1998 (8) TMI 612 - AT - Income Tax

Tribunal partially allows appeal, restores interest income addition, and orders further inquiry into cash credits

The department's appeal was partly allowed by the Tribunal. The addition of Rs. 62,100 in interest income was restored, as the Tribunal held that the ... - Issues Involved:1. Deletion of addition of interest income of Rs. 62,100.2. Restoration of the issue of addition of Rs. 3 lakhs on account of cash credits.Issue-wise Detailed Analysis:1. Deletion of Addition of Interest Income of Rs. 62,100:The department appealed against the deletion of an addition of Rs. 62,100 in interest income by the CIT(A). The assessee-company had not accounted for this interest on advances given to a borrower, M/s. Rampratap Bansidhar, due to the borrower's inability to pay and a dispute over the interest rate. The Assessing Officer (AO) added the interest income, arguing that it had accrued under the mercantile system of accounting, regardless of the borrower's payment ability.The CIT(A) deleted this addition, noting that the interest rate was eventually reduced from 15% to 9% after negotiations, and this reduction was a commercial decision altering the original contract. The CIT(A) held that this alteration, though agreed upon after the accounting year, should reflect in the current year.The department contended that since the dispute was settled after the accounting year, the income of Rs. 62,100 had accrued for the year ending on 31-3-1987. The assessee argued that income accrual should be based on real income, citing several precedents, including the Supreme Court's decision in State Bank of Travancore v. CIT.The Tribunal considered the concept of real income and relevant Supreme Court decisions, emphasizing that income must be judged in light of the reality of the situation. The Tribunal noted that the agreement to reduce the interest rate occurred after the income had accrued, thus failing to meet the conditions for non-taxability. Consequently, the Tribunal restored the addition of Rs. 62,100 deleted by the CIT(A).2. Restoration of the Issue of Addition of Rs. 3 Lakhs on Account of Cash Credits:The second issue involved the addition of Rs. 3 lakhs as cash credits. The assessee obtained loans from various entities, including M/s. Ganpati Udyog Ltd. The AO added Rs. 3 lakhs to the assessee's income, suspecting the genuineness of the loan due to the assessee's substantial interest in Ganpati Udyog Ltd. and the failure to produce the lender's accountant.The CIT(A) restored the matter for further enquiry, criticizing the AO for not conducting thorough investigations. The Tribunal noted that the AO repeated the addition even after the CIT(A) had restored the matter twice. The CIT(A) eventually deleted the addition in a subsequent order. The Tribunal agreed with the CIT(A)'s decision to restore the matter initially, emphasizing that the AO should have conducted further enquiries rather than concluding it was the assessee's income without sufficient evidence.Conclusion:The appeal of the department was partly allowed. The Tribunal restored the addition of Rs. 62,100 in interest income but upheld the CIT(A)'s decision to restore the matter of the Rs. 3 lakhs cash credits for further enquiry.