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Issues involved: The judgment addresses two main issues: 1. Taxability of accrued interest on hire purchase of machinery and penal interest for the assessment year 1977-78. 2. Allowability of estimated interest on land cost taken over by the assessee from the Government as an expenditure.
Accrued Interest and Penal Interest: The court considered whether accrued interest and penal interest should be included in the total income of the assessee. The Tribunal noted that both interests stood on the same footing. The court referred to previous decisions and held that accrued interest is taxable regardless of the accounting method used. The apex court's rulings in State Bank of Travancore v. CIT [1986] 158 ITR 102 and Kerala Financial Corporation v. CIT [1994] 210 ITR 129 (SC) were cited to support the taxability of accrued interest. The court rejected the distinction between accrued interest and penal interest, stating that penal interest is linked to default in payment and should be treated similarly to accrued interest. The court ruled in favor of the Revenue on this issue. Estimated Interest on Land Cost: The second issue pertained to the allowability of estimated interest on land cost as an expenditure. The amount estimated by the assessee had not been paid in the relevant year. The court emphasized that an estimation cannot be considered an expenditure if the liability had not accrued and the amount remained unpaid. Therefore, the court ruled in favor of the Revenue on this issue as well. Conclusion: The court's decision was based on the specific facts and circumstances of the case presented before the Tribunal. The court clarified that the assessment for other years does not impact the decision for the current assessment year. The Revenue was awarded costs of Rs. 500.
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