In Brief
The assessee claimed a deduction for interest of Rs.2,51,31,154 payable to IDBI Bank under Section 43B of the Income Tax Act, 1961. Rather than actually paying the interest, the assessee obtained a fresh loan of Rs.8 crores from IDBI and adjusted the unpaid interest against this new loan. The Supreme Court held that such conversion or adjustment of interest into a loan does not satisfy the statutory requirement of 'actual payment' under Section 43B(d). Explanation 3C to Section 43B, inserted by the Finance Act, 2006, explicitly clarifies that interest converted into a loan shall not be deemed to have been actually paid. The appeal was allowed and the Assessing Officer's disallowance was upheld.",
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