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TMI Blog2018 (3) TMI 1306X X X X Extracts X X X X X X X X Extracts X X X X ..... g the assessment proceedings, Assessing Officer observed that there were unsecured loans to the extent of Rs. 19.25 Crs under 'advances recoverable in cash or kind'. The A.O. verified the advances recoverable in cash or credit and found that the assessee did not charge interest on three parties as per the details given below: Sl No. Name of the Party Amount as on 31.03.2013 1. Goldstone Trading Co. Pvt Limited 10,40,75,151/- 2. Realstone Trading Co. Pvt Limited 1,03,52,909/- 3. ACME Craft Pvt Limited 4,92,264/- 3. Further, assessee-company has not entered into agreements for charging interest @ 8% on the following outstanding loans. Sl No. Name of the Party Amount as on 31.03.2013 1. Ask Holdings P. Ltd 1,20,00,000 2. DPK Stock & Securities 66,50,000 3. Sunrich Investments 1,45,50,000 4. Platonium Com Ltd 48,00,00 4. The Assessing Officer was of the view that the company has entered into an agreement for receipt of interest from the above companies @ 8% per annum during the previous year relevant to the A.Y. 2009-10. At the end of the years, the assessee-company has again entered into agreements for not charging interest or waiver of the interest stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts only to ITA No.468/Hyd/2009 & 3 others M/s. Maruti Securities Limited, Secunderabad. to the extent of actual collection, which is the recommended/ recognized method as per Accounting Standard 9 of ICAI which lays down that when uncertainties exist regarding the determination of the amount or its collectability, the revenue shall not be treated as accrued and hence shall not be recognized until collection. The recognition of revenue on accrual basis presupposes the satisfaction of two conditions- (a) The revenue is measurable (b) The revenue is collectable with certainty. The interest income has been admittedly recognised only on receipt basis. The contention of the revenue that the loan agreements have interest clause permitting the assessee to charge interest at the rate of 14% is not tenable. The terms of the agreements, which enabled the assessee company to demand interest were only enabling provisions and those enabling provisions did not guarantee the collection of overdue interest. They only gave a cause of action to the applicant. 22. The method of accounting, as followed by the assessee, does not create any income; but the method of accounting only recogni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion remained only notional interest. As canvassed by the learned counsel for the assessee, some of the parties did not repay even the principal amount and some of the parties settled the accounts by paying some interest and hence, we agree that computation of notional interest at 14% on all the ITA No.468/Hyd/2009 & 3 others M/s. Maruti Securities Limited, Secunderabad. 14 advances and making additions on that basis to the income of the assessee, is not justified. 24. We may, at this juncture, refer to the Ahmedabad Bench decision of the Tribunal in the case of ITO vs. CJ Rathod (11 ITR (Trib.) 252), relied upon by the learned counsel for the assessee. In this case the assessee had given interest free loans to some persons. The Assessing Officer added certain sums as deemed interest on such loans. It was held that there was no agreement between the assessee and the persons to whom the money had been advanced regarding charges of interest and the assessee had actually not charged any interest and these loans were interest free loans. As there was no charge of interest it was held that the assessee was not entitled to any income and the deemed addition made by the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng under section 119. The circular of October 9, 1984, therefore, provides a test for recognising whether a claim for interest can be treated as a doubtful claim unlikely to be recovered or not. The test provided by the said circular is to see whether, at the end of three years, the amount of interest has, in fact, been recovered by the bank or not. If it is not recovered for a period of three years, then in the fourth year and onwards the claim for interest has to be treated as a doubtful claim which need not be included in the income of the assessee until it is actually recovered. In the case of Navnit Lal (C.) Javeri v. K.K. Sen, AAC [1965] 56 ITR 198, the legal effect of such circular is, inter alia, considered by a Bench of five judges of this court. Section 2(6A)(e) and section 12(1B) were introduced in the Income-tax Act by the Finance Act 15 of 1955, which came into force on April 1, 1955. The Government, however, realised that the operation of section 12(1B) would lead to extreme hardship because it would have covered the aggregate of all outstanding loans of past years and would impose an unreasonably high liability on the shareholders to whom the loans might have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down