Case Law Details
Brief of the Case:
In the cited case, ITAT inter-alia held in the light of the main provisions of section 43B read with Explanations 3C and 3D that the interest payable to banks and other financial institutions can be allowed as deduction only ‘if such interest has been actually paid’ and second is that where such interest ‘has been converted into loan or borrowing/advance, it shall not be deemed to have been actually paid. Hence, it is crystal clear that deduction of interest u/s 43B cannot be allowed in the present case because such interest has not been actually paid by the assessee to the banks/financial institutions.
Facts of the Case:
The Assessee filed its return declaring loss of Rs.12,48,92,067/-. The assessment was completed u/s 143(3) of the IT Act on 24.03.2006 determining loss at Rs.11,32,76,728/-. On the basis of audit objection regarding excess allowance of deduction of Rs.2,45,01,117/- towards interest paid u/s 43B of the IT Act, the case was reopened by means of notice u/s 148 of the IT Act. The AO reproduced the gist of audit objection on the assessment order by noticing that there was unpaid interest of Rs.5,01,38,035/- which was not allowed in earlier assessment years, out of which the assessee claimed deduction for a sum of Rs.3,61,75,597/- u/s 43B by claiming it as discharged/paid. This amount of Rs.3.61 crore included a sum of Rs.2.45 crore which was transferred to a wholly owned subsidiary company. Since such interest of Rs.2.45 crore was not actually paid, but, only transferred to a subsidiary company, the AO reopened the assessment by noticing that the same was not allowable. After entertaining objections from the assessee, the AO denied deduction of Rs.2.45 crore.
The assessee objected to the initiation of reassessment proceedings before the CIT(A) on certain counts but without any success.
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