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2012 (9) TMI 351 - ITAT, COCHINInterest on government loan - Government company - dis-allowance on ground that the government order sanctioning the loan did not specify any terms and conditions with regard to payment of interest or penal interest - assessee has not paid even a single instalment of either the principal amount or the interest - no action initiated by the government to recover the amount - Held that:- In the absence of any action initiated by the government to recover the amount, claim of deduction of the accrued interest on such loan may not be justified. Even though the assessee was maintaining mercantile system of accounting when the assessee defaulted in payment of the principal amount continuously for long time no interest would accrue on such loan even on principles of mercantile system of accounting. Dis-allowance upheld Addition of prior period income - Held that:- Admittedly, the assessee is maintaining books of account on mercantile system. Therefore, the income relatable to earlier year cannot be added to the income of this year. Addition is deleted. Addition of interest on government loan outstanding as on 31-03-2004 - Held that:- The loan was outstanding from the year 1996. The interest accrued was already converted into share capital. When a portion of the principal alongwith the interest and penal interest was converted into share capital there is no question of any further charging of interest. Therefore, the CIT (A) has rightly confirmed the addition
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