2015 (8) TMI 928 - HC - Income Tax

Question of libility - accrual of interest - Whether the assessee can be permitted to claim deduction for interest which was neither paid nor shown to have been incurred in the books of accounts ? - Held that - The assessee before us has neither paid the liability nor has admitted the liability in its books of accounts. The assessee on the top of that has disputed the liability as indicated above. Therefore, the judgment in the case of Indian Metals & Carbide Ltd. 1991 (12) TMI 31 - ORISSA High Court is not applicable to the facts of this case. For the aforesaid reasons, the question formulated above is answered in the negative and in favour of the revenue

Summary

Issues:
1. Disallowance of interest payment claim by the department.
2. Allowance of interest liability deduction by the Tribunal.
3. Permissibility of claiming deduction for interest not paid or accrued in the books of accounts.
4. Dispute regarding liability for interest payment.
5. Applicability of judgments in similar cases to the present situation.

Analysis:
1. The appellant challenged a judgment disallowing the claim of interest payment, arguing that the liability was disputed. The Tribunal reversed the lower authorities' decision, citing the mercantile system and the precedence of the Third Member's order for a previous year. The Tribunal directed the allowance of interest claims despite not being debited to the accounts.

2. The appellant contended that deduction for interest should not be permitted if the liability is disputed. The Tribunal's reasoning, based on the Third Member's order and the separation of principal and interest liabilities, was challenged. The appellant highlighted a case involving statutory liability, arguing that disputed principal liability negates any interest liability.

3. The question of whether deduction can be claimed for interest not paid or accrued in the books of accounts was central. The appellant disputed the liability, emphasizing that neither payment nor accrual was evident. The Tribunal's decision was based on the mercantile method and the existence of the liability, regardless of accounting entries.

4. The dispute regarding the liability for interest payment was crucial. The appellant argued that if the principal liability is contested, no basis exists for interest liability. Reference was made to a case where belated entry and resolution supported the liability, contrasting the present case where the liability was disputed without payment or acknowledgment.

5. The applicability of judgments in similar cases was debated. The appellant distinguished a case involving belated entry and resolution from the current situation where the liability was disputed without acknowledgment. The Tribunal's reliance on previous judgments was challenged, leading to a negative answer to the question of deduction for disputed interest liability. The appeal was allowed in favor of the revenue.