03 November 2010
Please advice whether unapplied interest paid in April 2010 on a term loan and CC (which became NPA in 2001)on compromise with the Bank be claimed as an expenditure under sec 43(B) of the Income Tax. Note that the amount of unapplied interest was 30 lacs and the bank compromised at 15 Lakhs.No interest was debited in the books of accounts in any of the earlier years.
03 November 2010
The interest was not debited in the books of account. It means , the assessee is not maintaining his books of accounts on mercantile system of accounting. U/s 43B books should only be maintained this basis.
04 November 2010
The interest was not debited in the books of account because the account was NPA and the bank also did not debit the interest on accrual basis.
Interest not debited and hence there will be no disallowance under section 43B in the year 2001. If it is paid in the current year 2010, the expenditure pertains to previous years and hence it falls under prior period items and calls for disallowance.
But as per Section 43 B interest paid to scheduled banks is deductible on payment basis. Can this payment on interest be claimed as expenditure in the year 2010-11(if all the interest is paid in April 2010).
04 November 2010
Section 43B disallows interest payable but not paid. That means interest is allowed only when paid irrespective of the year of accrual of the liability. Rs. 15 lacs will be permitted as an expense on payment to the bank.......
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