Commissioner of Income Tax vs Mayflower Hotels (P) Ltd.

C.N. Ramachandran Nair, J.—The appeal is filed against Annex. C order of the Tribunal whereunder the Tribunal has cancelled the intimation issued u/s 143(1)(a) including the demand of additional tax u/s 143(1A) of the Income Tax Act. In the return filed even though the assessee claimed deduction of Rs. 16,60,165 towards interest payable to KSIDC, it is made clear that the amount was not paid on account of instalment facility granted by KSIDC. Consequently the claim was not allowable by virtue of Section 43B of the Income Tax Act. The assessee does not dispute this position. Since the claim was prima facie inadmissible by virtue of operation of Section 43B, the assessing officer issued proceedings u/s 143(1)(a) computing tax liability including additional tax payable u/s 143(1A) of the Act. Even though rectification application was filed against this u/s 154, the same was dismissed by the officer. Appeal filed, however, was allowed by the first appellate authority and the second appeal filed by the department was also dismissed by the Tribunal. It is against this order of the Tribunal that the department has filed this appeal. We have heard standing Counsel appearing for the department appellant and Counsel appearing for the respondent assessee.

Counsel for the appellant referred to decision of this court in Commissioner of Income Tax Vs. Sitaram Textiles Ltd., and contended that proceedings initiated u/s 143(1)(a) is perfectly justified. We find that the decision squarely applies to the facts of this case because in the proceedings u/s 143(1)(a) of the Act the officer has only disallowed expenditure u/s 43B of the Act. Consequently, the assessee is liable to pay additional tax u/s 143(1A) of the Act. Counsel for the respondent assessee submitted that the financial institution involved in this case is covered u/s 43B only with effect from 1-4-1991. According to him, even though the amendment applies for this year also, the assessee was not aware of the provision. Counsel for the assessee also submitted that in the assessee''s own statement, part payment made on 25-6-1991 was mentioned and the payment so made qualifies for deduction even under proviso to Section 43B of the Act. We find force in this contention and, therefore, we, feel the assessing officer should have rectified the proceedings issued u/s 143(1)(a) by limiting the addition to the extent of the amount not paid till the due date for filing the return. The appeal is therefore partly allowed reversing the order of the Tribunal, but with direction to the officer to allow deduction to the extent of interest paid as on date of filing the return and to rework additional tax liability u/s 143(1A) of the Act.