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2021 (6) TMI 1068 - AT - Income TaxAccrual of income - Addition on account of accrued interest on seed money loans - Hypothetical income - taxability or otherwise of the interest on the seed money advances given to the entrepreneurs, which are classified as sticky advances - income should be computed either on cash or on accrual basis as per amendment w.e.f. A.Y. 1997-98 - assessee is following the mercantile system of accounting - whether since all items of accounts were maintained as per mercantile system of accounting, there was no basis for accounting said accrued interest income on cash basis as section 145(1)? - HELD THAT:- This issue is identical to the issue of taxability of interest on Non-performing Assets. There is no dispute that the interest had not been recognized in the books of account on sticky advances, the claim is in the nature of interest on doubtful debts, there is an uncertainty as to the recovery of advances as well as principal amount of the advances. The Hon’ble Supreme Court in the case of UCO Bank [1999 (5) TMI 3 - SUPREME COURT] held that no hypothetical income can be brought to tax. Hon’ble Supreme Court in the case of CIT vs. Shoorji Vallabhdas And Co., [1962 (3) TMI 6 - SUPREME COURT] laid down the principle that what can be taxed is only a real income, in respect of which the right to receive income had accrued, the same principle was reiterated in the case of UCO Bank (supra). Hon’ble Supreme Court again in the case of CIT vs. Vasisth Chay Vyapar, [2018 (3) TMI 56 - SUPREME COURT] while considering the issue in the context of taxability of interest on Nonperforming Assets held that when interest was not received and the possibility of recovery almost Nil, the interest could not be treated to have accrued. Thus the issue in the present appeal is identical to the issue of taxability of interest on the non-performing assets. Therefore, the ratio laid down in the above decisions clearly applicable to the facts of present case. Therefore, we do not see any reason to interfere with the order of the ld. CIT(A). Accordingly, the ground of appeal raised by the Revenue is dismissed.
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