2.8 Query
Section 43B of the Income-tax Act, 1961.
1.Clause (d) of section 43B of the Income-tax Act, 1961, as inserted by Finance Act, 1988, with effect from 1.4.1989, states as under:
“any sum payable by the assessee as interest on any loan or borrowing from any public financial institution, in accordance with the terms and conditions of the agreement governing such loan or borrowing”.
As per section 43B, deduction in respect of the interest specified in clause (d) shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him.
2.The first proviso to section 43B states:
“Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of Section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return”.
3.The assessee has taken loans from financial institutions and interest due date is after the close of the accounting year, i.e., 31st March of every year and the interest due date falls on 30th June and 30th September. In the accounts for the year ended 31st March, there is a debit entry in profit and loss account under the head ‘Interest accrued but not due’ for the period from 1st October to 31st March and the same has not been paid in the accounting year as it has not ‘become due’.
4. The querist has referred the following issue for the opinion of ‘Expert Advisory Committee:
“Whether the interest accrued but not due, debited to profit and loss account and which has not been paid in the relevant accounting year ended 31st March, is to be reported in tax audit report under sub clause (a) of clause 7 of the Form No. 3 CD.”
Opinion November 23, 1990
The Committee is of the opinion that interest on loans from financial institutions for the period 1st October to 31st March may not have become due and payable to the financial institutions as on 31st March but the liability to pay the same has been incurred by the assessee in accordance with the accrual method of accounting. The “interest accrued but not due” debited by the assessee to the profit and loss account and not paid in the relevant accounting year should be reported in tax audit report under clause (a) of clause 7 of Form 3CD. ________________________
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