Income Tax Appeal Decision: Accrued Interest, Mercantile Accounting, Liability Absolution The High Court upheld the decision of the Income Tax Appellate Tribunal, ruling that under the mercantile system of accounting, interest is deemed accrued ...
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Income Tax Appeal Decision: Accrued Interest, Mercantile Accounting, Liability Absolution
The High Court upheld the decision of the Income Tax Appellate Tribunal, ruling that under the mercantile system of accounting, interest is deemed accrued in the previous year to the assessment year. The appellant's argument regarding interest receivable from Horticorp was dismissed, as the Board's decision not to show the interest receivable on a certain date did not absolve the liability. The Court found no grounds to interfere with the Tribunal's order and dismissed the appeal without costs.
Issues: 1. Addition of interest receivable from Kerala State Horticultural Corporation (Horticorp) 2. Disallowance of brought forward business loss as arrears of depreciation
Analysis: 1. The appellant, a Government-owned Company, raised two issues in the appeal: interest receivable from Horticorp and disallowance of brought forward business loss. The appellant did not press the second issue during arguments, focusing solely on the interest receivable matter.
2. The appellant argued that an amount of Rs. 2 crores was given to Horticorp as per Government instructions, and despite being fully owned Government Companies, no return of principal or interest was received as per the agreement. The interest receivable was shown as Rs. 25 lakhs on 31.03.2004 but not on 31.03.2005 due to a decision by the Board of Directors.
3. Noteworthy is that the appellant follows the mercantile system of accounting, evident from the books produced for assessment. The decision by the Board, as reflected in the Auditor's Report, indicated a change in accounting policy regarding interest accrued on the loan to Horticorp. Despite following the mercantile system, the Board chose not to show the interest receivable, which does not absolve the liability as per the system where interest is deemed to have accrued in the previous year.
4. The High Court upheld the decision of the Income Tax Appellate Tribunal, emphasizing that under the mercantile system, the interest is considered accrued in the previous year to the assessment year. The Court found no reason to interfere with the Tribunal's order and dismissed the appeal without costs.
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