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TMI Blog2015 (8) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the Respondent/Assessee, a rehabilitation scheme was sanctioned by the Board for Industrial and Financial Reconstruction ("BIFR") on 1st November 2002. The scheme that was sanctioned was in fact prepared by the Industrial Development Bank of India ("IDBI"), one of the major lenders of the Respondent. On the loans borrowed by the Assessee from IDBI, there was outstanding interest as on 31st March 2001. It was decided in a series of meetings that the IDBI could be allotted 14,30,000 equity shares of Rs. 10 each valued at Rs. 1.43 crores and the interest to the extent would be taken as having been paid as on 31st March 2002. 3. For the previous year ended on 31st March 2002, relevant to AY 2002-03, the Assessee filed a return on 31st Oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The above payment of interest in kind had been added back by the Assessee in earlier years. Since interest to the extent of Rs. 1,43,00,000/- has been paid in the relevant previous years, therefore, the same has been claimed deduction within the meaning of Section 43B of the Act. Various Tribunals have held the words actual payment in Section 43B are to be liberally construed and would cover every discharge of liability. The accrued interest for the 01.04.2001 to 31.03.2002 has been added back in the computation of income [see note 2 (iii) (a)]." 5. It may be added here that the actual date of allotment of 14,30,000 shares by the Respondent Assessee to the IDBI was 30th March 2002. The issued, subscribed, called up and paid up capital w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approved the proposal for conversion of a part of the interest into shares by a letter dated 22nd January 2002. The AO was of the view that in terms of Section 43B of the Act, deduction is allowable on actual payment basis and allotment of equity shares in lieu of interest liability cannot be construed as actually paid as required under Section 43 B of the Act. Further the Form No.2 filed by the Assessee showed the date of allotment as 30th March 2002 which was "not clearly legible". Since the return of allotment in Form No.2 was filed with the Registrar of Companies ("ROC") only on 29th April 2002, and was lying with the Assessee till that date, that by itself was not sufficient to prove that the shares were in fact allotted to IDBI on 30t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not necessarily amount to disclosure." He further urged that the mere conversion of a portion of the outstanding interest into share will not amount to actual payment of interest and therefore qualify for deduction under Section 43 B of the Act. He referred to Explanation 3C to Section 43B which declares that where a deduction in respect of any amount being the interest payable has been converted into a loan or borrowing it shall "not to be deemed to have been actually paid." He accordingly submitted that the AO was justified in seeking to reopen the assessment. Mr. Sahni further submitted that if in fact the conversion into shares took place only pursuant to the sanctioning of the scheme by the BIFR on 1st November 2002, the deduction cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: "In the return, a deduction ofRs.1.43 Cr is claimed - share capital issued to IDBI. When the money is with you, how and on what basis the deduction has been claimed. -Give a detailed note in regard to the claim of deduction ofRs.1.43 Cr in the computation of income. How the deduction has been claimed under section 43B of the Act." 15. The Respondent Assessee replied to the above query on 29th November 2004. In its reply the Respondent explained that the allotment of shares was pursuant to the settlement arrived at with the IDBI and the IDBI had agreed to the conversion of a portion of the interest into shares by its letter dated 22nd January 2002. It was also explained to the AO that the allotment of shares took place in fact on 30th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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