2002 (5) TMI 864 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance under section 43B of the Income-tax Act, 1961.
2. Disallowance of Rs. 185 lakhs as deduction of ascertained interest liability while computing book profits under section 115JA.
3. Adjustment under section 143(1)(a) of the Income-tax Act, 1961.

Detailed Analysis:

1. Disallowance under Section 43B:

The first issue pertains to the disallowance of Rs. 9,37,920, being the interest due to Indian Renewable Energy and Development Authority (IREDA). The assessee contended that since IREDA was notified as a Public Financial Institution only on 3-10-1995, section 43B was not applicable as the loans were taken before this date. The Assessing Officer disallowed the interest under section 43B, arguing that the interest on any loan or borrowing from any public financial institution qualifies for deduction only on actual payment. The Tribunal upheld the CIT(A)'s order, stating that as on the date of payment of loan, IREDA was a public financial institution, and thus, non-payment of interest does not permit the assessee to claim a deduction.

2. Disallowance of Rs. 185 Lakhs as Deduction of Ascertained Interest Liability:

The second issue involves the disallowance of Rs. 185 lakhs, being the provision for arrears of interest due to financial institutions. The assessee argued that the liability crystallized during the current year as financial institutions turned down the request for waiver and seized the unit. The Tribunal agreed with the assessee, stating that the liability was an ascertained liability and should be allowed as a deduction. The Tribunal referred to the judgment in the case of Sipani Automobiles Ltd. and other relevant case laws, concluding that the provision for arrears of interest that crystallized during the year should be deducted from the profits of the current year.

3. Adjustment under Section 143(1)(a):

The third issue concerns whether the adjustment made is amenable to adjustments under section 143(1)(a). The Tribunal held that the adjustment on account of provision of interest payable to public financial institutions was a highly debatable issue and was not amenable to adjustments under section 143(1)(a). Therefore, the addition made by the Assessing Officer under section 143(1)(a) was to be deleted.

Conclusion:

The Tribunal allowed the appeal of the assessee on the issue of disallowance of Rs. 185 lakhs as deduction of ascertained interest liability while computing book profits under section 115JA and the adjustment under section 143(1)(a). However, it upheld the CIT(A)'s order on the disallowance under section 43B. Thus, appeal ITA 270/Hyd./2001 was partly allowed, and appeal ITA 269/Hyd./2001 was allowed.