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2014 (1) TMI 86 - HC - Income TaxTaxability of interest on sticky loans - accrual of income - Held that:- Following UCO Bank Vs. Commissioner of Income Tax [1999 (5) TMI 3 - SUPREME Court] - Interest on ‘Sticky Loans’, recovery whereof is doubtful, if not shown in ‘Profit and Loss Account’ should be treated as not forming part of the income of the assessee, irrespective of whether the assessee otherwise follows the mercantile system of accounting - Interest on loans and advances, of which recovery has become extremely doubtful, and which is written off for all practical purposes, but recorded separately, in the faint hope of recovery at some future point of time, does not come within the purview of chargeable interest within the meaning of Sections 5 and 6 of the Interest Act - As per the proviso to Section 5 of the Interest Act - Interest in relation to categories of bad or doubtful debts, referred to in Section 43D of the Income Tax Act, shall be deemed to accrue or arise in the previous year in which it is credited to the profit and loss account for that year - Non-operational sticky loans in respect of which mercantile actual of interest was shown in the suspense account and not the profit and loss account, would not, be payable on mercantile accrual basis - Interest on such loans would have to be accounted for and paid as and when it is realised - Decided in favour of assessee.
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