Prior year interest cannot be disallowed if the change in the interest rate was retrospective

Brief of the case

The assesse claimed prior interest expenditure and AO had made an addition of ₹ 1,10,10,874/-.

Question of Law

Whether prior period interest claim is allowable if the increase in the interest rate is with retrospective effect?

Contention of the Assessee

The assessee had contended that on account of retrospective revision of rate of interest which occurred in the assessment year in question i.e. AY 2006-07, it was entitled to claim this as a legitimate expense.

The expenses are allowable in this year on the basis of crystallization of liability.

Contention of the Revenue

The AO disallowed the interest expense since it related to prior year.

Held by the High Court

There is no dispute about the allowability of expenses. Only dispute is regarding the year of allowability. If the Assessing officer is of the view that the expenses are pertaining to the prior, the same are required to be considered for the prior and allowed in that year. If it is found that the expenses are allowable in this year on the basis of crystallization of liability, the same may be considered in the year under appeal.

The appeal of the revenue are consequently dismissed.