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In the case of Dy. CIT v. Ganesh Chhababhai Valabhai Patel Family Trust (108TAX78) the assessee did not provide for the interest liability in its books on loan taken from a co-operative bank due to a legal course adopted by the bank for the recovery of the loan and interest. The assessee however made such claim for deduction in the return furnished. Under a settlement the assessee was obliged to make the payment of interest including for the previous periods. The assessing officer disallowed the claim of interest pertaining to previous periods, as the assessee had not provided the same in its books of account. The Commissioner (Appeals) however allowed the claim. Following the Bombay High Court ruling in the case of CIT v. Phalton Sugar Works Ltd. (162ITR622/24TAX444) the ITAT held that the deduction is admissible in the previous year in which the dispute is finally adjudicated upon or settled. Even though the Bombay High Court ruling was in the context of disputed wages the Bench held that the principle should equally apply in the assessees case. As the final effect in each of the years is resulting into a loss the Bench did not interfere with the findings of the Commissioner (Appeals) in as much as no tax liability was involved in either course. Further, the Madras High Court in the case of Kamak Plastics Ltd. V. CIT (108TAX273) allowed the claim of the assessee of uncharged interest in a similar situation where the bank did not charge interest when the unit was sick and subsequently charged interest including for earlier periods after the unit performed well.

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