TaxTMI 
TaxTMI 
2011 (1) TMI 761
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....ember 2001 on the following substantial question of law:- (i) Whether on a proper reading of the approval made by the Board of Directors in respect of the balance-sheet and the profit and loss account and the notes which clearly indicate the non-charging of interest on the loan/advance to Swan Mills Limited, it can be said to be in law that the Board of Directors had not approved the surrender and/or non-charging of interest on the loan advanced to Swan Mills Limited? (ii) Whether the approval of the Board of Directors of the accounts including the balance-sheet, profit and loss account and the notes thereto the approval will relate back to the accounting year in question for which the Board of Directors have approved of the accounts? (iii) Whether in view of the provision of the Sick Industrial Companies (special provisions) Act, 1985 and the fact that scheme has been framed by the Board of Directors in respect of the Swan Mills Limited, the interest on the advances/loans made to Swan Mills limited can be said to accrued to the assessee and is liable to be included in the income of the assessee? (iv) Whether the inclusion of the interest on loan and advances to Swan Mi....
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.... loan was deleted. The Income Tax Appellate Tribunal by the impugned judgment and order set aside the aforesaid part relief granted by the CIT (Appeal) as far as assessibility of the interest amount of loan is concerned and restored the order of the Assessing Officer. It thus appears in this appeal the core controversy is as to whether the amount of interest accrued on the loan should be included in the assessment as being an income despite the fact that the BIFR had sanctioned a scheme under the Sick Industrial Companies (Special Provision) Act, 1985 (in short SICA) and further after approval of the Board of Directors of the assessee company, for not showing the said income of interest amount in the profit and loss account. Dr. Pal learned Senior Counsel contends with the support of Supreme Court decision in the case of Mercantile Bank Ltd. v. CIT reported in 283 ITR 84 that the stickiness of the advances or loans objectively established by furnishing proper materials, is sufficient to prevent the accrual of interest thereupon as real income and would have the effect of rendering such income hypothetical. Therefore, interest cannot be brought to tax irrespective of the metho....
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....Supreme Court in case of Indian Tube Company Pvt. Ltd. v. CIT reported in 194 ITR 102(SC) and also in the case of CIT v. United Bank of India reported in 69 Taxman 505 at page 569. Mr. Som learned Senior Counsel appearing for the respondents submits that interest income of Rs. 16,27,059/- due from Swan Mills Ltd. was taxable on accrual basis under mercantile system of accounting. Scheme of the rehabilitation was approved by BIFR which says that interest liability was kept out of the purview of the scheme. Pursuant to the direction given by the CIT (Appeal) the Assessing Officer considered the matter afresh and held that no material was produced before him that the debt become bad doubtful or the same have been written off during the relevant accounting year. He submits further that the Assessee therefore could enforce to recover loan or interest de hors the scheme. The CIT (Appeal) held that the debt had neither become bad nor doubtful. Hence interest from the loan cannot be said to be irrecoverable. He submits that the learned Tribunal on fact found that there is no evidence of the Board of Directors of the Assessee having taken decision to waive interest. In the absence of any Bo....
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....hat the scheme provides for rehabilitation scheme by which payment of the unsecured creditors can be made. We are of the view the learned Tribunal and all the authorities below have proceeded in completely different direction and did not address real issues involved, namely whether any amount of income which is not shown in the profit and loss account can be said to be an income whether on accrual or receipt basis, for the purpose of levying Income Tax or not. In our view when any particular amount of income is not shown in the accounts or there is no remark of the Auditor that this account has not been prepared faithfully having regard to the transaction took place between the parties such account has to be accepted to be a conclusive document for the purpose of computation of taxation unless of course Auditor's report is questioned by the department. It is the fundamental provision of law unless there is any accrual of income in real sense there cannot be levy on tax. This legal concept has been settled in an old decision of the Supreme Court reported in 46 ITR 145 in the case of CIT (Bom) v. M/s. Shoorji Vallabhdas & Co. Justice M. Hidayatullah speaking for the Bench explaine....
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....ught to the profit and loss account, but kept it only in the suspense account. In the case under reference the Supreme Court impliedly accepted the position that stickiness of the advances or loans once objectively established to the satisfaction of Revenue Authorities by furnishing proper materials, is sufficient to prevent accrual of interest thereupon as real income and would have effect of rendering such income hypothetical. Therefore the interest cannot be brought to tax irrespective of the method of accounting provided the assessee was able to establish that loans had in fact become sticky during concerned year or years by producing proper materials and that the assessee company invariably followed the practice of carrying the interest of such loans to interest of suspense account in stead of crediting it to interest account or profit and loss account with the additional safeguard of offering the same for taxation if and when it was subsequently realized. In this case in our view the assessee/appellant has been established the fact upon placing materials, that advances has become sticky because of impossibility of recovery in real sense in view of the reference having been....
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....interest has become irrecoverable. According to us it is not a case of showing bad debt but it is a question of receivability of the said income. We also notice that the method of accounting is done by the appellant assessee in accordance with the accounting standard-IX read with Section 145 of the Act of 1961. We find that the learned Tribunal has not dealt with the implication of the provision of Section 22 of the SICA nor has discussed the aforesaid decisions of the Supreme Court. The learned Tribunal has relied on the decision of the Assessing Officer who in his turn has relied on the decision of the case of State Bank of Travancore. Dr. Pal has correctly pointed out that the learned Tribunal failed to notice that the aforesaid decision has not been followed by the subsequent Three Judges' Bench of the Supreme Court in UCO Bank's case (supra). Hence the learned Tribunal failed to note that decision of the Assessing Officer is contrary to latest pronouncement of the Supreme Court on the question of assessibility of interest income in this case. The decision cited by Mr Som of the Supreme Court reported in 323 ITR 397 rather helping the case of the assessee/appellant as it ....