2009 (7) TMI 43

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....ncome not actually received on the ground that the assessee was maintaining books of accounts on mercantile basis. 2. The order of Income Tax Appellate Tribunal is a very detailed one running into over 51 paragraphs. The ITAT has in substance held that no tax is payable unless the interest income is a real income and not merely accrued income more so when the principal amount is written off as bad debts in the subsequent years. The ITAT relied upon, inter alia, the judgment of the Supreme Court in the case of Godhra Electricity Co. Ltd. Vs. CIT (1997) 225 ITR 746 (SC) and judgment of this court in CIT Vs. Goyal M.G.Gases (P) Ltd. (ITA No. 538/2007 dated July 2, 2007). 3. The facts of the case are that the Assessing Officer made an addit....

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.... 4. On the above facts, the Tribunal therefore, found that it was clear that the outstanding interest amounting to Rs.267 lacs had already been offered to tax up to 31.3.1999, and which amount of interest has been settled at only at Rs. 130 lacs i.e only Rs 130 lacs were received by the assessee company though tax had been paid on an amount of Rs 267 lacs. This thus proved that the assessee's principal amount as well as the interest accrued up to 31.3.1999 was doubtful of recovery. In Godhra Electricity Co. Ltd. The Supreme Court has held as under:-  "Income-tax is a levy on income, No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz. the accrual of the income or its rece....

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....by the Supreme Court, what has to be seen in the present case is whether there was any real accrual of interest to the assessee. Both the CIT(A) as well as the Tribunal came to the conclusion that there was real accrual of interest. It has been noted that the interest had not even been recorded by the assessee in its books of accounts. The assessee had also issued a notice to the parties under Section 138 of the Negotiable Instruments Act for dishonour of cheques issued by all (except one of the debtors) followed by initiation of appropriate proceedings. The debts were written off as bad debts and were also allowed by the Assessing Officer in subsequent years. These facts lead to the inescapable conclusion that realization of even the princ....