Law:

Section:

Section 43B of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed only on actual payment - Assessment year 1997-98 - Whether rescheduling of interest payable to financial institution by means of fresh loan can be treated as interest payment deductible under section 43B - Held, yes Section 143, read with section 43B, of the Income-tax Act, 1961 - Assessment - Prima facie adjustments - Assessment year 1997-98 - Whether question, as to whether outstanding interest which was funded by a fresh loan would amount to payment of interest deductible under section 43B, was a debatable issue and, therefore, Assessing Officer was not justified in disallowing such interest while making prima facie adjustments under section 143(1)(a) - Held, yes FACTS The assessee had taken a loan from the Karnataka State Financial Corporation (KSFC) on which interest was payable by it. Under a revival scheme, the KSFC had rescheduled the outstanding interest relating to the assessment years 1994-95 and 1995-96 and the same was sourced by means of a fresh loan which had a repayment schedule over three years. In its return of income for the relevant assessment year, the assessee claimed deduction of such interest. The Assessing Officer, while processing the assessee's return under section 143(1)(a), disallowed the deduction towards interest liability holding that rescheduling of payment of interest by means of a fresh loan could not be treated as interest payment deductible under section 43B. The assessee's application under section 154 was also rejected by the Assessing Officer. On appeal, the Commissioner (Appeals) as well as the Tribunal held that the disallowance was proper and permissible under section 143(1)(a). On appeal under section 260A : HELD The authorities below as well as the Tribunal had failed to notice that the interest, which was due to the KSFC for the assessment years 1994-95 and 1995-96, though was provided for in the accounts of the respective assessment years, yet was not claimed and added back to the total income of the respective years, thereby the assessee had not made any claim in the respective years with regard to the interest…

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