JUDGMENT :

R.F. Nariman, J

1. Leave granted.

2. The question raised in these appeals is with particular reference to Section 43B Explanation 3C of the Income Tax Act, 1961 [the “Act”]. The brief facts necessary to appreciate the controversy raised in these appeals are as follows.

3. On 28th November, 1996, the Appellant filed a return of income declaring a loss of Rs.1,03,18,572/- for the assessment year 1996-1997. In the return filed by it, the Appellant claimed a deduction of Rs.2,84,71,384/- under Section 43B based on the issue of debentures in lieu of interest accrued and payable to financial institutions. By an order dated 29th October, 1998, the Assessing Officer rejected the Appellant’s contention by holding that the issuance of debentures was not as per the original terms and conditions on which the loans were granted, and that interest was payable, holding that a subsequent change in the terms of the agreement, as they then stood, would be contrary to Section 43B(d), and would render such amount ineligible for deduction. The Commissioner of Income Tax (Appeals) [“CIT”] allowed the appeal and held, on facts, as follows:

“3.2. …. It was clarified by the Ld. Counsel that the