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TMI Blog1984 (3) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... although the assessee's system of accounting was mercantile. The assessee explained that the money was advanced to MPD Productions, Bombay, against security of picture, ' Chambal Ki Kassam ' in eastern unit at the rate of 2 per cent interest and, since the picture was not released in the eastern circuit due to bad picture, money was not realised and the assessee did not know whether Rs. 1,00,000 would be realised at all and the interest on the loan was not credited in the account. The ITO declined to accept the statement of the assessee stating that for the simple reason the loan did not become bad by the end of the financial year and the assessee was maintaining mercantile system of accounts and there was no reason not to charge the interest in terms of the agreement. Before the ITO, copy of the pleader's notice dated 10-5-1980 was produced, by which the concerned parties were forbidden not to have any dealings with MPD Productions in respect of the release of the said picture till the loan due to the assessee together with interest were fully paid up. According to the ITO, this pleader's notice had no relevancy at all. In the circumstances, interest calculated at Rs. 21,500 was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee and gone to the extent of taking a legal help for realisation of the principal amount and unless there was some doubt in realisation of the principal amount, it was not expected of anybody that he would go to seek legal help. He also noted that since the assessee was maintaining cash system of accounts in connection with this particular loan transaction (as is evident from the fact that the assessee stopped showing amount of interest as the same was not realisable), the AAC felt that the unrealised interest should not be treated as income of the assessee during the year under consideration. He was, therefore, of the opinion that the alleged interest of Rs. 21,500 cannot be treated as part of the taxable income of the assessee. He, however, indicated that the ITO would be free to tax the same in the year of actual receipt. Hence, this appeal before us by the revenue. 5. It is urged by the learned departmental representative that there was no justification for the AAC on the facts of the case to delete the above sum which was the income of the assessee from the computation of the income as made by the ITO. It is vehemently urged on behalf of the revenue that the AAC ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as due to be repaid by 25-7-1979. It is urged that as per the terms of the agreement, the debtor should have paid the amount before the date or before the release of the above film, whichever is earlier. It is stressed that as the interest was not received, real income was not shown in the return. In respect of the declaration made by the assessee in the return that the method of accounting during the year was mercantile, it is urged that the return form was filled up by the employee, whereas in fact the account in respect of the loan transaction was maintained on cash basis. It is urged that even the interest was not credited in the accounts and the same was not reflected in the balance sheet. In fact, before us, arguments made before the AAC are repeated and stressed on behalf of the assessee. In course of his arguments, the assessee's learned counsel refers to the decision in the case of CIT v. Ferozepur Finance (P.) Ltd. [1980] 124 ITR 619 (Punj. Har.) in order to stress that if the income did not result at all, there cannot be levy of tax and even if an entry of hypothetical income is made in the books of account, where the income does not result at all as there is neither a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at basis, fact or material, the above conclusion was arrived at. As pointed out on behalf of the revenue, in the relevant part of the return filed by the assessee, the method of accounting followed by the assessee for the year under consideration was mercantile. The contention of the assessee before us is that the form was filled up by the advocate, who computed the income. In our opinion, this stand of the assessee cannot be accepted, as in the declaration part of the return, the correctness, completeness, etc., of the return has authenticated by the assessee itself. 8. From the papers placed before us, it is seen that as per agreement made between the assessee and MPD Productions, the entire amount of Rs. 1,00,000 plus interest at the rate of 2 per cent would be repaid back to the assessee on or before 25-7-1979 or before release of the picture ' Chambal Ki Kassam ', whichever date is earlier. In the agreement dated 26-5-1979, the debtor also agreed to undertake that he would not release or caused to be released the said picture until the above principal and the interest amount was fully and finally paid to the assessee and the above arrangement is stated to be irrevocable. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was claimed that the financial position of that party was bad and there was no hope of recovery even of the principal amount and, therefore, it was not considered necessary to charge any interest. The ITO added interest at the rate of 12 per cent in the total income of the assessee. On appeal by the assessee, the AAC sustained the action of the ITO. When the matter was taken up before the Tribunal (Chandigarh Bench), the claim of the assessee was allowed and the addition made by the ITO was deleted on the basis that the department did not seriously dispute the fact that the financial position of that debtor was weak. The Tribunal took note of the financial position of that debtor for those years and it noticed that there was a sale of all the properties of the debtor in order to satisfy certain obligation, which would show that the financial position of the debtor was not sound. Ultimately, on the facts of that case, the Hon'ble High Court sustained the decision of the Tribunal in allowing the claim of that assessee. The facts before us are different. Apart from the assertion that the recovery of the principal amount was in jeopardy, no material fact or evidence has been placed bef ..... X X X X Extracts X X X X X X X X Extracts X X X X
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