Through: Sh. Bishwajit Bhattacharyya, Sr. Advocate with Sh. Chandrachur Bhattacharyya, Advocate.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K. GAUBA MR. JUSTICE S. RAVINDRA BHAT %
1. The following question of law arises for determination in this appeal:
2. The brief facts are that the assessee was heavily indebted to its institutional creditors. ICICI was the lead manager of those creditors. The ITA 110/2005 Page 1 accumulated interest on the overdue principal had mounted to `3,00,14,900. The assessee was unable to discharge this interest liability due to its financial hardship. On 30-03-1994, the ICICI, by a letter waived a part of the compound interest together with the commitment charges and agreed to accept 3,00,149 convertible debentures of ` 100 each, amounting to ` 3,00,14,900 in lieu of the outstanding interest. On 15-3-1996, consequently, the assessee issued debentures in favour of ICICI. In its income-tax return, the assessee claimed that interest of ` 2,84,71,384 was deductible, explaining that it was actually paid by it in the relevant accounting period. Though the debentures issued amounted to ` 3,00,14,900, the interest claimed as deduction is a little less (` 2,84,71,384) - the difference was explained to be as a result of the fact that a part of the interest was capitalized in the assessee's books as pre- production expenditure. The assessee's stand (of having actually paid, by issuing the debentures) was rejected by the Assessing Officer (AO) on the premise that the debenture issue resulted only in postponement of the interest liability and that the interest could not be considered as having been "actually paid" as required by Section 43B of the Income Tax Act, 1961 ("Act") to qualify for relief. He, therefore, disallowed the claim.