TaxTMI 
TaxTMI 
2023 (7) TMI 1085
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....nces is taxable. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O." 3. As is evident from the above, the grievance of the Revenue is relating to the deletion by the Ld.CIT(A) of the disallowance made by the Assessing Officer (AO) of Rs. 5,72,21,840/- under Section 36(1)(iii) of the Act. And as transpires from the grounds raised before us, the Revenue is aggrieved by the deletion of disallowance for the reason that the ld. CIT(A) has allowed application of Accounting Standard (AS)-9 for accounting income being interest accrued on advances , without ,allegedly, appreciating the fact that the assessee was following Mercantile System of Accounting . Therefore the narrow compass in which the issue for adjudication before us can be put is whether the Ld.CIT(A) has rightly held AS-9 applicable to accounting for income earned from advances, while deleting the disallowance of interest made by the AO u/s 36(1)(iii) of the Act . 4. The facts relating to the issue, as transpires from the orders of the authorities below, are that the Assessing Officer made disallowance of interest expenses incurred by the as....
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....the amount of interest actually received from the said parties. The assessee had contended that as per AS-9 only income which was certain for recovery could be recognized as revenue. With respect to each party the assessee gave explanation for short charging/non charging of interest. The contention of the assessee in this regard are reproduced at page nos. 25 to 28 of the ld. CIT(A)'s order as under:- "a) Arihant Estates Private Limited- During the course of business to earn interest income, the appellant has advanced loan of Rs. 2,00,00,061/- to the said party during Feb 13 and March 13 and the company has also booked interest income on such advances during F.Y. 2012-13 and F.Y. 2013-14. However due to financial crises of the said company, there was no recovery up to FY 2014- 15 of the said interest income. In the subsequent years the appellant could recover only the principal amount and interest for F.Y. 2012-13 only. Interest of F.Y. 2013-14 could not be recovered till date. In view of said facts and circumstances and on prudence basis the appellant had not recognized interest income on the said advances during FY 2014-15. In support of the contention,....
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....f ledger account is submitted in support. Interest free fund at the time of such advance is Rs. 2,02,17,748/-. Accordingly, the action of AO in disallowing of interest expense on account of non- charging of interest on such advances is bad in law. e) Shukan Finance & Investment Services- The appellant company has advanced loan to the company during F.Y. 2012- 13 and 2013-14 and has shown interest income up to 2012-13. However the assessee has not received interest for the F.Y. 2012-13 and the principal amount till date. Copy of ledger account is submitted in support. In view of above facts and circumstances and prudence norm the appellant has not recognized interest income on the said advances f) Shukan Palace Infrastructure- The appellant company has advanced Rs. 20 Crores in September 2012 against mortgage of land on which the partners of the partnership have decided to build a scheme of 20 bungalows and with a condition that interest on the said advances will be paid monthly. The appellant company received interest regularly on the said advances till December 2013. But from January 2014 the cheques received from the party wer....
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....om Siwana Agri Marketing Limited. However the AO has 71,36,035/- and has accordingly disallowed interest expense of Rs. 65,63,780/- . However, the appellant submitted the copy of the account of the above assessee in its books of account which is a current account i.e. the debit and credit balances change on regular basis and accordingly interest is to be calculated. The appellant also submitted calculation of interest @ 10% from tally software and submitted that the appellant has charged proper interest only and there is no case of charging of interest at lower rate. 8.1 In view of the above facts, the appellant submitted that as per the accounting policies, inter alia laid the following rules for "Revenue recognition" "Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured." 2) Accounting Standard 9 of ICAI which lays down that when uncertainties exist regarding the determination of the amount or its collectability, the revenue shall not be treated as accrued and hence shall not be recognized until collection. The recognition of revenue on accrual basis presuppo....
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....ed as accrued only when it is measurable and collectable with certainty. Applying this principle to the facts of the case before it, where the assessee had demonstrated that the recovery of loans/ advances itself was not being made in the impugned cases and therefore the assessee had accounted for the interest income earned on these advances as per Accounting Standard-9, only when there was certainty in collection of the revenue. 6.1 The grievance of the revenue before us in the grounds raised is that the AS-9 has been incorrectly applied by the ld. CIT(A) for deleting disallowance under Section 36(1)(iii) of the Act and since the assessee was following Mercantile System of Accounting therefore the entire interest income ought to be treated as accrued and disallowance made of the entire interest income accrued as done by the Assessing Officer. 6.2 We find no merit in this contention of the Revenue since it is a self-defeating argument. AS-9, issued by the Institute of Chartered Accountants of India, which is the parent body of the Chartered Accountant professionals, guiding and governing the professionals, prescribes manner of recognition of Revenue and it categorically state....