence to show that the amount has become presently payable during the previous year relevant to the assessment year. That would depend upon the terms and conditions of the agreement. Without any material on this aspect of the information, we hold that the Assessing Officer is not entitled to take it for granted that the amount has become presently payable during the previous year relevant to the assessment-year and on that score invoke the provisions of clause (d) of section 43B in view of the non-payment of such liability. In other words, clause (d) of section 43B as it stands cannot be invoked to form part of the prima facie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect from 1-4-1989. Prior to that, clause (a) contained only reference to tax or duty. With the inclusion of the words ' cess or fee ' with effect from 1-4-1989, the expression ' other sum ' found in column 7 of the prescribed form should mean to include only the words ' cess ' or ' fee '. Thus, column 7 of the prescribed form is deficient or defective in not bringing in to the fore sums mentioned in clauses (b), (c), and (d) of section 43B. We uphold his contention for the reasons stated by him. So far as clause (i) of column 7 is concerned, it is for the authorities to redraft column 7 of the prescribed form in order to avoid ambiguities in the information obtained from tax audit in respect of items covered in clause (a) to clause (d) of section 43B. We further hold that on the basis of the information contained in column 7 of the tax audit report, it cannot be readily inferred that it referred to the items mentioned in clause (a) of section 43B and any inference based on that so as to invoke the provisions of the said clause for disallowing the interest on the loans from the public financial institutions must necessarily fail. For the reason also we delete the disallowance. As a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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