TMI Blog2017 (4) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... modifying the order of the Commissioner of Income-tax (Appeals). 2. This court while admitting the appeal on December 1, 2005 has framed the following substantial question of law : Whether the amount of ₹ 3,55,850 as difference of interest pay able to the Indian Overseas Bank, coming to the notice of the asses see-appellant during the year under consideration on reconciliation of accounts with the bank could be disallowed on the ground that it did not pertain to the year under consideration ? 3. Counsel for the appellant has taken us to para. 11 of the order of the Assessing Officer, which reads as under : The assessee company credited a sum of ₹ 207.71 lakhs in the profit and loss appropriation account. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 43B. In respect of RFC, a sum of ₹ 27,06,636 was added back under section 43B. A sum of ₹ 95,985 has been waived. As per the assessee company, a sum of ₹ 10,96,972 has been converted into loan. Therefore, the outstanding interest should be treated as paid and should be allowed as reduction. In respect of IRBI the amount added under section 43B amounted to ₹ 15,31,492 while the waiver is of ₹ 14,60,054. Since the write back is less than the amount under section 43B, therefore, no addition is required to be made under section 41(1) of the Income-tax Act. In respect of 10B, it was mentioned that the assessee has made a short provision of ₹ 3,55,850. Therefore, the assessee company made a claim th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of funded interest. Hence, it does not term as part of basic books of account. The corporation had funded the interest charged from the unit vide decision taken by the board of directors of the corporation in their meeting held on November 7, 1997. This was done in pursuance of orders of the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). So far as the details of simple interest and penal interest levied for the financial year 1992-93 to 1995-96 is concerned, it is to inform you that the details may be collected directly from our branch office, Alwar.' From RIICO letter : 'With reference to the above, the information is under preparation and will be submitted within a short time. It is su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the deed of modification executed with RIICO, submitted with your goodself. From the above it is very clear that the liability of interest has been discharged and new term loan name funded interest term loan account has come into existence. In view of the above the amount of interest converted into term loan should be treated as payment and therefore the said amount may kindly be allowed to the company. The company has paid ₹ 4,88,600 to RIICO and ₹ 4,46,425 to RFC during 1994-95 but not claimed as deduction as it is repayment of term loan.' I have considered the submission of the assessee company and have gone through the replies filed by RFC and RIICO. As per section 43B of the Income-tax Act, any deduction whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that if the State Governments make an amendment in the Sales tax Act, to the effect the sales tax deferred in the scheme shall be treated as actually paid, and such a deemed provision will meet the requirements of section 43B'. In view of the above circular, it is clear that until and unless as rule of law is made by RFC and RIICO that interest deferred under the so-called deferred scheme is treated as actually paid, the interest cannot be treated as actually paid. Obviously there is no such pro vision in the rules and regulations of the financial institutions, because they are not offering such income for tax on cash basis. Hence, the so-called funded-back interest is not allowed as interest under section 43B. In respect of another s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 3,55,850. It was pointed out that in terms of the claim approved by AAIFR there were partial waiver of interest. The effect of the same was given during the year. While reconciliation of the accounts with the financial institutions it was noticed that pro vision for interest payable to IOB is less by ₹ 3,55,850. Accordingly, the effect during the year and allowable as deduction. The Assessing Officer was of the view that the liability did not pertain to interest and therefore, not allowable. It was pointed out that on the basis of the claim the Assessing Officer has himself brought to tax an amount of ₹ 69,68,531 under section 41(1) though this waiver pertains to the earlier years. It was thus argued that when the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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