A.K.SIKRI,J. - (1.) THIS appeal pertains to one issue only which concerns the interest paid by the respondent-assessee on the borrowed funds. There is no dispute that the interest was, in fact, paid. The only issue is as to whether this interest had accrued in earlier years or in the assessment year in question, viz., 2000-01, in which year the assessee had claimed the deduction thereof. According to the AO, such as deduction was not permissible in this year as the interest had accrued in the earlier years, which should have been claimed in those years only.
(2.) THE CIT(A), however, found otherwise and allowed the deduction, which has been affirmed by the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') as well vide impugned decision dt. 7th Nov., 2008. Though as many as five questions are proposed on the aforesaid issue, following two questions, out of these would reflect the nature of challenge which has been laid to the orders of the Tribunal : "1. Whether the Tribunal was correct in law and on facts in deleting the addition of Rs. 51,49,180 ? 2. Whether, in view of the facts and circumstances of the case, the Tribunal and CIT(A) are correct in law in ignoring that the liability had crystallized in the earlier years and it was incumbent on the assessee to make the provisions in those years ?" The genesis of the dispute can be underscored as follows : On 14th Aug., 1995, board of directors of the respondent assessee resolved to borrow a loan of Rs. 1 crore from M/s Reliance Capital Ltd. (hereinafter referred to as 'RCL'). Loan Agreement dt. 17th Aug., 1995 was signed between the assessee and RCL stating the terms and conditions on which RCL agreed to grant the said loan of Rs. 1 crore. This loan was to carry an interest @ 24 per cent per annum on quarterly basis on the borrowed amount. In the event of default, the amounts due would be payable along with additional penal amount @ 2 per cent per annum for the period of default on the basis of compound interest. The assessee had also pledged some shares of its company as a security for due repayment of the said loan from RCL and therefore, the stipulation to the agreement to the fact that if the loan is not repaid in time, the RCL was free to transfer those shares in its name. Blank transfer deeds were also lodged with RCL to facilitate the transfer. Period of loan was six months and the entire loan amount including interest was to be repaid by 20th Feb., 1996. The assessee had issued post dated cheque for Rs. 1 crore for repayment of the said loan.
(3.) THE assessee, however, could not pay the loan amount due to some financial problems and also due to the reasons that negotiations were going on for sale of assets. It requested RCL on 19th Feb., 1996 not to deposit the said cheque. The cheque was not deposited by the RCL. However thereafter, some disputes arose between the parties. According to the assessee, as a consequence of default in repaying the loan, it was deemed that RCL had purchased the shares pledged with it. With a result, the entire loan paid was paid off with interest. The assessee rather claimed that the RCL owned money to group concerns of the assessee. RCL disputed the above and demanded the amount from the assessee when the loan was not repaid, RCL filed Suit No. 3527 of 1998 for declaration against the assessee along with petition under art. XII of the letters patent. The assessee contested this suit by filing its affidavit in reply to the notice of motion filed by the RCL.;