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2023 (11) TMI 926 - AT - Income TaxAccrual of income - Revenue recognition - accrued interest on the ICDs - Whether entry is made about a 'hypothetical income', which does not materialise? - AO has been dealt with based on the mercantile system of accounting followed by the assessee in respect of ICDs and regular business activities - main thrust of the assessee is on this that the assessee is not following dual accounting system and all its accounting including the accounting of interest on ICDs was under the mercantile accounting system - HELD THAT:- There is no dispute in respect of the accrual of the interest and that assessee had followed mercantile system of accounting for the ICDs. Further the Ld.AO has not questioned that the ICDs was not made in the regular course of the business. It is a settled position that the levy of income tax on the income is directed either on the accrual or on its receipt. See Shoorji Vallabhdas & Co [1962 (3) TMI 6 - SUPREME COURT] As observed by Coordinate Bench for the preceding assessment years [2018 (12) TMI 278 - ITAT BANGALORE] verification needs to be carried out whether the interest is income has arisen or accrued in the present facts. Further the assessee also will have to establish that the interest has become irrecoverable before its accrual. In the event the assessee is able to establish the above fact, the interest income cannot be notionally brought to tax. On the contrary, if the assessee is establishing that the amount has become irrecoverable after accrual, then the same will have to be considered in the year of accrual and appropriate deduction will have to be computed as per section 36(1)(vii) in any years afterwards by writing of its same in its books of account. With the above directions and respectfully following the view taken by this Tribunal in assessee’s own case, we remit the issue back to the Ld.AO to verify the interest on ICDs based on the real income theory observed by this Tribunal in para 23 herein above.
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