ORDER
G.E. Veerabhadrappa, Accountant Member
1. This is an appeal by the assessee arising out of the order dated 16-8-2000 of the CIT(A)-III, Bangalore, for the assessment year 1997-98.
2. The only dispute in this appeal relates to disallowance of interest, which was outstanding as at the end of the previous year. The learned counsel for assessee pointed out that the disallowance cannot be made b invoking the provisions of Section 143(1) (a) of Income-tax Act, 1961 [hereinafter referred to as “the Act”]. In any case, M/s. KSFC, to whom interest is payable, has re-scheduled the interest outstanding under a revival scheme and the same was funded separately as a fresh loan, which as a repayment schedule spread over three years. Therefore, disallowance Under Section 43B is not justified. In any event, it was argued that it was a debatable issue and therefore, cannot be made Under Section 143 (1) (a) of the Act.
3. The learned Departmental Representative, on the other hand, relied upon the decision of the Kerala High Court in the case of CIT v. Sitaram Textiles Ltd. (248 ITR 139) where identical issue was involved and the disallowance made Under Section 143(1) (a) was held to be permissible with reference to the interest, which was not paid during the previous year. Prima facie, the amounts were no paid and there is no dispute as to this fact. Even the stand of the Assessing Officer is supported by the Audit statements accompanying the return and, therefore, the disallowance is permissible under the Act. On the face of the financial statements filed by the assessee, the disallowance made is in order and cannot be said to be debatable issue because there can be no debate or discussion that Section 43B is applicable to the facts of the case. The learned Departmental Representative tried to support the action of the Assessing Officer in the light of the Karnataka High Court decision in the case of V.P. Patil v. ITO (262 ITR 135). On merits, the issue has to be decided against the assessee in the light of Madras High Court decision in Kalpana Lamps & Components Ltd. v. DCIT (255 ITR 491). In any event, the disallowance is properly done and the funding, if any, has taken place much later and in the light of the decision of the Delhi High Court in the case of Samtel Colour Ltd. v. Union of India & Ors. (258 ITR 1), the disallowance Under Section 143 (1) (a) is properly made and requires to be upheld.
4. We have carefully gone through the records and are in full agreement with the views canvassed by the Revenue. On the basis of audit statements that were enclosed to the return, it cannot be said that the amount in question was paid. There is no dispute about the fact that the amounts were outstanding and the provisions of Section 43B, as explained by the Kerala High Court in the case of Sitaram Textiles (supra), have carved out an exception to the distinction between incurring liability and payment of the same. Virtually it superseded the provisions of 145 of the Act. The assessee was not simply entitled to claim deduction, if the sums were outstanding as at the end of the years. The assessee who had incurred the statutory liability could not get deduction for the same without actually making the payment. In view of clear provisions of Section 43B, there can be no debate or discussion. Further, in the light of the Madras High Court decision in Kalpana Lamps & Components Ltd. (supra) wherein sales tax liability converted into loans by the State Government under their Deferred Scheme may be allowed as deduction in the assessment for the previous year was not allowed by the Madras High Court. According to the Madras High Court, the circular was issued having regard to the provisions of Clause (a) of Section 43B and Explanation 2 thereof. That Provision is made for assessees who have deferred to have the scheme framed by the State Government with regard to the sales tax. The benefit allowed thereunder cannot be extended to Clause (d) of Section 43B wherein the liability to pay interest is dealt with. The order of he Tribunal rejecting the claim of the assessee that the consent of the lender, a public financial institution, to convert the outstanding interest into a term loan liability which was to be paid in installments in future years, would amount to constructive discharge of he interest liability, was approved by the Madras High Court. The facts of this case are similar to the facts before the Madras High Court, which is the only decision, brought to our notice and is binding on this Tribunal. Therefore, respectfully following the Madras High Court decision on the same issue, we do no accept the assessee’s contention that the funding of loan resulted in the constructive discharge of the interest liability and we are unable to accept that the circular No. 674 dated 29-12-1993 in no way helps the assessee in claiming the interest which is not actually paid as an admissible deduction under the provisions of Section 43B of the Act. We, therefore, find no merit in this appeal filed by the assessee.
5. We record our appreciation to the learned Departmental Representative Shri Lakshminarayana who has put special effort in canvassing the stand of the Revenue with the help of latest case-laws on the issue.
6. In the result the appeal of the assessee is dismissed.