2008 (1) TMI 555 - HC - Income Tax

Rectification of Mistake- the assessee claimed deduction of Rs.16,60,165 towards interest payable to the KSIDC, it is made clear that the amount was not paid on account of instalment facility granted by the KSIDC. Consequently, the claim was not allowable by virtue of section 43B of the Income-tax Act. The assessee does not dispute this position. Since the claim was prima facie inadmissible by virtue of operation of section 43B, the Assessing Officer issued proceedings under section 143(1) (a) computing tax liability including additional tax payable under section 143(1A) of the Act. An application for rectification was rejected by the assessing officer but the Commissioner (Appeals) allowed it and the Tribunal dismissed the department appeal. Held that- by the assessee s own statement, part payment was made on June 25, 1991, and qualified for deduction even under the proviso to section under section 143(1)(a) limiting the addition to the extent of the amount not paid till the due date filing the return.

Issues involved:
1. Disallowance of deduction claimed under section 43B of the Income-tax Act.
2. Justification of proceedings initiated under section 143(1)(a) and additional tax liability under section 143(1A).
3. Applicability of section 43B to the financial institution involved.
4. Rectification of proceedings issued under section 143(1)(a) by limiting the addition to the extent of the amount not paid till the due date for filing the return.

Issue 1: Disallowance of deduction claimed under section 43B of the Income-tax Act
The appellant filed an appeal against the Tribunal's order cancelling the intimation issued under section 143(1)(a) and demanding additional tax under section 143(1A) of the Income-tax Act. The appellant claimed a deduction of Rs.16,60,165 towards interest payable to a financial institution, but it was not paid due to an instalment facility. The Assessing Officer disallowed the claim under section 43B, leading to the computation of tax liability and additional tax. The first appellate authority allowed the appeal, which was upheld by the Tribunal. The court found the claim inadmissible under section 43B and directed the officer to allow deduction only to the extent of interest paid by the due date for filing the return.

Issue 2: Justification of proceedings initiated under section 143(1)(a) and additional tax liability under section 143(1A)
The appellant argued that the proceedings under section 143(1)(a) were justified, citing a relevant court decision. The court agreed that the disallowance under section 43B warranted the imposition of additional tax under section 143(1A). However, the respondent contended that the financial institution was covered under section 43B only from April 1, 1991, and the appellant was unaware of this provision. The court acknowledged this argument and directed the Assessing Officer to rectify the proceedings by limiting the addition to the unpaid amount until the due date for filing the return.

Issue 3: Applicability of section 43B to the financial institution involved
The respondent argued that the financial institution involved was covered under section 43B only from April 1, 1991, and claimed that a part payment made on June 25, 1991, should qualify for deduction under the proviso to section 43B. The court agreed with this contention, emphasizing that the Assessing Officer should have considered the payment made before the due date for filing the return for deduction purposes.

Issue 4: Rectification of proceedings issued under section 143(1)(a) by limiting the addition to the extent of the amount not paid till the due date for filing the return
The court partly allowed the appeal, reversing the Tribunal's order, and directed the officer to allow deduction for interest paid until the date of filing the return. The court instructed the officer to rework the additional tax liability under section 143(1A) accordingly. This decision aimed to rectify the proceedings and ensure that the deduction was granted based on the actual payments made by the appellant.

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