2013 (7) TMI 424 - HC - Income Tax

Bad debts - Whether the ITAT was right in holding that even though the assessee has not treated the principal as irrecoverable, the interest accrued on the loan advanced to another public limited company need not be included in the total income for the A.Y.1992-93 - reading of the order of the Calcutta High Court shows the contrary to the assertion of the assessee that the debtor company could not make the amount on account of its difficult financial position, on the reference to the BIFR, the debtor company had taken a stand as to the solvency position in the absence of any material to substantiate that the interest on the borrowed amount could not be recovered - it is difficult to accept the case of the assessee that on the mere score of reference to the BIFR - the recovery of interest or accruing of interest on the debtor company had become too difficult and bad to be realized appeal allowed in favour of department.

Summary

Issues:
Assessment of accrued interest on a loan advanced to another company for the assessment year 1992-93.

Analysis:
The case involved a dispute regarding the assessment of accrued interest on a loan advanced by the assessee to another company for the assessment year 1992-93. The assessee followed the mercantile system of accounting and did not include the accrued interest for the loan in the assessment, arguing that the debtor company had been declared a sick company by the BIFR. The assessing officer added the accrued interest amount to the total income, leading to an appeal by the assessee before the Commissioner of Income-tax (Appeals). The Commissioner allowed the appeal based on a previous order and deleted the assessment. The Revenue then appealed to the Income-tax Appellate Tribunal, which upheld the decision of the Commissioner based on a similar case involving the same assessee. The Revenue further appealed to the High Court.

The Revenue contended that since the principal amount of the loan was considered recoverable by the assessee, the accrued interest should also be assessed as income for the year. On the other hand, the assessee argued that the winding-up proceedings of the debtor company, as recommended by the BIFR, justified not offering the interest for assessment. The assessee referred to a Calcutta High Court order regarding the winding-up process of the debtor company to support their case.

After considering the arguments and reviewing the Calcutta High Court order, the High Court found that the debtor company had contested the winding-up recommendation of the BIFR, indicating a different financial position than claimed by the assessee. The High Court concluded that there was no evidence to suggest that the interest on the borrowed amount was irrecoverable, thus rejecting the assessee's claim. The Court accepted the Revenue's contention that the interest income should have been offered for assessment, setting aside the Tribunal's order and ruling in favor of the Revenue. No costs were awarded in this judgment.