TaxTMI 
TaxTMI 
1980 (4) TMI 64
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....113 was outstanding as against M/s. P. N. Swamy Naidu and Company and a sum of Rs. 34,000 was found outstanding as against M/s. Prakash Transports. The assessee did not account for any interest either on accrual or receipt basis from these two firms on the ground that it was not possible even to recover the capital from these two firms. The ITO did not accept the assessee's contention and included sum of Rs. 56,163 by way of accrued interest on the amounts outstanding from these two firms. On appeal, the AAC held that though under the mercantile system of accounting accrued interest should be treated as income, in the peculiar facts and circumstances of the case, even where the capital was not capable of being realised, there was no point i....
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....tem and it is not open to the assessee to say that he would not debit in his account the interest which had accrued under the hire-purchase agreements executed with the two firms and so long as the interest income has accrued it has to be included in the income of the assessee even though the assessee may not be able to actually realise the interest from the two firms on account of their financial position and it is always open to the assessee to write off the interest in any year in which it became irrecoverable. In support of this contention, the learned counsel for the revenue relied on decision in Shiv Prasad Ram Sahai v. CIT [1966] 61 ITR 124 (All) and the decisions of the Supreme Court in CIT v. Thiagaraja Chetty & Co. [1953] 24 ITR 5....
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....y the Supreme Court in Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521, 529 and the Supreme Court observed : " The principle of real income is not to be so subordinated as to amount virtually to a negation of it when a surrender or concession or rebate in respect of managing agency commission is made, agreed to or given on grounds of commercial expediency, simply because it takes place some time after the close of an accounting year. In examining any transaction and situation of this nature the court would have more regard to the reality and speciality of the situation rather than the purely theoretical or doctrinaire aspect of it. It will lay greater emphasis on the business of the matter viewed as a whole when that can be done ....
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....n as the income accrued. Regular mode of accounting only determines the mode of computing taxable income and the point of time at which the tax liability is attracted. It cannot determine or affect the range of taxable income or the ambit of taxation. Where no income has resulted, it cannot be said that income has accrued merely on the ground that the assessee has been following the mercantile system of accounting. Even if the assessee makes a debit entry to that effect, still no income can be said to have accrued to the assessee. If no income has materialised there can be no liability to tax a hypothetical income. It is not the hypothetical accrual of income based on the mercantile system of accounting followed by the assessee that has to ....