2005 (2) TMI 456

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....assessee was to receive monies from DCM Services Ltd. and M/s Credential Finance Ltd. The monies were lent to DCM Services Ltd., by discounting a bill for Rs. 50 lakhs. The assessee had paid a sum of Rs. 46,97,945 on8th April, 1997. The assessee received a sum of Rs. 3,02,055 towards bill discounting charges on10th July, 1997. Another sum of Rs. 5 lakhs was received on23rd Oct., 1997. Thereafter, the assessee did not receive any money either towards principal or interest from DCM Services Ltd. On17th June, 2000, the principal amount due from DCM Services Ltd. was Rs. 41,97,945 and this was converted into FDRs of Rs. 45 lakhs on10th July, 2000. The assessee also received letters dt. 10th July, 2000, from this creditor wherein they had stated....

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....as not correct to state that any income accrued to the assessee. The assessee placed reliance on the decision of the Hon'ble Supreme Court in the case of UCO Bank vs. CIT (1999) 154 CTR (SC) 88 : (1999) 237 ITR 889 (SC). It was pleaded by the assessee no notional income by way of interest should be considered as having accrued to the assessee. The AO, however, did not agree with the contentions put forth by the assessee. With regard to the amounts due from M/s DCM Services Ltd., he noticed that the non-recovery was sought to be pleaded in the first year when the debt arose. The AO also relied on the repayments made by the creditor to the assessee. He, therefore, was of the view that the assessee could not take benefit of the Circular No. 41....

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....s deleted by the CIT(A). Aggrieved by the order of the CIT(A), the Revenue is in appeal before us. 7. The learned Departmental Representative relied on the order of the AO whereas the learned counsel for the assessee placed reliance on the order of the learned CIT(A). 8. We have considered the rival submissions. As far as the accrual of income under the mercantile system of accounting in the form of sticky advances are concerned, the Hon'ble Supreme Court had an occasion to consider the same in the case of State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC). One of the tests laid down in the said decision is that mere improbability of recovery, where the conduct of the assessee is unequivocal, cannot be t....