1997 (12) TMI 155 - AT - Income Tax

Summary

Issues:
1. Appeal against deletion of interest rebate addition by CIT (Appeals).

Analysis:
The appeal before the Appellate Tribunal ITAT MADRAS-B involved the Revenue contesting the deletion of an addition of Rs. 6.9 lakhs, representing a rebate of interest on a loan advanced by the assessee after the interest had already accrued. The Assessing Officer had added this amount to the total income, considering that the interest had accrued by the end of the accounting year. However, the CIT (Appeals) deleted this addition, citing a reduction in interest rates by the assessee as per a Board's decision dated 20-7-1983, which occurred within the framework of the company's memorandum and articles of association before the accounts were passed in the Annual General Meeting.

In the subsequent arguments, the Departmental Representative contended that the interest had accrued on 31-3-1983, and the reduction in interest rates by the assessee after the accounting year was not justified. The Departmental Representative relied on the decision in the case of State Bank of Travancore v. CIT [1986] and other relevant cases. Conversely, the counsel for the assessee supported the CIT (Appeals) decision, highlighting that the reduction in interest rates by the assessee was in line with State Bank of India's actions, indicating commercial expediency.

Upon considering the submissions and the facts of the case, the Tribunal distinguished the present case from the State Bank of Travancore case, emphasizing that the circumstances were different. Additionally, the Tribunal referenced the case of Morvi Industries Ltd. v. CIT [1971] and Shiv Prakash Janak Raj & Co. (P.) Ltd., providing detailed analysis of the accrual of income and the impact of subsequent events on such accrual. Ultimately, the Tribunal held that the interest had accrued to the assessee by 31-3-1983, and the reduction in interest rates post-accounting year did not have commercial justification. Consequently, the Tribunal allowed the Revenue's appeal, upholding the addition of Rs. 6,09,000 to the total income on account of the accrued interest.

In conclusion, the Appellate Tribunal ITAT MADRAS-B allowed the appeal by the Revenue, overturning the CIT (Appeals) decision to delete the addition of interest rebate to the total income. The judgment extensively analyzed the accrual of income, commercial expediency, and the impact of subsequent events on the taxation of accrued interest, citing relevant legal precedents to support its decision.