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Issues:
1. Assessment of interest on loan on due basis vs. realization basis. Analysis: The case involved a dispute regarding the assessment of interest on a loan to a company, M/s. Central Cotton Mills Ltd. The assessee contended that it did not include the interest amount of Rs. 55,000 in its income as it considered the realization of the loan doubtful. The Income Tax Officer (ITO) rejected this claim, stating that the interest should be assessed on a mercantile basis and could not be excluded solely based on the debt being doubtful. The ITO included the interest amount in the total income of the assessee. Upon appeal, the Appellate Assistant Commissioner (AAC) and the Tribunal upheld the ITO's decision based on the assessee's own previous case and the mercantile system of accounting followed by the assessee. The Tribunal emphasized that the interest had accrued during the relevant assessment year and the assessee's decision to account for it only upon realization was unilateral and not in line with the accounting principles. The Tribunal noted that the Government had taken over the management of the debtor company in 1972, and all obligations and liabilities were suspended by a notification. In light of this, it was argued that the interest on the loan did not continue to accrue in the subsequent year. The Tribunal distinguished the facts of the current assessment year from previous years where the Government notification was not in effect. Ultimately, the Tribunal ruled in favor of the assessee, stating that the interest on the loan should not be included in the assessment for the year 1974-75 as the circumstances had changed due to the Government intervention. The judgment was agreed upon by both judges, with each party bearing their own costs.
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