TaxTMI 
TaxTMI 
TaxTMI 
2008 (10) TMI 183
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....r 27, 1997, declaring nil income. In the said return of income, the assessee had claimed deduction towards interest liability to financial institution to an extent of Rs. 8,97,756 being the interest due relating to the assessment years 1994-95 and 1995-96 on account of availing of a loan from the Karnataka State Financial Corporation. Annexure B is the statement of the total income furnished along with the return. The said return was processed under section 143(1)(a) of the Income-tax Act and the intimation was issued by the assessing authority disallowing the deduction by applying the proviso to section 43B and a copy of the said intimation under section 143(1)(a) is produced as annexure C to this appeal. The assessee thereafter filed an a....
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.... 1995-96 on the loan advanced by the Karnataka State Financial Corporation and that K.S.F.C. has provided further credit facility in respect of the interest to be repaid during the relevant year, i.e., the assessment year 1997-98 and thereby the outstanding interest was converted into a fresh loan which would mean that there was deemed payment of interest. Hence, the assessee was entitled to claim deduction during the relevant assessment year. He further submits that whether the funded interest would amount to payment of interest was a debatable issue and prima facie issue under the proviso to section 143(1)(a) of the Act. He, therefore, requests this court to allow the appeal of the assessee on the following substantial questions of law : ....
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....chedule all over three years. The assessee had claimed in its return of income deduction for an amount of Rs. 8,97,756 being the interest due to financial institution despite reschedulement of the payment of interest by a fresh loan and hence deduction was sought. However, the Assessing Officer was of the opinion that reschedulement of interest of payment by means of a fresh loan cannot be treated as interest payment deductable under section 43B and, therefore, rejected the application under section 154 of the Act. 8. According to the Commissioner of Income-tax (Appeals), the interest payable to a financial institution is eligible for deduction under section 43B of the Act and on the basis of actual payment and since the assessee had not p....
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....erest deemed to have been paid. In our view, the authorities below as well as the Tribunal failed to take into consideration the substance of the loan transaction, but only considered the fact that there was no actual repayment of the loan. 10. The decision of the Madras High Court relied upon by the Tribunal is in the context of Sales tax liability being converted into loans by the State Government under the deferred scheme but there is another decision of the Delhi High Court in the case of Samtel Color Ltd. v. Union of India reported in [2002] 258 ITR 1, wherein it has been held that the claim of the assessee in the said case in treating the sales promotion assistance as capital receipt was not prima facie inadmissible in view of the fa....
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....sue a notice under sub-section (2) of section 143 and have the evidence in support thereof and then consider the matter on the merits. 11. In the instant case, the fact that the interest related to the assessment 1994-95 and 1995-96 on the loans from the financial institution was claimed in the earlier assessment years coupled with the fact that the assessee had availed of a fresh loan during the assessment years 1997-98 by converting outstanding interest, in our view, must be treated as deemed payment of interest. Further, the question as to whether outstanding interest which was funded by a fresh loan would amount to payment of interest is a debatable issue and prima facie adjustment could not have been made by applying the proviso to se....
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.... a notice to the assessee and that no substantial adjustment which requires examination of evidence or which would require a hearing is contemplated under section 143(1)(a). 13. In view of what is stated above, we answer the substantial questions of law raised in this appeal by holding that the Tribunal was not justified in law in concluding that the funded interest could be said to be non-payment of interest in the relevant year to invoke the proviso to section 43B of the Act to disallow the deduction of interest as claimed by the appellant. The Assessing Officer was not justified in law to make a prima facie adjustment in a proceeding under section 143(1)(a) of the Act by holding that there was no deemed payment of interest in the releva....