INCOME TAX ACT, 1961

Section 43B

Business disallowance under section 43B - Applicability - Conversion of interest liability into loan -

Assessee-company took loan from a bank. Instead of making payment of interest liability accrued during the year under consideration, it obtained further loan from the said bank and sought to adjust the interest liability in the said loan. It claimed deduction of the said interest liability, which accrued during the year under consideration but which was not actually paid back by it. AO disallowed such deduction by applying Explanation 3C to section 43B and added the amount of interest in its income. However, CIT(A), Tribunal and the High Court reversed the said disallowance. Aggrieved, Revenue was in appeal. Held: Explanation 3C to section 43B provides that deduction of any sum, being interest payable under clause (d) of section 43B, shall be allowed if such interest has been actually paid and any interest referred to in that clause, which has been converted into a loan or borrowing, shall not be deemed to have been actually paid. Therefore, as interest was not actually paid by assessee but the same was converted into loan, such interest would not be deemed to be regarded as actually paid amount within the meaning of section 43B. Hence, AO was justified in disallowing deduction of interest by applying Explanation 3C to section 43B.

Distinguished:CIT v. Bhagwati Autocast Ltd. (2003) 261 ITR 481 (Guj.): 2003 TaxPub(DT) 0355 (Guj-HC)

REFERRED : Eicher Motors Ltd. v. CIT (2009) 315 ITR 312 (MP): 2009 TaxPub(DT) 0021 (MP-HC) CIT v. Bhagwati Autocast Ltd. (2003) 261 ITR 481 (Guj.): 2003 TaxPub(DT) 0355 (Guj-HC) CIT v. Pennar Profiles Ltd. (2015) 376 ITR 355 (AP): 2015 TaxPub(DT) 2618 (AP-HC)

FAVOUR : In assessee's favour

A.Y. :

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