2009 (7) TMI 43 - HC - Income Tax

Interest Income Assessee claims that interest is not accrued since the load had become irrecoverable - Revenue strongly contended that the debtor company of the assessee was in a strong financial position and had many assets and consequently the decision of the assessee company not to initiate any legal proceedings was clearly doubtful Held that the action of AO to make addition on account of mercantile system of accounting and calculating interest on irrecoverable debts is not correct Decision of Supreme court in Godhra Electricity Co. Ltd. Vs. CIT 2008 TMI - 5588 - SUPREME Court followed.

Summary

The high court judgment involves an appeal by the Revenue under Section 260(A) of the Income Tax Act against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had ruled in favor of the assessee, who was held liable for accrued income not actually received, based on maintaining books of accounts on a mercantile basis. The ITAT concluded that tax is not payable on interest income unless it is real income, especially when the principal amount is written off as bad debts in subsequent years. The Tribunal found that the interest accrued on Inter Corporate Deposits given by the assessee was not actually received, and the principal amount was settled at a lower value than the accrued interest. The Supreme Court judgment in Godhra Electricity Co. Ltd. and the Delhi High Court judgment in CIT Vs. Goyal M.G.Gases (P) Ltd. were cited in support of the decision. The Tribunal deleted the addition of accrued interest as income, as the actual income never accrued to the assessee. The Tribunal's decision was upheld, dismissing the appeal by the Revenue. No substantial question of law was found to arise for consideration.