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2012 (5) TMI 70 - ANDHRA PRADESH HIGH COURTMethodology of computation of the assessee's income from finance charges. - System of accounting - accrual of income - Held that:- there is no indication of the assessee's hire purchase agreements reflecting bifurcation of the EMIs into principal and interest components. In the absence thereof, the common and accepted usage of the Indexing system of accounting in the hire purchase trade must be held to be valid as otherwise the rate of interest under the mercantile system in so far as the later EMIs are concerned would be far higher and contrary to the rate prescribed in the assessee's agreements. Further, as the assessee had itself employed this system of accounting in its books of account, applying the law laid down in SANJEEV WOOLEN MILLS (2005 -TMI - 6166 - SUPREME Court), the Department was bound to accept the same for the assessment proceedings. The law laid down by the Special Bench of the Income Tax Appellate Tribunal at Hyderabad in NAGARJUNA INVESTMENT TRUST LIMITED (1997 -TMI - 65897 - ITAT HYDERABAD) was correct. In the event the hire purchase or leasing agreement did not give the apportionment or bifurcation of the EMIs between the principal and interest components, the interest income in relation to such agreements, recognized on the basis of SOD system of accounting by the assessee in its books of account, represents the 'real income' accrued to the assessee. - Decided in favor of revenue.
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