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TMI Blog2011 (5) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate proceedings. The debts were written off as bad debts and were also allowed by the Assessing Officer in subsequent years - These facts lead to the inescapable conclusion that realization of even the principal amount was in jeopardy and, therefore, there cannot be said to be any real accrual of income by way of interest - See CIT v. Birla Gwalior (P) Ltd [1973 (4) TMI 2 - SUPREME Court] - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, in the Assessment Year 1998-99, addition was made on the ground that in mercantile system of accounting, which was followed by the assessee and relevant for income tax purpose, interest on such loans/ICDs should also be treated as accrued income. 3. The additions were deleted by the CIT (A). However, no appeal was preferred by the Revenue thereagainst. 4. For the Assessments Year 2000-01 and 2001-02 with which we are concerned, the AO again made the addition in respect of aforesaid interest on sticky loans in the sum of Rs.5,68,80,364/- on the same premise. The interest income which was offered by the assessee was in the sum of Rs.12,00,10,940/-. The AO, however, added the aforesaid amount of Rs.5,68,80,364/- also as interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em and has not followed the cash basis of accounting in respect of interest income for the purposes of preparing its accounts under the Act. The basis followed for recording of interest income in such accounts is the same as that followed for the purposes of preparing accounts under the Companies Act, 1956. The only difference is that the interest in respect of loans and advances which itself are doubtful of recovery has not been accounted for in the accounts prepared under the Act, since such interest income cannot be said to have been accrued even under the mercantile system of accounting and not, in any case, represent real income of the appellant. Although the notes to accounts prepared for the purposes of the Act state that interest in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incomes on sticky loans which had been accounted for in the account prepared for the purposes of Companies Act, 1956 by reversing the amount of Rs.1,18,50,577/- in the interest account. 12. Before us the ld. DR of the Revenue has not been able to find any fault with the system of accounting followed by the assessee. It has also not been controverted that the additions made by the AO on account of interest income on sticky loans had been deleted by the CIT (A) is assessment year 1998-99. Further, it is also not disputed that in the instant case the AO after conducting independent verifications form parties, to whom the assessee advance loans during the year for the period 1-1-99 to 31-12-99, on the basis of photocopies of ledgers f those 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d doubtful. 8. It would also be relevant to state that in the case of this very assessee, this Court has affirmed the similar view of the Tribunal in the case entitled Commissioner of Income Tax Vs. Goyal M.G. Gases Pvt. Ltd. [163 Taxman 541 (Delhi)] in the following terms: "9. The Tribunal relied upon the decision of the Supreme Court in Godhra Electricity Co. Ltd. v. Commissioner of Income-tax . We have gone through this decision. The Supreme Court quoted a passage from an earlier decision rendered in Commissioner of Income-tax v. Shoorji Vallabhdas and Co. where it had been stated as follows:- Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the law laid down by the Supreme Court, what has to be seen in the present case is whether there was any real accrual of interest to the assessed. Both the CIT (A) as well as the Tribunal came to the conclusion that there was no real accrual of interest. It has been noted that the interest had not even been recorded by the assessed in its books of accounts. The assessed had also issued a notice to the parties under Section 138 of the Negotiable Instruments Act for dishonour of cheques issued by all (except one of the debtors) followed by initiation of appropriate proceedings. The debts were written off as bad debts and were also allowed by the Assessing Officer in subsequent years. These facts lead to the inescapable conclusion that re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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