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TMI Blog2013 (2) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of the present case admittedly the applicant was under an obligation to pay an interest at the rate of 8% per annum on the amount of loan advanced by the State Government and merely because it has disputed its liability by contending that it should not be charged, the liability to pay interest was always there and this plea is of no consequence. The liability was ascertained and, therefore, the Tribunal had rightly held that the claim of interest relating to the previous assessment years is not admissible for deduction during the assessment year in question - in favour of Revenue. - ITR No.68 of 1989 - - - Dated:- 10-1-2013 - R.K. Agrawal and Prakash Krishna, JJ. Appellant Rep by: V. Gulati Respondents Rep by: B Agarwal, A Kumar, A N Mahajan, D Awasthi, G Krishna, S Chopra JUDGEMENT The Income-tax Appellate Tribunal, Allahabad Bench, Allahabad has referred the following question of law under Section 256(2) of the Income-tax Act, 1961, hereinafter referred to as the Act , for opinion to this Court. Whether on the facts and in the circumstances of the case the sum of Rs.367966/- was not a valid deduction for the assessment year 1979-80? 2. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an, interest was payable and, therefore, the assessee should have provided for the liability on accrual basis. He further held, what had been ascertained in this year was the rate of interest, which meant that the liability had only been quantified in the assessment year in question and not that the liability had arisen or had been created in this year. He, therefore, restricted the deduction only to the extent of interest relating to the Assessment Year 1978-79 which amounted to Rs.80,000/- and disallowed the remaining amount of Rs.3,67,960/-. Feeling aggrieved the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) but without any success. In further appeal the Tribunal has upheld the order passed by the two authorities. The Tribunal has held as follows: No doubt the system of accounting followed by the assessee is mercantile. Even in a mercantile system of accounting, the liability does not accrues unless it has been ascertained. Therefore, we have to see on the facts of the present case whether the liability regarding the payment of interest was ascertained and was capable of being enforced. So far as this point is concerned, it is by now well se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emption of interest for the first two years they were reluctant to reduce the rate of interest thereafter as the rate of interest had been worked out uniformly for all the Government Departments after studying various factors. It was also pointed out that the Finance Department had stated that they could consider treating these loans as equity for the assessee or granting of interest subsidy to the extent of 4%. By means of another letter dated 3.9.77 the Government asked for a report regarding the profits and losses incurred by the nine units whom the said loan of Rs.10,00,000/- had been given. By means of a D.O. Dated 8.12.77, the assessee wrote to the Government that commercial return was not expected on such activities and that at the same time the assessee could not be expected to subsidies the Government in such programmes. The government was asked to reconsider. The Government vide its letter dated 11.5.78 informed the assessee that interest could not be waived. The decision of the Cabinet referred to in the earlier part of this order was also conveyed by the Government vide its D.O. Dated 17.9.78. Thus a chronological reading of the entire papers on the record shows that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years. He has relied upon the decision of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co.Ltd. vs. Commissioner of Income-tax (Central), Calcutta, (1971) 82 ITR 363. 5. We have given our thoughtful consideration to the various plea raised by the learned counsel for the parties. We find that it is not in dispute that the State Government when it had sanctioned the loan of Rs.10,00,000/- on 6.7.1972 had clearly stipulated that the loan would carry an interest of 8% per annum. Merely because the assessee had disputed its liability to pay the interest and the loan could be treated interest free loan would not make any difference. The stand of the State Government was consistent throughout and the State Cabinet thoroughly stuck to the earlier stand. The assessee had been following mercantile system of accounting and, therefore, the liability for payment of interest for all the previous assessment years cannot be claimed or allowed in the relevant assessment year. 6. In the case of Swadeshi Cotton and Flour Mills Pvt. Ltd.(supra), the Hon'ble Supreme Court was considering the case relating to the claim of profit bonus payable by the assessee therein to its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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