- (1.) THE subject matter of challenge in the appeal is a judgment and order dated 16th April, 2001 pertaining to the assessment years 1990 -91 and 1991 -92. The learned Tribunal held, inter alia, as follows: "When we look at the facts of the case, we find that the department has raised rather a very lame excuse in disallowing the claim of the assessee towards interest payment on the ground that the assessee did not debit the interest amounts in its accounts for the respective years upto the assessment year 1991 -92. As has been discussed by the CIT (A) in his appellate order for the assessment year 1991 -92, the book entries are not at all decisive of allowance of any liability and, on the other hand, if the liability be found to have arisen under the mercantile system, the same is required to be allowed irrespective of whether the amount is debited to the accounts or not. The judgment of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. (supra) strengthens the argument in this regard. However, the Division Benches of the ITAT, Calcutta, in their respective orders for the assessment years 1988 -89 and 1989 -90 seem to have been guided by the sole factor that on account of the suit filed by the Bank, the liability of the assessee towards interest payment should be considered to be sub -judice and not actually accrued. As has been discussed by us above, the Third Member, in his order for the assessment year 1986 -87, has clearly found out that the suit under consideration related merely to recovery of dues of the bank and had nothing to do with the liability of the assessee for payment of interest. We consider that the judgment of the Third Member of the ITAT has got better strength and is more persuasive than those of the Division Benches for the other two years. We, therefore, prefer to follow the view of the Third Member Bench and decide the issue in favour of the claim of the assessee towards allowance of interest liability in the respective years. So far as the assessment years 1990 -91 and 1991 -92 are, therefore, concerned, we reverse the orders of the lower authorities and direct that the claims of interest to the Bank be allowed irrespective of the fact that the amounts in respect thereof were not actually debited to the accounts of the assessee."
(2.) MR . Saraf, learned Advocate appearing for the appellant revenue submitted that the real question to be considered in the appeal is whether the assessee can be allowed deduction on account of interest arising out of a liability which the assessee himself has disputed. He drew our attention to page 2 of the impugned order wherein the findings recorded by the Assessing Officer were noticed by the learned Tribunal which reads as follows: "The AO found out that the Bank had filed a money suit against the company for realisation of the dues which were being disputed by the assessee." Therefore, briefly stated, the facts are that the assessee appears to have borrowed money from bank. The bank has filed a suit for recovery of the money. The assessee has been disputing that liability. The exact nature of dispute is, however, not clear to us. But it appears that the assessee has made some payments on account of interest which has also been reflected in the books of accounts for which deduction has duly been allowed. The question arose whether the assessee can be permitted to claim deduction for an amount which has neither been paid nor has been shown to have been accrued in the books of accounts. It is this question which was answered by the learned Tribunal in the affirmative and in favour of the assessee on the basis of the following reasoning which is under challenge: "As has been discussed by us above, the Third Member, in his order for the assessment year 1986 -87, has clearly found out that the suit under consideration related merely to recovery of dues of the bank and had nothing to do with the liability of the assessee for payment of interest. We consider that the judgment of the Third Member of the ITAT has got better strength and is more persuasive than those of the Division Benches for the other two years."
(3.) THEREFORE , the question of liability has to be reframed as follows: - - Whether the assessee can be permitted to claim deduction for interest which was neither paid nor shown to have been incurred in the books of accounts ? Mr. Bhowmik, learned Advocate appearing for the assessee drew our attention to the judgment in the case of Kedarnath Jute Mfg. Co. Ltd. versus Commissioner of Income Tax (Central), Calcutta reported in : 1971 (82) ITR 363 which was a judgment with respect to statutory liability on account of sales tax. A statutory liability evidently stands on a different footing than a contractual liability. The suit filed by the bank is evidently on the basis of a contractual liability. The assessee has been disputing the liability. The reasoning adopted by the learned Tribunal that the dispute with regard to principal has nothing to do with the liability on account of interest, according to us, is patently illogical. If the liability on account of principal itself is disputed, there can be no basis for any liability on account of interest. The reasoning adopted by the learned Tribunal is evidently and demonstrably fallacious.;