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Issues:
1. Whether the right of the assessee to receive the principal amount got extinguished due to unilateral termination of agreement and specific denial by the debtors to pay any interest. 2. Whether any income had become due to the assessee. 3. Whether the attachment notices issued by the Department to the debtors had the effect of attaching the income which accrued to the assessee, making such income legally taxable as the assessee's income. Issue 1: The assessee contended that the borrowers denied the liability to pay both principal and interest, leading to doubts about recovery and non-accounting of interest income. However, the AO disagreed, asserting that the loans were still outstanding, and interest was due. The AO calculated and added interest at 18% to the income. The CIT(A) sided with the assessee, stating that the right to receive the amount extinguished due to the debtors' actions. Citing the UCO Bank case, the CIT(A) held that no notional interest addition was warranted based on the real income theory. Issue 2: The Revenue challenged the CIT(A)'s decision, arguing that the principal amount was still due as per the mercantile system of accounting. The Revenue emphasized that the interest income should be deemed to have accrued to the assessee. The Tribunal found no basis for the CIT(A)'s finding that the principal amount and interest rights were extinguished. It highlighted that unilateral termination of liability by a debtor does not absolve the debtor of payment obligations. The Tribunal noted the lack of evidence supporting the debtors' refusal to pay. Issue 3: The Tribunal examined the relevance of the UCO Bank case, emphasizing the need for evidence to support the remission of debt. The Tribunal rejected the assessee's argument that the debtors remitted the money to the IT Department, emphasizing the absence of concrete proof of debtors' refusal to pay. Relying on various judicial precedents, the Tribunal concluded that there was no remission of debt and upheld the AO's application of the accrual concept of income. The appeal by the Revenue was allowed, reversing the CIT(A)'s decision and restoring the AO's order. In conclusion, the Tribunal found that the debtors' denial of payment did not extinguish the assessee's right to receive the principal amount and interest. The Tribunal emphasized the importance of concrete evidence to establish remission of debt and supported the AO's application of the accrual concept of income. Ultimately, the appeal by the Revenue was allowed, overturning the CIT(A)'s decision.
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