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Issues:
1. Whether interest accrued on advances made to parties when interest was waived by the assessee company? 2. Whether the resolution of the Board of Directors regarding waiver of interest was admissible as evidence? 3. Can the assessee adopt different accounting systems for different parties? 4. Whether the claim for bad debts in the assessment year was justified based on the timing of write-offs? Analysis: Issue 1: The appeal pertains to the assessment year 1983-84, where the assessee company made advances to eight parties without charging interest. The Income Tax Officer (ITO) held that interest had accrued and added it to the total income of the assessee. The assessee claimed that a resolution by the Board of Directors waived interest due to financial difficulties of the parties. The Appellate Tribunal considered the facts and held that since the interest was waived before the relevant accounting year and no interest was received, it could not be said that interest had accrued. The Tribunal emphasized that under the mercantile system of accounting, when interest is waived before the accounting year, it does not accrue. Issue 2: The assessee argued that the resolution of the Board of Directors waiving interest was crucial evidence, which was presented before the ITO. The Tribunal acknowledged the resolution and its significance in establishing the bona fide decision to waive interest. The Tribunal noted that the resolution indicated a commercial expediency for waiving interest, aligning with the principles laid down by the Supreme Court in similar cases. Issue 3: The assessee attempted to adopt a cash system for interest income from certain parties, but the Tribunal rejected this approach. It was held that the assessee could not selectively apply different accounting systems based on its convenience. Since interest was waived genuinely, it did not accrue, and therefore, could not be included in the total income. Issue 4: Regarding the claim for bad debts in the assessment year, the assessee sought to treat the advances as bad debts, but the Tribunal found that the amounts were not written off until 1986. Citing a decision of the Gujarat High Court, the Tribunal rejected this claim, emphasizing that the timing of write-offs was crucial in determining the treatment of bad debts. The Tribunal confirmed the rejection of this claim. In conclusion, the Tribunal partially allowed the appeal by directing the deletion of the addition of interest amounting to Rs. 2,41,955. The judgment underscored the importance of genuine waivers, consistent accounting practices, and timely write-offs in determining the tax implications of financial transactions.
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