Interest on members' deposits not hit by section 43B; accrued liability and related deduction allowed.

Interest payable by a co-operative society to its members was not disallowable under section 43B because that provision applies only to specified liabilities, and clause (e) covers interest on loans or advances from listed financial institutions, not deposits from members. As the liability was not within section 43B, the accrued interest recorded in the books remained allowable on an accrual basis. The alternative claim was also accepted: where deduction under section 80P(2)(a)(i) is available, any increased business profits arising from the addition would likewise qualify for deduction. The addition for provision of interest payable was therefore deleted.

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Issues: Whether the provision for interest payable to members of a co-operative society was disallowable under section 43B of the Income-tax Act, 1961, and if not, whether the amount was allowable on accrual basis and the assessee could claim deduction on the enhanced profits.

Analysis: Section 43B is a special provision governing deduction only for liabilities specifically enumerated in clauses (a) to (f). In respect of interest, clause (e) applies only to interest payable on loans or advances from a scheduled bank, co-operative bank, public financial institution, State financial corporation or State industrial investment corporation. The liability in question related to deposits received from members of the assessee co-operative society, and no material showed that the payments were made to any institution covered by section 43B(e). The statutory condition for invoking section 43B therefore was not met. Once section 43B was found inapplicable, the expenditure had to be tested under the normal provisions, and the accrued interest liability accounted for in the books was allowable on accrual basis. The alternative contention was also accepted that, since deduction under section 80P(2)(a)(i) was held to be available, any enhancement in business profits on account of the addition would also qualify for deduction.

Conclusion: The disallowance under section 43B was unsustainable, the addition of the provision for interest payable was directed to be deleted, and the assessee succeeded.

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