TaxTMI 
TaxTMI 
2017 (12) TMI 1364
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....ration of Kerala Ltd., a public sector undertaking of the Government of Kerala. The original assessment under Section 143(3) of the Income Tax Act (hereinafter referred to as 'the Act') was carried out on 21-12-2011. Thereafter, the assessment was reopened by issuing notice under Section 148 of the Act. The assessment was completed under Section 143(3) read with Section 147 vide order dated 26-02-2015 by the Deputy Commissioner of Income Tax, Circle-I, Kottayam determining the total income of the assessee as Rs. 7,61,10,190/-as against the returned income of Rs. 4,20,07,050/-. The assessee claimed a difference of Rs. 3,23,91,555/- disclosed in the balance sheet as interest receivable on fixed deposits claiming that it was only a hyp....
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....s) and the Counsel appearing for the respondent. 3. The brief question that arises for consideration before us is whether the interest income from Bank deposits of the assessee, amounting to Rs. 3,23,91,555/-, which was not credited to the assessee's account during the assessment year, could be assessed to tax or not. It is submitted by the learned Senior Counsel for Revenue that the tax audit report in Form No.3CD certified that the system of accounting followed by the assessee is mercantile. In such circumstances, the entire interest accrued should have been offered to tax for the assessment year in which it accrued. The assessee having showed the amount as accrued, excluded it from taxation contending the same was not received. Si....
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....(1953) 23 ITR 230 (SC)]; it is held thus: "The mercantile system of accounting or what is otherwise known as the double entry system is opposed to the cash system of book keeping under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. That system brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed. The profits or gains of the business which are thus credited are not realised but having been earned are treated as received though in fact there is noth....
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....x Court is clearly distinguishable on facts. In the above case, the assessee claimed deduction in respect of duty entitlement benefits receivable, only as duty free imports, in lieu of exports made, as per the export import policy. The assessee merely gets a duty entitlement on the export made, the extent of entitlement realisable only when the imports are made. There is also no corresponding liability on the customs authorities to pass on the benefit unless the goods are actually imported. According to the assesee in the said case, the amount were excluded from its total income since the benefit could not be said to have accrued till imports are made. The benefits under the advance licences or under the duty entitlement passbook do not rep....
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.... corollary there cannot be a claim made of hypothetical income or there being no corresponding liability to pay. If the assessee chose to close the deposit prematurely on any date, then the Bank is liable to pay whatever interest that is accrued till that date. Interest for the period, in which the amounts stood in deposit, accrues on the close of the previous year and if it so accrues, it becomes the income of that particular assessment year, liable to be taxed in that year. 7. Yet another argument of the learned Counsel for the respondent is that under Section 194A of the Act, it is the obligation of the banker to pay tax on the interest due. The failure on their part has now resulted in action against the assessee. In view of the fact....