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TMI Blog2023 (7) TMI 1085X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue and it categorically states that revenue can be said to be accrued only when there is certainty of collection of the same. Therefore, where there is no certainty of collection, revenue cannot be said to be accrued at all. As per the Mercantile System of Accounting also, which follows accrual method of accounting, where there is no certainty of collection of revenue, income cannot be recognized. AS-9 is for the purpose of accounting for income on mercantile basis only. Therefore, the contention of the ld. DR that AS-9 had been incorrectly applied by the ld. CIT(A), while the mercantile system should have been applied is completely contradictory contention. No infirmity in the order of the ld. CIT(A) in holding that the short charging of interest on certain loan/advances given by the assessee and also non-charging of interest on certain other loans/advances was as per the Mercantile System of Accounting; and, therefore, there was no case for making any disallowance u/s 36(1)(iii) - Appeal filed by the Revenue is accordingly dismissed. - ITA No. 284/Ahd/2021 - - - Dated:- 12-7-2023 - Mrs. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer noted that on the loans advanced to them by the assessee, though interest was agreed to be charged at the rate of 10/12%, the assessee had charged interest at very nominal rate:- Name of the party Average amount of loan Interest credited by the assessee Rate of interest Actual interest due Difference Icon Infrastructure [12%] 99400000 3000000 12 11928000 8928000 Prime Housing 50948904 1350000 12 6113868 4763868 Siwana Agri Marketing Ltd 67136035 149823 10 6713603 6563780 Total suppressed interest 20255648 4.1 With respect to the following advances, the Assessing Officer noted that the assessee had charged no interest at all:- Name o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) s order as under:- a) Arihant Estates Private Limited- During the course of business to earn interest income, the appellant has advanced loan of Rs. 2,00,00,061/- to the said party during Feb 13 and March 13 and the company has also booked interest income on such advances during F.Y. 2012-13 and F.Y. 2013-14. However due to financial crises of the said company, there was no recovery up to FY 2014- 15 of the said interest income. In the subsequent years the appellant could recover only the principal amount and interest for F.Y. 2012-13 only. Interest of F.Y. 2013-14 could not be recovered till date. In view of said facts and circumstances and on prudence basis the appellant had not recognized interest income on the said advances during FY 2014-15. In support of the contention, the copy of ledger accounts were submitted. b) Dhaval Vijay Kamdar and Vijay C Kamdar- During the course of business to earn interest income, the appellant had granted advances to the above assessees in January 2013. However at the time of granting advances to secure the advances given, appellant company has entered into an agreement to acquire the flats mortgaged in case th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 2012-13. However the assessee has not received interest for the F.Y. 2012-13 and the principal amount till date. Copy of ledger account is submitted in support. In view of above facts and circumstances and prudence norm the appellant has not recognized interest income on the said advances f) Shukan Palace Infrastructure- The appellant company has advanced Rs. 20 Crores in September 2012 against mortgage of land on which the partners of the partnership have decided to build a scheme of 20 bungalows and with a condition that interest on the said advances will be paid monthly. The appellant company received interest regularly on the said advances till December 2013. But from January 2014 the cheques received from the party were dishonored and the party started defaulting in repayment of interest and principal. Also the partners of the firm have sold all the bungalows under the scheme without getting the consent of the appellant company. So the appellant company decided to take legal action against Shukan Palace Infrastructure and filed FIR with Police. The said facts were also published in one of the Gujarati Newspaper. In view of above facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has charged proper interest only and there is no case of charging of interest at lower rate. 8.1 In view of the above facts, the appellant submitted that as per the accounting policies, inter alia laid the following rules for Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. 2) 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. 3) When the principal itself is overdue and not collected, there is no basis for making out a case that interest income would be collectable with certainty. 4) Regarding the disputed advances appropriate disclosures were also made in the financial statements. 5) In support of above contention reliance has been placed on the Judgment of Hon ble Hyderab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been incorrectly applied by the ld. CIT(A) for deleting disallowance under Section 36(1)(iii) of the Act and since the assessee was following Mercantile System of Accounting therefore the entire interest income ought to be treated as accrued and disallowance made of the entire interest income accrued as done by the Assessing Officer. 6.2 We find no merit in this contention of the Revenue since it is a self-defeating argument. AS-9, issued by the Institute of Chartered Accountants of India, which is the parent body of the Chartered Accountant professionals, guiding and governing the professionals, prescribes manner of recognition of Revenue and it categorically states that revenue can be said to be accrued only when there is certainty of collection of the same. Therefore, where there is no certainty of collection, revenue cannot be said to be accrued at all. Therefore, as per the Mercantile System of Accounting also, which follows accrual method of accounting, where there is no certainty of collection of revenue, income cannot be recognized. AS-9 is for the purpose of accounting for income on mercantile basis only. Therefore, the contention of the ld. DR that AS-9 had been in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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