TaxTMI 
TaxTMI 
2005 (2) TMI 436
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....ts in many leading cases." 2. We have heard the learned Representatives of both the parties and gone through the observations of the authorities below and details submitted in the paper book by the counsel for the assessee. 3. Briefly stated, the facts as taken from the record, are that the assessee is engaged in the business of purchase and sale of cotton. Return of income for the asst. yr. 1999-2000 was filed on 2nd Nov., 1999, at the income of Rs. 25,289. The return was processed under s. 143(1) on 24th March, 2001. The AO initiated proceedings under s. 147/148 on 29th Aug., 2001, by issuing the notice to the assessee as the assessee declared interest income of Rs. 8,54,764.30 from M/s Arihant Cotsyn Ltd. pertaining to the asst. yr. 1999-2000 in the return of income for the asst. yr. 2000-01. The TDS certificate issued to the assessee clearly indicate that the amount of interest credited to M/s Ganga Parshad Parshotam Lal, Fazilka, pertained to the period 1st April, 1998 to 31st March, 1999, relevant to the asst. yr. 1999-2000 but this income was declared during the asst. yr. 2000-01. In compliance to the notice under s. 148, the assessee filed his return of income declari....
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....t and recovery suits have already been filed in the civil Court. Copy of the same was filed before the AO. The AO, however, rejected the Guide Notes issued by the Institute of Chartered Accountants. The AO also did not rely upon the decision of the Hon'ble Supreme Court in the case of Godhra Electricity Co. The AO was of the view that it should have been shown as income in the assessment year in question. The AO accordingly directed to make the addition of Rs. 8,54,764 being interest income from M/s Arihant Cotsyn Ltd. The assessment order was challenged before the CIT(A). The initiation of proceedings under s. 148 of the IT Act was challenged along with the addition in the assessment order in question. The same submissions were reiterated and it was submitted that since the amount was not recoverable and the accounts were not finalised, therefore, there was no question of accrual of interest in favour of the assessee. The assessee also relied upon the catena of authorities in which it was held that real income is to be taxed. It was also submitted that though the assessee received post-dated cheques but all the cheques were dishonoured and, therefore, the assessee has to resort to....
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....t. 6th July, 1999, was received after filing of the return on 21st Nov., 1999, and only then the assessee carne to know that interest has been credited in the account of the assessee and the TDS has been deducted. The learned counsel for the assessee submitted that the post-dated cheques which were payable subsequently were got dishonoured and, therefore, the assessee filed criminal complaint under s. 138 of the Negotiable Instruments Act along with recovery suit against the debtor and that company had gone in liquidation. Therefore, the recovery of principal amount was itself in doubt. The assessee also filed written submissions in which it was explained that sequence of events absolutely made it clear that the assessee could not have credited the interest in the books of account of M/s Arihant Cotsyn Ltd. (as) the interest income never accrued to him nor there was any possibility of recovery of principal amount from the parties concerned. He has further submitted that since the TDS certificate was issued, therefore, the assessee made entry in the asst. yr. 2000-01 and shown the same income in the asst. yr. 2000-01. He has relied upon the decision of the Hon'ble Punjab and Haryana....
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....t in the year under appeal Whether interest income is to be added in the year under consideration is a matter subsequent to the initiation of proceedings under s. 147 of the IT Act. We, therefore, do not find any justification to interfere in the orders of the authorities below as regards initiation of proceedings under s. 147 of the IT Act; the same is justified in the matter. We, therefore, dismiss this ground of appeal of the assessee as regards challenging the initiation of proceedings under s. 147 of the Act. The connected point is of real income. The case law relied upon by the learned counsel for the assessee before the authorities below as well as before us is in the matter of Godhra Electricity Co. It is held in this case that income-tax is levied on all the income. It is further held that if income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialise. There is no dispute about the legal proposition decided in this case as relied upon by the counsel for the assessee. We find in this case though a subsequent entry is made by M/s Arihant Cotsyn Ltd., but in this case there is no m....
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....1999 15,909.00 ------------ Total: 20,88,914.94 TDS + Surcharge 94,024.00 ------------ C/B as on 6-7-1999 19,94,890.94 Copy of the TDS certificate under s. 203 is also filed at p. 31 of the paper book in which in the first column, it is mentioned, date of payment/credit-6th July, 1999, The date of payment is 18th Nov., 1999, for the period from 1st April, 1998 to 31st March, 1999. The claim of the assessee had been that the audit was completed for the assessment year under appe....
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....uch recovery of the principal amount remained in doubt. The claim of the assessee had also been that the assessee could not have credited the interest income in the books of account for the asst.yr. 1999-2000, since the interest income never accrued to him nor there was any possibility of recovery of the amount from the party concerned. The last deal for supply of goods which was made by the assessee of the cotton bales was on 23rd May, 1998, and thereafter supply was stopped to this party because of the fact that the payments were not forthcoming. Copy of the account of this party is filed at p. 32 of the paper book, which shows that a sum of Rs. 75,61,94433 was due as on 23rd May, 1998, and thereafter in small instalments the assessee got the principal amount. Yet, the balance carried forward on 31st March, 1999, was Rs. 12,18,241.64. The statement of the assessee as regards impossibility of recovery of the principal amount is supported by the subsequent litigation in which the assessee filed civil and criminal cases in the Court of law against M/s Arihant Cotsyn Ltd. as the post-dated cheques of the payment were dishonoured. M/s Arihant Cotsyn Ltd. went in liquidation, therefore....
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....therefore, it cannot be said to be a plain and simple waiver in favour of the sister-concern without any business consideration." 11. The Hon'ble Allahabad High Court in the matter of Jwala Prasad Radha Krishna vs. CIT (1992) 107 CTR (All) 1 : (1992) 198 ITR 415 (All) considered the following facts. The relevant assessment year is 1974-75. The assessee is the sole selling agent of Raza Textiles Ltd., Rampur. As per its balance sheet, the following amounts were found to have been advanced to three companies. The debtor companies credited the assessee with the interest upto the period ending 30th June, 1969, whereafter no interest was charged nor credited nor was the same claimed by the debtor company as deduction in the computation of its own income. The assessee did not show any interest from any of the debtor companies in its return for the relevant assessment year. The ITO held that as the assessee-company was following the mercantile system of accounting and as the assessee was charging interest In the previous years, the interest should be added to the income of the assessee on the same basis for the year in question also. This finding was affirmed in appeal by the AAG. On a....
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....is no ground to show interest in the year. under consideration. The AO has not given any finding as regards existence of any agreement (written) or otherwise (in support) of the fact that the interest has legally accrued in favour of the assessee. The claim of the assessee had been that huge amount was due upon M/s Arihant Cotsyn Ltd. and as such the assessee has not shown any interest as the principal amount itself was in doubt. The assessee had taken this decision not to debit the interest in the accounting period, relevant to the assessment year in question, because of the business expediency and this fact is ultimately supported by the fact that the assessee had to resort to the civil and criminal litigation against M/s Arihant Cotsyn Ltd. for recovery of the balance amount. It is also a fact that M/s Arihant Cotsyn Ltd. went in liquidation, therefore, the recovery of the principal amount became doubtful. The assessee as well as M/s Arihant Cotsyn Ltd. have not shown any interest in the assessment year under appeal, i.e., 1999-2000 as the assessee had rightly shown the amount of interest because of entry made on 6th July, 1999, in the asst. yr. 2000-01 as the accounting peri....