2018 (10) TMI 362 - AT - Income Tax

Accrual of income - Addition towards interest accrued on the amounts due - Held that - Assessee has advanced an amount and is following mercantile system of accounting. During the course of survey, the Assessing Officer has found that assessee is charging interest on the advances. The case of the assessee is that he is not charging any interest. When the Assessing Officer has established the fact that assessee is charging interest and following mercantile system of accounting, simply submitted that no interest is charged. The assessee has not filed any material to show that he is not charging any interest from the customers. Under these facts and circumstances of the case, we are of the opinion that the Assessing Officer has rightly made the addition - Decided against assessee Addition towards interest accrued on the amounts advanced to the customers - Held that - The assessee has advanced various amounts to the customers which is attached with Annexure-A of the assessment order. The case of the assessee is that he has not charged any interest, however, the Assessing Officer has pointed out from the material collected during the course of survey, the assessee has charged interest from two persons, namely Sri G. Yathiraj Kumar and Smt. K.Seshavataram. This fact has not been disputed by the assessee. It is also a fact that the assessee is following mercantile system of accounting. The assessee simply submitted that due to heavy competition in the business, funds advanced to the customers and no interest is charged from them, but he has not filed any supportive evidence to substantiate his argument. It is also a fact that assessee is charging interest. It is also a fact that same submission is made even in the earlier years. CIT(A) correctly confirmed the order of the Assessing Officer - Decided against assessee

Summary

Issues:
1. Addition of interest accrued on amounts due for Assessment Years 2004-05 & 2005-06.

Analysis:
1. The assessee, a firm named M/s. Vasu Chits, filed its return of income admitting total income of ?27,960. Following a survey operation, the Assessing Officer noted that interest accrued on outstanding amounts was ?2,51,030. The assessee claimed interest would be admitted at the time of repayment due to doubts on principal recovery. However, as per the mercantile system of accounting, interest must be accounted for regularly. The Tribunal upheld the addition based on previous decisions and confirmed by the CIT(A).

2. In another issue, the Assessing Officer noted accrued interest of ?3,65,234 on advances to customers. The assessee argued no interest was charged except for two individuals. The CIT(A) confirmed the addition, citing evidence from the survey and the mercantile system of accounting. The Tribunal upheld the decision, emphasizing the importance of following accounting principles and previous legal precedents.

3. Both cases highlighted the importance of adhering to accounting principles, specifically the mercantile system, in recognizing accrued interest income. The Tribunal emphasized the need for supporting evidence to counter the Assessing Officer's findings. The decisions were based on established legal principles and previous judgments, leading to the dismissal of the appeals by the assessee.