Mercantile accrual of interest cannot be erased by a later board waiver after the accounting year ends.

Under the mercantile system, interest that had accrued by the end of the accounting year remained taxable even though the assessee later sought a rebate by board resolution after year-end. The later reduction could not undo prior accrual, and subsequent letters or events were irrelevant to the taxability of income that had already become due. The discussion also noted that unilateral post-accrual waiver, without demonstrated commercial expediency, does not efface accrued income. The addition for accrued interest was therefore sustained.

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Issues: Whether interest that had accrued to the assessee during the accounting year could be excluded from taxable income because the assessee later granted a rebate by board resolution passed after the close of the accounting year.

Analysis: The assessee followed the mercantile system. Interest at 16% had accrued on the loans by the end of the relevant accounting year. The subsequent board resolution reducing the rate of interest was passed after the accounting year had ended, so the later waiver could not undo the prior accrual. The cited authorities on accrual of income and post-accrual relinquishment supported the view that income becomes taxable when it becomes due, and later non-receipt or unilateral waiver does not efface accrual. The subsequent letters and later events were held to be irrelevant to the taxability of the accrued interest, and no commercial expediency was shown to justify the reduction.

Conclusion: The interest had accrued to the assessee during the relevant year and remained taxable. The addition made by the Assessing Officer was justified, and the Revenue's appeal succeeded.

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