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2017 (11) TMI 966 - AT - Income TaxAddition on interest accrued on sticky loans and advances - accrual of income - whether as assessee company follows the mercantile system of accounting and, therefore, all the incomes are mandatorily required to be included in the its total income on accrual basis? - We find that the issue involved in the present appeal is squarely covered in favour of the assessee in assessee's own case in A.Y.2000-01, 2003-04 and 2004-05 as held the assessee had not recognized the interest income on sticky loans keeping in view the mandatory guidelines of RBI in regard to NBFC. Under the mercantile system of accounting an income accrues when there is reasonable certainty for realising any receipts or revenue. Hypothetical income cannot be taken into account. In respect of sticky loans and advances, the income is recognized when interest is actually collected. Merely on the basis of accrual it cannot be recognized in the absence of any certainty of its collection. The circular of October 9, 1984, also serves another practical purpose of laying down a uniform test for the assessing authority to decide whether the interest income which is transferred to the suspense account is, in fact, arising in respect of a doubtful or “sticky” loan. This is done by providing that nonreceipt of interest on a doubtful loan. But if after three years the payment of interest is not received, from the fourth year onwards it will be treated as interest on a doubtful loan and will be added to the income only when it is actually received. There is no inconsistency or contradiction between the circular so issued and section 145 of the Income tax Act.- Decided against revenue
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