Law:

Section:

I. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 2001-02 - Where assessee was following mercantile system of accounting and liability towards interest in question did not pertain to relevant previous year, such interest expenditure could not be allowed [In favour of revenue] The assessee was purchasing aluminium from Nalco and was making regular payments towards purchases. As per agreement with 'Nalco' on any delayed payment the assessee was liable to pay 9 per cent interest. Accordingly, the assessee claimed deduction on account of interest and same was allowed by the Assessing Officer. The Commissioner revised assessment order observing that corresponding purchases were made in the year 1994 and, therefore, the liability to pay interest accrued in the respective years themselves. Held that the assessee was unable to produce any material to show that the liability to pay interest accrued during the accounting year. The only argument advanced was that the assessee deducted TDS and the amount was also remitted into Government account. Therefore, the interest payment accrued during the accounting year. There was also no material to show that there was any compromise between the assessee and Nalco as to the payment of interest and by virtue of the agreement, the assessee paid the interest during the accounting year. In view of the above factual position, to that extent the order of the Commissioner passed under section 263 was valid in law. II. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 2001-02 - Where assessee was earlier doing business of manufacturing and selling of conductors and later on started to purchase and sale aluminium foils and other materials, since distribution of aluminium foils had an interconnection with manufacture and sale of conductors, assessee was entitled to benefit of section 71 [In favour of assessee] The assessee was engaged in the business of manufacturing and selling of aluminium conductors. The assessment was passed under section 143(3) allowing benefit under section 71. The Commissioner exercising jurisdiction under…

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