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Issues involved: Challenge to the validity and legality of an order passed u/s 264 of the Income-tax Act, 1961 regarding the inclusion of interest income in the assessment of a Hindu undivided family for the assessment year 1976-77.
Summary: The petitioner, a Hindu undivided family, challenged the inclusion of interest income in its assessment for the year 1976-77, claiming that the debt had become bad and there was no chance of recovery. The Income-tax Officer rejected the claim, but the Commissioner of Income-tax (Appeals) directed a fresh assessment. The Commissioner, however, upheld the inclusion of interest income, citing the principles of real income theory. The petitioner contended that the interest income should not be taxed on an accrual basis due to a bona fide change in accounting method and ongoing disputes in the debtor family. The court noted that it would interfere only if there was an apparent error of law, and found no such error in the Commissioner's order. The court rejected the petitioner's claim regarding the change in accounting method, as it was not raised during the assessment proceedings. Regarding the accrual of interest income, the court considered the concept of real income as per Supreme Court precedents, emphasizing that income accrual must be real and based on the actual situation. The court found that the evidence presented by the petitioner was insufficient to conclusively prove that the interest income had not accrued. Therefore, the court upheld the Commissioner's order and dismissed the petition, with no costs awarded.
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