TaxTMI 
TaxTMI 
2009 (5) TMI 582
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as under: "(2) The learned CIT(A) has erred in confirming the disallowance of interest of Rs. 6,08,03,230. On the facts and circumstances of the case, the appellant submit that provisions of s. 43B are not applicable in respect of the interest payable on Deep Discount Bonds and the disallowance of the interest of Rs. 6,08,03,230 is not justified. (3) The learned CIT(A) has wrongly concluded that the interest is payable only on maturity and the liability for payment of interest has not accrued. On the facts and circumstances of the case, the appellant submit that the conclusion reached by the learned CIT(A) is erroneous. (4) On the facts and circumstances of the case, the appellant submit that they are entitled to deduction of interest of Rs. 6,08,03,230." 4. Since the facts and issue involved in all the above grounds of appeal are same, they are being disposed of together for the sake of convenience. 5. The brief facts of the case are that the AO observed that the assessee had claimed a sum of Rs. 6,08,03,230 as interest liability in respect of Deep Discount Bonds issued to banks and financial institutions. The AO referred to Annex. V, Form No. 3CD and pointed out t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2003-04, the interest on any loan or borrowing from public financial institutions or State Financial Corporation, was only covered. He also referred to cl. (e) of s. 438, which was amended w.e.f. 1st April, 2002, wherein the term "term loan" was substituted by "loans or advances in respect of scheduled bank". Till 31st March, 2004, the interest on term loans from scheduled bank was only covered under s. 43B of the Act. As such, the interest due on Deep Discount Bonds issued to scheduled bank was not covered under s. 43B of the Act. He also referred to the decision of the Hon'ble Tribunal, Pune Bench "B", dt. 9th Dec., 2005, in the following cases: ------------------------------------------------------------------ Sl. Interest-tax Asst. yr. Appellant Respondent No. Appeal No. ------------------------------------------------------------------ 1. 2/Pn/2000 1996-97 For Kinetic Fincap Jt. CIT, SR-4, &nbs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ltd., Pune (formerly Surat Kinetic Fincap Ltd.), Pune ------------------------------------------------------------------ 4. 1009/Pn/2001 1997-98 Jt. CIT, SR-4, Pune For Kinetic Finance Ltd., &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d allowed by the Department under s. 143(1) of the Act. He further submitted that in asst. yr. 2003-04 the assessee had debited Rs. 6,08,03,230 being the pro rata amount on 60,000 bonds applicable to asst. yr. 2003-04. The said amount is reflected under the head finance cost in the P&L a/c. 12. The AO has accepted claim of Rs. 6,08,03,230 being the pro rata finance cost but disallowed the claim on the ground that provisions of s. 43B are applicable to the said payment as the assessee was not liable to make the physical payment in asst. yr. 2003-04. The AO invoked the provisions of s. 43B on the ground that actual payment is not made by assessee. The CIT(A) confirmed the disallowance but took view that the amount has not accrued and hence there was no liability on assessee. The AO and the CIT(A) have taken different stand for disallowing the claim of Rs. 6,08,03,230. 13. The assessee submitted that the premium payable in respect of Deep Discount Bond is to be spread over the tenure of the bond and the pro rata amount is to be allowed as deduction. For this proposition, the assessee relied on the following decisions: (1) Madras Industrial Investment Corporation Ltd. vs. CIT ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted to interest-tax. The Hon'ble Supreme Court has affirmed the view of the Calcutta (sic-Karnataka) High Court in the case of CIT vs. Corporation Bank (2005) 199 CTR (Kar) 329 : (2006) 285 ITR 97 (Kar). The Bombay High Court in the case of Infrastructure Leasing & Financial Services Ltd. has also held that interest earned on bonds and debentures is not subjected to interest-tax as the interest on securities is different from interest on loans and advances. There is a distinction between interest on securities and interest on loans and advances. 17. Securities Contract Regulation Act, 1956 applies to the securities which are issued by various entities. The word "securities" is defined under s. 2(h). The said definition includes shares, scrips, stocks, bonds, debentures, debenture stocks or other marketable securities of a like nature in or of any incorporated company or body corporate. This definition supports the proposition that the bonds are securities and are distinct from the loans and advances. 18. Assessee further submits that provisions of s. 43B are not applicable on the facts of the case. Sec. 43B can be invoked only when certain amount has become due and payable bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; Rs. 41,11,150 (7) Banaras State Bank Rs. 30,82,222 Rs. 2,46,65,758 --------------- --------------- Total Rs. 6,08,03,230 --------------- 20. In view of the analysis given above the assessee submitted that even if the provisions of s. 43B are applicable to the discount on bonds, then also it cannot apply to the bon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not allowable under s. 43B of the IT Act, 1961. The learned CIT(A) confirmed the above disallowance, however, on a different ground, i.e., in his opinion, as the interest was due for payment only on maturity of the bonds, no interest expenditure accrued during the year and, therefore, the same is not allowable to the assessee. We find that it is not in dispute that the assessee is consistently following mercantile system of accounting. Therefore, in our considered opinion, if any expenditure has not fallen due for payment, but for which a liability has been accrued is to be allowed in computing the income of the assessee. In the instant case, it is not in dispute that Deep Discount Bonds were issued for a period of more than one year. The difference amount payable on maturity is nothing but interest for the full period, i.e., from the date of the issue of the bond to the date of the maturity of the bond. Above view also finds support from the view expressed by the CBDT in its Circular No. 2 of 2002, dt. 16th Feb., 2002. Thus, it cannot be held that no interest was accrued for the year under consideration on bonds as the year under consideration is a year between the date of the iss....