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TMI Blog2012 (9) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... e system of accounting when the assessee defaulted in payment of the principal amount continuously for long time no interest would accrue on such loan even on principles of mercantile system of accounting. Dis-allowance upheld Addition of prior period income - Held that:- Admittedly, the assessee is maintaining books of account on mercantile system. Therefore, the income relatable to earlier year cannot be added to the income of this year. Addition is deleted. Addition of interest on government loan outstanding as on 31-03-2004 - Held that:- The loan was outstanding from the year 1996. The interest accrued was already converted into share capital. When a portion of the principal alongwith the interest and penal interest was converted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the government as per the order dated 28-05-1997. The copy of the order of the state government is available at page 6 of the paper book. 4. On the contrary, Shri Abhimanyu Singh Yadav, the ld.DR submitted that the state government has not specified any terms and conditions either for payment of the interest or the penal interest. In fact, the assessee has not paid any principal amount or interest. The ld.representative further submitted that a portion of the loan was also converted into share capital. When the government has not specified any terms and conditions for payment of principal amount, in respect of interest or penal interest, according to the ld.DR, the assessee cannot claim deduction. Even though the assessee was following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsence of any action initiated by the government to recover the amount, this Tribunal finds that the claim of deduction of the accrued interest on such loan may not be justified. Even though the assessee was maintaining mercantile system of accounting when the assessee defaulted in payment of the principal amount continuously for long time no interest would accrue on such loan even on principles of mercantile system of accounting. Therefore, this Tribunal finds that the so-called accrual of interest or penal interest on the loan granted by the government cannot be allowed as deduction while computing the total income. This Tribunal do not find any infirmity in the order of the lower authority. Accordingly, the same is confirmed. 6. The ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessation of liability. Therefore, the addition made by the assessing officer is not justified. The fact remains is that when a portion of the principal alongwith the interest and penal interest was converted into share capital there is no question of any further charging of interest. Therefore, the Commissioner of Incometax( A) has rightly confirmed the addition. We do not find any infirmity in the order of lower authority. The same is confirmed. 10. The next ground of appeal is with regard to addition of interest on the government loan on which the rate of interest is not fixed. Shri N.S. Rajagopal, the ld.representative for the assessee submitted that the terms of the loan were not specified. The assessing officer has already disallowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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