TaxTMI 
TaxTMI 
2010 (1) TMI 746
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....n credit for in the PandL a/c by the assessee but excluded from the computation of income with a comment or note ?" 2. Brief facts leading to the appeal are that : The assessee is a public limited company listed on the Bangalore Stock Exchange amongst others. For the asst. yr. 1997-98, in the return filed by the assessee, a sum of Rs.74.75 lakhs, which had been shown as interest on a sum of Rs.3.25 crores lent to another company managed by Bangur Group on accrual basis had been reduced in the income computation exercise for the reason that the borrower was not in a sound state of health and the assessee company has shown that the borrower leave alone paying interest but was not even in a position to repay the principal amount and it was likely that the assessee company may lose the entire amount etc. 3. With the assessee following the mercantile system of accounting and the assessing authority noticing that the assessee company under an agreement, had lent a sum of Rs.3.25 crores to another company with a condition that the amount should be repaid with simple interest at 21 per cent per annum and as the PandL a/c of the assessee had already been prepared wherein the....
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....143(l)(a). Where a return has been made under s. 139 or in response to a notice under sub-s. (1) of s. 142,- (i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-s. (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under s. 156 and all the provisions of this Act shall apply accordingly; and (ii) if any refund is due on the basis of such return, it shall be granted to the assessee : Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or loss declared in the return, namely : (i) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified; (ii) any loss carried forward, deduction, allowance or relief which, on the basis of the information available in such return, accounts or documents, is prima facie admissible but which is not claime....
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....h person in the return is reduced or is converted into income, the AO shall, (A) in a case where the increase in income under sub cl. (i) of this clause has increased the total income of such person, further increase the amount of tax payable under sub-s. (1) by an additional income-tax calculated at the rate of twenty per cent on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income been reduced by the amount of adjustments and specify the additional income-tax in the intimation to be sent under sub-cl. (i) of cl. (a) of sub-s. (1); (B) in a case where the loss so declared is reduced under sub-cl. (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate a sum (hereinafter referred to as additional income-tax) equal to twenty per cent of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under sub-cl. (i) of cl. (a) of sub-s. (1); (C) where any refund due under sub-s. (1), reduce....
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....has an income of Rs.74.75 lakhs which accrues the moment the year is over from the date of lending, whether or not the amount is realised in reality. 17. We find that the observation of the first appellate authority to the effect that the assessee could have claimed the amount as a bad debt in respect of the principal amount which in turn, could have avoided further accrual of interest etc., is appropriate in this regard. If the assessee had not chosen to write off the amount lent to the other company and as long it is shown as outstanding amount and with an agreement to receive interest at 21 per cent per annum as the outstanding amount, accrual of interest on adopting the mercantile system of accounting is inevitable. Accrual of income should definitely be brought to tax in terms of s. 5 of the Act. 18. When such is the legal position, there was no choice for the assessing authority but to add back this amount as part of the income, though the assessee might have claimed this as not a real income or on any other basis. 19. In the context of the admitted fact situation and legal position, we find the findings recorded by the Tribunal are rather perplexing. ....