2005 (1) TMI 31

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...." The assessment year involved is 1981-82. The assessee is a private limited company and it has three units, one of them is Kumar Cold Storage, the income of which is generally from storage and rental. The assessee has adopted the mercantile system of accounting. In the relevant assessment year the assessee did not charge any interest from sundry debtors outstanding for a period of more than six months as it was considered doubtful as on December 31, 1980. The total amount of these debts was shown at Rs. 1,02,416. The interest was not debited to the ledger of the debtors. It was submitted before the Income-tax Officer that as chances of recovery were not considered good, no interest was credited to the cold storage profit and loss accoun....

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.... concept of real income cannot be imported so as to defeat the provisions of the Act and the Rules. The assessee had charged interest from the debtors in the earlier years and follows the mercantile system of accounting, therefore, the interest on the advances made by the assessee are liable to be added in its income on the principle of accrual. We have given a careful consideration to the aforesaid submission of learned standing counsel and also considered the judgment of the Supreme Court in the case of CIT v. Shiv Prakash Janak Raj and Co. P. Ltd. [1996] 222 ITR 583. The Tribunal has recorded a finding of fact that there was no finding by the Income-tax Officer that any agreed date was fixed between the growers or the storers on the o....

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....plained its earlier judgment given in the case of Birla Gwalior P. Ltd. [1973] 89 ITR 266. To correctly appreciate the ratio of the Supreme Court judgment given in the case of Shiv Prakash Janak Raj and Co. Pvt. Ltd. [1996] 222 ITR 583 (SC), it is essential to bear in mind the factual matrix of that case. It has given four circumstances for holding that interest income is liable to be added on accrual basis at the hands of the assessee. The first circumstance was that the assessee-company did charge interest on the loan advanced by it to the firm, which shows that the loan was an interest-bearing loan. The second circumstance was that the resolution waiving interest was passed after close of the accounting year. Thirdly, the assessee-compan....

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....me were unjustified. The assessee decided not to charge the interest before the end of the accounting year relevant to the assessment year in question. In the case of Shiv Parkash Janakraj and Co. (P.) Ltd. [1978] 112 ITR 872 (P & H) the finding of the Tribunal, which heavily weighed in the Supreme Court was that the assessee-company made advances to the firm in which the directors/shareholders of the assessee-company were interested and it was a case of collusion between them to evade tax liability. In the case in hand there is no such finding by any of the authorities including the Tribunal. In contra the finding is that the loan transactions were genuine transactions. The sundry debtors stored potatoes in the storage of the assessee-comp....