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TMI Blog2000 (8) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of the case and also going by the well known principles of auditing extracted in the enclosure, the Tribunal is right in law and fact in holding--- (i) clause (d) of section 43B as it stands cannot be invoked to form part of the prima facie adjustment meriting disallowance of deduction without having regard to the terms and conditions of the agreement governing the loan or borrowing from the public financial institutions and is not the above approach/finding against law and principles of auditing ? (ii) the Assessing Officer should have rectified the assessment under section 154 of the Income-tax Act on the petition preferred by the assessee in regard to the disallowance of interest under section 43B(d) of the Income-tax Act ? (3) Whether, on the facts and in the circumstances of the case, is the Tribunal--- (i) right in its interpretation of the provisions ? (ii) right in deleting the disallowance of interest and the loan from the public financial institution ? (iii) right in deleting the levy of additional tax referrable to such disallowance ? (4) (a) Whether, on the facts and in the circumstances of the case, the Tribunal is right in its interpretation/under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... z., in respect of the sums payable by way of tax, duty, cess or fee and it does not extend to clause (d) in respect of any sum payable as interest on loan or borrowing from any public financial institutions. Therefore, it is only in respect of clause (a) of section 43B that the distinction between accrual of liability and 'any sum payable' under such accrual was done away with under the terms of Explanation 2 to section 43B. On the other hand, the distinction between the 'sum payable' and the 'accrual of liability' for such sum is maintained intact in clause (d) as Explanation 2 is not made applicable to that clause in section 43B. If this distinction is kept in view, it would not be difficult for one to conclude that because the liability had accrued, the assessee was justified in debiting the profit and loss account in respect of the amount of interest on the loan or borrowing from the public financial institutions. A corollary of this distinction is that merely because the amount has been debited in the profit and loss account, as a result of accrual of liability, it cannot be immediately inferred that such liability represented the 'amount payable' during the year. In fact, a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has become payable during the previous year. Since there was doubt as to whether in the audit report it was shown that the amount had been paid or not, we called for the files. In annexure V to the audit report, it is stated thus : "Interest debited to profit and loss account but not paid during the year". Items Nos. 3 and 4 are the interest to the Industrial Financial Corporation of India and the Industrial Development Bank of India. Thus, from the audit report itself it is clear that the amount is not paid. Section 143 of the Act lays down the procedure after the return is filed under section 139 or in response to a notice under subsection (1) of section 142. Sub-clause (i) of section 143 of the Act states that if any tax or interest is found due on the basis of the return, after adjustment of any tax deducted at source, any advance tax paid or any amount paid otherwise by way of tax or interest, then, without prejudice to subsection (2), the Assessing Officer shall send an intimation to the assessee specifying the sum payable. This intimation is deemed as demand under section 156 of the Act. It further states that on scrutiny, if it is found that any refund is due to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "prima facie inadmissible". If anything more is read into the power to make adjustments under section 143(1)(a), such power would be grossly arbitrary and unreasonable. As already stated, the audit report filed along with the return will show that the interest payable to the Industrial Financial Corporation and the Industrial Development Bank of India has been debited in the profit and loss account and therefore, it is stated that the above amount has not been paid. The next question is, on the basis of. this, whether the Income-tax Officer can hold that the deduction is not possible under section 43B of the Act. Section 43B of the Act states as follows : "43B. Certain deductions to be only on actual payment.-Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of--- (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employee, or (c) any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 43B(d) of the Act, the assessee cannot claim the benefit of deduction of liability mentioned in clause (d) in a year where the amount is not paid. It is not further necessary to find out whether, even though liability has been incurred, it was payable in that year. We also do not approve the distinction made by the Tribunal on the basis of the entries in column 7 of the tax audit report in Form No. 3CD to come to the conclusion that it cannot be readily inferred whether the amount was payable or not. Learned counsel for the assessee then contended that section 43B(d) refers to the payment of interest in accordance with the terms of the agreement governing such loan or borrowing. The contention of counsel is that the terms and conditions of the agreement have to be looked into before coming to the conclusion whether the amount was payable in a particular year or not. He further contended that since the agreement was not before him, the Assessing Officer was wrong in prima facie holding that the deduction is not admissible. According to us, this contention cannot be accepted. When the assessee himself has stated in the audit report filed along with the return that the amount w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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