2016 (4) TMI 1162

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....he only question which arises for our consideration is: "Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that inspite of following a mercantile system of accounting, the Respondent-Assessee was entitled not to bring the notional interest on debentures subscribed by it to tax?" 3. The Respondent-Assessee had in 2003 subscribed to 2% nonconvertible unsecured debentures of Rs. 42 crores issued by one of its group companies viz. M/s. Marketing & Brand Solutions (I) Pvt. Ltd. On 20th May, 2004 M/s. Marketing & Brand Solutions (I) Pvt. Ltd. in response to a demand for interest from the Respondent-Assessee requested waiver of interest on the debentures as it were facing financial diffic....

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....ng of the income, whether actual or notional, has to be seen from the viewpoint of a prudent assessee. If in given facts and circumstances the assessee decides not to charge interest in order to safeguard the principal amount and ensure its recovery, it cannot be said that he has acted in a manner in which no reasonable person can act. (C) The guidance note on accrual of income on accounting issued by the ICAI lays down that where the ultimate collection with reasonable certainty is lacking, the revenue recognition is to be postponed to the extent of uncertainty involved. In terms of the guidance note, it is appropriate to recognize revenue in such cases only when it becomes reasonably certain that ultimate collection will be made. (D) No....