the rigiour of the law and are issued in exercise of the statutory powers under section 119 are binding on the authorities in the administration of the Act. The benefit of such circulars is admissible to the assessee even though the circulars might have departed from the strict tenor of the statutory provision and mitigated the rigour of the law. This court, however, clarified that the Board cannot preempt a judicial interpretation of the scope and ambit of a provision of the Act. Also a circular cannot impose on the taxpayer a burden higher than what the Act itself, on a true interpretation, envisages. The task of interpretation of the laws is the exclusive domain of the courts. However, the Board has the statutory power under section 119 to tone down the rigour of the law for the benefit of the assessee by issuing circulars to ensure a proper administration of the fiscal statute and such circulars would be binding on the authorities administering the Act. In the case of C.B. Gautam v. Union of India [1993] 199 ITR 530 at page 546, a Bench of five judges of this court considered as enforceable, Instruction No. 1A-88 issued by the Central Board of Direct Taxes relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion of how far the concept of real income enters into the question of taxability in the facts and circumstances of the case, and how far and to what extent the concept of real income should intermingle with the accrual of income, will have to be judged "in the light of the provisions of the Act, the principles of accountancy recognised and followed, and feasibility". The court said that the earlier circulars being executive in character cannot alter the provisions of the Act. These were in the nature of concessions which could always be prospectively withdrawn. The court also observed that the circulars cannot detract from the Act. The decision of the Constitution Bench of this court in Navnit Lal (C.) Javeri v. K.K. Sen, AAC [1965] 56 ITR 198, or the subsequent decision in K.P. Varghese v. ITO [1981] 131 ITR 597 (SC), also do not appear to have been pointed out to the court. ITA No.468/Hyd/2009 & 3 others M/s. Maruti Securities Limited, Secunderabad. 18 Since the later circular of October 9, 1984, was not pointed out to the court, the court naturally proceeded on the assumption that the benefit granted under the earlier circular was no longer available to the assessee and those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, if for three years such interest is not actually received. The very fact that the assessee, although generally using a mercantile system of accounting, keeps such interest amounts in a suspense account and does not bring these amounts to the profit and loss account, goes to show that the assessee is following a mixed system of accounting by which such interest is included in its income only when it is actually received. Looking to the method of accounting so adopted by the assessee in such cases, the circulars which have been issued are consistent with the provisions of section 145 and are meant to ensure that assessees of the kind specified who have to account for all such amounts of interest on doubtful loans are uniformly given the benefit under the circular and such interest amounts are not included in the income of the assessee until actually received if the conditions of the circular are satisfied. The circular of October 9, 1984, also serves another practical purpose of laying down a uniform test for the assessing authority to decide whether the interest income which is transferred to the suspense account is, in fact, arising in respect of a doubtful or "sticky" loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee on this issue. 8. Learned Counsel for the Assessee also brought our attention to the Ld. CIT(A)'s order for the AYs 2008-09 to 2011-12 and relevant para 4.1 which reads as under: "4.1 I have perused the ITAT's orders in ITA No.468 for A.Y. 2005-06, ITA No.1111 for A.Y. 2006-07 and 841 for A.Y. 2007-2008. The Hon'ble ITAT decided the issue in favour of the appellant for the AYs 2005-06, 2006-07 in ITA No.468/Hyd/2009, dated 05/09/2014 at para "53" by relying on several case laws as discussed in the order vice paras 21 to 27 and for the AYs 2007-08 in ITA No.841 & 1176/Hyd/2012 vide its order dated 03.12.2014 vide paras 5 to 7 deleted the addition made by the Assessing Officer in this regard. Since the facts are similar for these four years also, i.e., A.Y. 2008-09, 2009-10, 2010-11 and 2011-12, respectfully following the above orders, all the appeals for all the four years are allowed." 9. Since the facts are identical and the Ld. CIT(A) has rightly allowed the appeal of the assessee following the order of this Tribunal for the earlier years (supra), respectfully following the view taken by this Tribunal in the assessee's own case (supra), we hold that the notional inte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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