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2021 (6) TMI 306 - AT - Income TaxAccrual of income - ‘real income theory’ determination - Addition on account of interest from bank - AO observed from 26AS data that the assessee had not shown interest from bank thus made the addition - HELD THAT:- Where accrual of an income takes place but its realisation becomes impossible, such hypothetical income cannot be charged to tax. In the case of mercantile system of accounting, an accruing income can be charged to tax only when it is likely to be received under the given circumstances. Even the principal amount of deposit made by the assessee became irrecoverable. These facts indicate that the assessee did not receive any such interest income from Rupee Co-op Bank Ltd. whose functions were banned by the RBI. When we consider the mercantile system of accounting in juxtaposition to ‘real income theory’ in the facts and the circumstances of the instant case, the inescapable conclusion which follows is that the interest income cannot be included in the total income of the assessee for the year under consideration. Such an income may be appropriately charged to tax on the regularisation of the operations of the bank coupled with the possibility of receipt of income in foreseeable future. Insofar as the instant year is concerned, we hold that the interest cannot be charged to tax. The impugned order is overturned and the addition is deleted. - Decided in favour of assessee.
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