1986 (8) TMI 102

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....ate Bank of Travancore vs. CIT 1975 CTR (Ker) 72 : (1971) 110 ITR 336 (Ker), he held that the aforesaid two amounts totalling Rs. 1,16,96,604 were taxable. 2. CIT(A), following the Tribunal's decision in assessee's case for asst. yr. 1978-79, held that the aforesaid amount was not taxable on accrual basis but only on realization basis. He accordingly deleted the said addition. 3. Revenue is in appeal before us and relies on Supreme Court's decision in State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC) where it was held that in the case of assessee following mercantile system of accounting interest income accrued to the assessee was assessable and it was immaterial that the assessee had credited the interes....

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....it & loss account. Thus, the assessee continued to follow mercantile system of accounting by accounting for the interest due from the debtors on accrual basis. On these facts, it cannot be claimed that the assessee had changed its system of accounting for mercantile to cash. Under cash system of accounting, entry is made only on realization and before the said point of time, no entries are made in the account books. However, under the mercantile system of accounting, entries are made in the account books at the time of accrual of income and it is immaterial when the income is realised. Applying the said test, it is clear tha the assessee continued to treat interest income on accrual basis under mercantile system of accounting. 6. To compl....

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....oresaid Supreme Court decision clearly applies to the assessee's case. 8.1 Supreme Court in the said decision had approved Bombay High Court decision in CIT vs. Confinance Ltd. (1973) 89 ITR 292 (Bom) where it was held that receipt of income either actual or deemed is not a condition precedent to taxability and it was assessable if it had arisen or accrued. Bombay High Court held that the facts that there was hardly any receipts in respect of items of interest or bona fides of the assessee in not charging interest was not disputed, were circumstances which were by themselves insufficient to support the conclusion that there was no real interest income as none of the debts was written off by assessee nor assessee gave up the interest of th....

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....ery for three consecutive accounting years will not be subjected to tax in the fourth year and onwards. However, if there is any recovery in the fourth year or later, the actual amount recovered only will be subjected to tax in the respective years. This procedure will apply to the asst. yr. 1979-80 and onwards. The Board's Instruction No. 1186 dt. 20th June, 1978 is modified to this extent." The said circular vide para 4 further directed that all pending disputes should be settled in the light of the above instructions. 10. In view of the said CBDT circular, we restore this matter to the file of ITO to decide the matter afresh. 11. Revenue's next ground is against CIT(A)'s directions to ITO to calculate deduction under s. 36(1)(viii)....