1994 (1) TMI 119 - AT - Income Tax

Summary

Issues:
1. Addition of interest income accrued on changing accounting method.

Analysis:
The appeal in this case concerns the addition of interest income amounting to Rs. 2,24,868, which was accrued when the company shifted its accounting method from cash system to mercantile system for recognizing revenue. The Assessing Officer contended that the interest amount should be included in the taxable income of the year under consideration as it accrued on the date of changing the accounting method. The assessee argued that the income should only be taxed in the year of actual receipt, as it had not been received in the previous year and did not accrue during the year. The Tribunal noted that the timing of accrual is crucial for taxation purposes, and income must have accrued during the accounting year to be chargeable. The Tribunal found merit in the assessee's argument, emphasizing that the income had already accrued in earlier years as per agreements and, therefore, could not be considered to accrue again in the year under consideration solely due to a change in the accounting method.

The Tribunal highlighted that the income, when received in the current year or subsequent years, was being offered for taxation by the assessee. Therefore, the revenue should not have any grievance regarding the treatment of the interest income. The Tribunal also addressed the Departmental Representative's reliance on judicial pronouncements, stating that they were not applicable to the case or did not support the revenue's position. The Tribunal specifically discussed three cases cited by the Departmental Representative, emphasizing that they were not directly relevant to the issue at hand or did not align with the assessee's circumstances.

Ultimately, the Tribunal set aside the appellate order and directed the Assessing Officer to modify the assessment. The appeal was allowed in favor of the assessee, indicating that the interest income accrued due to the change in accounting method should not be taxed in the year under consideration but in the year of actual receipt.