2000 (6) TMI 129 - AT - Income Tax

Summary

Issues Involved:
1. Accrual of Interest Income
2. Validity and Continuation of Agreements
3. Real Income Concept
4. Method of Accounting (Cash vs. Mercantile)
5. Selective Assessment of AOP Members
6. Levy of Interest under Sections 234A, 234B, and 234C

Detailed Analysis:

1. Accrual of Interest Income:
The main ground in all appeals concerns the interest income calculated by the Assessing Officer (AO) on an accrual basis. The AO believed that the interest income from an agreement dated 22-8-1989 accrued to the assessee, despite non-payment by Acharya Arundev. The assessee contended that no interest income had actually accrued due to non-fulfillment of the agreement's terms and that the assessee followed a cash basis of accounting for interest income.

2. Validity and Continuation of Agreements:
The original agreement dated 22-8-1989 between Dev Kumar Aggarwal (on behalf of the AOP) and Acharya Arundev stipulated payment schedules and interest for defaults. However, Acharya Arundev failed to make payments as per the schedule, leading to a letter from Dev Kumar Aggarwal on 5-4-1990, giving a final extension until 30-4-1990. The Tribunal concluded that the original agreement became voidable at the option of the promisee (Dev Kumar Aggarwal) due to non-performance by Acharya Arundev, effectively terminating the agreement. The subsequent agreement dated 24-9-1993 was contingent upon the fulfillment of its terms and did not revive the original agreement.

3. Real Income Concept:
The Tribunal emphasized the concept of real income, citing the Supreme Court's decision in Godhra Electricity Co. Ltd. v. CIT, which held that only real income, not hypothetical or notional income, is taxable. Given that Acharya Arundev had not made any payments and the project was stalled due to unresolved issues, no real income had accrued to the assessee. The Tribunal concluded that the assessee had not earned any taxable income from the agreements in question.

4. Method of Accounting (Cash vs. Mercantile):
The assessee argued that it followed the cash basis for interest income, as evidenced by its treatment of interest from M/s. Devidayal Tulsi Ram. However, the AO and CIT(A) noted that the assessee had shown interest income on an accrual basis in the past. The Tribunal found that the assessee's claim of following a cash basis was not substantiated by the evidence presented.

5. Selective Assessment of AOP Members:
The assessee contended that only two members of the AOP were assessed for the interest income, while the others were not. The Tribunal acknowledged this point but noted that it was within the Department's discretion to decide whom to assess. However, the Tribunal emphasized that identical facts should lead to consistent treatment among AOP members.

6. Levy of Interest under Sections 234A, 234B, and 234C:
The Tribunal addressed the issue of interest levied under sections 234A, 234B, and 234C, noting that the AO had not passed a specific order for such interest. The Tribunal directed the AO to quantify the interest, if any, while giving effect to the appellate order.

Conclusion:
The Tribunal concluded that no real income had accrued to the assessee from the agreements in question, and therefore, the interest income calculated by the AO was not taxable. The appeals were partly allowed, with directions for the AO to quantify interest under sections 234A, 234B, and 234C, if applicable. The Tribunal also upheld the additions for low withdrawals for household expenses, considering the social status of the assessee.