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TMI Blog2020 (10) TMI 1076X X X X Extracts X X X X X X X X Extracts X X X X ..... quarrel lie in the Financial Year 2012-13 relevant to Assessment Year 2013-14. In that year vide loan agreement dated 14.02.2013 appellant advanced a sum of Rs. 21.40 crores to Red Fort Akbar, which was a Special Purpose Vehicle (SPV) promoted to acquire and construct a residential housing project on a land parcel at Hyderabad from one, Deccan Infrastructure and Land Holdings Ltd. jointly owned by the A.P. Housing Board and the A.P. Government. The tenure of the loan was agreed to be for 2 years with interest to be charged at the prevailing prime lending rate as on the date of payment of interest, increased by 3.5% to be charged annually by the appellant. In the financial year 2012-13 relevant to 2013-14, the appellant recognized interest income of Rs. 48.41 lakhs, which was computed @17.95% p.a., for the period of advance which was 46 days falling in that year. 5. Subsequently, it came to the knowledge of Red Fort Akbar that there was an ongoing civil suit filed by the original owners of the land disputing the title of A.P. Housing Board/Deccan. As a consequence, since Red Fort Akbar could not enter into development agreement with Deccan, it put on hold further development of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue is measurable and that at the time of sale or the rendering of the service it would not be unreasonable to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest, etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognized at the time of sale or rendering of service even though payments are made by installments. ...................................................................................................... 9.4 An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use by others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. 9.5 When recognition of revenue is pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 for a period of six months or disposal of appeal whichever earlier. 3. The case was last heard by Hon'ble ITAT on 11.06.2020, in e-hearing through video conferencing and the case was heard in detail. The Hon'ble ITAT directed to call for a report from the AO, providing comments/observations on the factual matrix of the case. In response, the AO has submitted his report which is reproduced as under:- (i) With regard to the set aside assessment of A.Y. 2014-15, the AO vide his letter dated 21.07.2020 has submitted as under: ii. comments on factual matrix as called for by Hon'ble ITAT has been furnished by the AO vide his letter dated 11.08.2020 as under: Findings of Ld. CIT(A) The Ld. CIT(A) while dismissing the appeal of the assessee company has observed as under:- "Following the directions of the Hon'ble DRP, the then AO had added the accrued interest at the rate of 17.95% of the loan amount i.e. Rs. 21,40,00,000/- being the rate of interest earned by the assessee company on this loan from the borrower AE during the F.Y. 2012-13. Therefore, under these facts and circumstances, the assessee company was required to recognized interest in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at income has accrued merely on the ground that the assessee has been following the mercantile system of accounting. Even if the assessee makes a debit entry to that effect, still no income can be said to have accrued to the assessee. If no income has materialised there can be no liability to tax a hypothetical income. It is not the hypothetical accrual of income based on the mercantile system of accounting followed by the assessee that has to be taken into account but, what should be considered is, whether the income has really materialised or resulted to the assessee. The question whether real income has materialised to the assessee has to be considered with reference to commercial and business realities of the situation in which the assessee has been placed and not with reference to the system of accounting. In the present case, in the routes in which the buses of the two firms, M/s. P.N. Swamy Naidu & Co. and M/s. Prakash Transports, were playing were taken over by the Cheran Transport Corporation Ltd. It is on account of the taking over the routes by the Cheran Transport Cooperation Ltd., that the two firms defaulted in making the payment of the hire-purchase instalments and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approved the view taken by the Bombay High Court in H.M. Kashiparekh and Co. Ltd. v. Commissioner of Income-tax, [1960] 39 ITR 706, Morvi Industries Ltd. v. Commissioner of Income-tax, [1971] 82 ITR 835 as well as Poona Electric Supply Co. Ltd. v. Commissioner of Income-tax, [1965] 57 ITR 521. In the penultimate paragraph of the judgment, the Supreme Court held as follows:- "The question whether there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity which were added by the Income-tax Officer while passing the assessment orders in respect of the assessment years under consideration". 11. Applying 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 assessee. Both the CIT (A) as well as the Tribunal came to the conclusion that there was no real ..... X X X X Extracts X X X X X X X X Extracts X X X X
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