AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (5) TMI 538
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....t of interest income for the purpose of preparing its accounts under the Income Tax Act („the Act‟ for brevity) and deleted additions made by the Assessing Officer (AO) on account of undisclosed income from interest. 2. The AO had made additions of Rs.5,68,80,364/- on account of undisclosed income from interest. We may note in this behalf that the assessee is engaged in the business of financing other enterprises by way of loans/Inter Corporate Deposits (ICDs), bill discounting, etc. For the Assessment Year 2000-01, the assessee maintained its account, for the purpose of Companies Act, 1956 on the basis of Calendar Year January to December. However, for the purpose of Income Tax Act 1961, the assessee prepared its accoun....
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....t on sticky loans which was accepted by the AO all through. It was submitted that the interest on loans/advances which itself were doubtful of recovery had not been accounted for in the accounts prepared under the Act, since such interest income cannot be said to have been accrued even under the mercantile system of account and did not, in any case, represent real income of the assessee, some additional evidence was furnished before the CIT (A) in the form of copy of ledger accounts in respect of interest income for the relevant period i.e. 01.01.1999 to 31.12.1999 and 01.01.2000 to 31.12.2000. The CIT (A) forwarded these ledgers along with the detailed submissions of the assessee before the AO for his comment and after considering the same....
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....en accounted for. Since after excluding the interest on loans doubtful of recovery, only the interest income actually received was left, the note was worded in the stated manner. It was not, in any manner, intended to mean that mercantile basis has not been followed in respect of interest income in the relevant tax period. 11. The ledger accounts of the assessee simply indicated that the only material adjustment made by the assessee in the interest income account was reversal of interest of Rs.1,18,50,577/- in the month of March, 2000 and this interest was represented by interest relating to loans given to the parties, the principle amount of which itself was of doubtful recovery. The interest credited to the interest income account by the....
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....e interest ledger submitted by the assessee, hence CIT (A) was fully justified in sustaining the addition to the extent of Rs.14,092/- and in allowing relief of Rs.56866272/- to the assessee in a well-reasoned and well-discussed order as in the existing facts and circumstances of the case of the assessee or on the basis of detailed Remand Report of the AO. No other addition could be made on account of interest income except to the extent of the discrepancy. Accordingly, the order of CIT(A) in this regard is upheld and ground no.1 of the Revenue‟s appeal is rejected." 7. The following aspects become discernible from the aforesaid factual matrix: a) The system of accounting followed by the assessee has been accepted by ....
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....cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialise. 10. The principle that the Supreme Court applied was that even if the accounts are maintained in the mercantile system, what has to be seen is whether income can be said to have really accrued to the assessed. In support of this principle, reliance was placed upon Commissioner of Income-tax v. Birla Gwalior (P) Ltd. [1973] 89 ITR 255 which approved the view taken by the Bombay High Court in H.M. Kashiparekh and Co. Ltd. v. Commissioner of Income-tax , Morvi Industries Ltd. v. Commissioner of Income-tax as well as Poona Electric Supply Co. Ltd. v. Commissioner of Income-tax . In the penultimate paragraph of the judg....