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2023 (1) TMI 1087 - ITAT DELHIAccrual of interest income - Real income received / receivable by the company on inter corporate deposit - Assessment u/s 143 - real income or hypothetical income - Assessee claims that no real income accrued to the company and merely as the assessee is following mercantile system of accounting it does not result in accrual of income from interest when there is no interest in real terms and the statement of the accounts of the assessee also did not reflect any credit entry in respect of interest receipt from the borrower - HELD THAT:- Tax Authorities below have failed to keep in mind the fundamental principles of taxation that only real income should be taxed and not the hypothetical income. What the Ld. Tax Authorities below have considered to be income arising from interest to be taxable on accrual basis would be a case where interest account is not settled, however when the loan account and interest account stand settled between the parties and a deed of settlement stands then on the basis of accrual interest income cannot be attributed and only the actual interest received on that account, was liable to be shown in P& L account. As rightly done by the assessee company. The assessee being in the business of lending, if had borrowed any amount on interest that is not of much consequence in the present facts and circumstances as being watchful of it’s business interest and to secure the principal amount at least, the assessee gave up the claim of interest income. There is no allegation of untoward benefit to the borrower as the two entities were not known to each other. There is also force in the contention of assessee that in any case, if shortfall in interest is adjusted from principal amount on principle of first appropriation towards interest before applying it to principal. Then being in lending business, the shortage towards principal would be allowable as bad debt. Which assessee prevented. Being in lending business the bad debt ratio is crucial to the assessee and thus business expediency cannot be more justified then here. - Decided in favour of the assessee.
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