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2022 (4) TMI 146 - ITAT AHMEDABADDifference between income shown in 26AS and as shown in profit & loss account - Income recognition - Method of accounting - recording the income after rendering the services - HELD THAT:- Admittedly, the assessee is following mercantile system of accounting which requires to recognize and record the transactions as and when they take place. Under the Mercantile system of accounting method, the Revenue is recorded when it is actually earned, and the expenses are reported when they are actually incurred. In the present case, the services have been rendered by the assessee then the same should be accounted for in the books of accounts. Assessee has contended before the authorities below that he has been recording the income after rendering the services in the subsequent month - This contention of the assessee has nowhere been challenged by the authorities below. Accordingly, we assume that contention of the assessee is correct. Thus, it is implied that the income which has been accounted by the assessee in the month of April 2008 i.e. the year under consideration actually pertains to the month of March 2008. But no benefit has been extended by the authorities below. If the assessee has offered the income pertaining to the month of March 2009, in the subsequent month i.e. April 2009, thus if any addition is made in the current year, the same would lead to double addition which is unwanted. Thus, we are of the view that the justice would be served to the Revenue as well as assessee if the assessee is able to prove that the difference of income pointed out by the AO has been offered to tax in the subsequent year. If that be so, no addition is warranted. Assessee has not challenged the addition made by the authorities below with respect to the interest from bank Accordingly we confirm the same. Hence the ground of appeal of the assessee is partly allowed for the statistical purposes. Addition of interest on the loan bearing funds diverted for non-commercial purposes - assessee on one hand is incurring interest expenses on the borrowed fund and on the other hand the assessee has advanced money without charging any interest thus the AO worked out the proportionate amount of interest on such interest free loans and advances and added to the total income of the assessee - HELD THAT:- Admittedly, the majority of the amount was advanced as loans to the parties in the earlier years except a sum of ₹ 6.25 lakhs. Undeniably, there was no disallowance was made by the revenue in the earlier year for the amount of interest attributable with respect to such loans and advances extended by the assessee. Accordingly we are of the view that, there cannot be any disallowance on account of interest expenses on the amount of loans advances which were extended in the earlier years. There was sufficient amount of fund available with the assessee to justify the interest-free loans and advances - As such we assume that, impugned amount of loans and advances ₹ 6.25 lakhs has been extended by the assessee out of interest free loans and advances. Therefore, no disallowance of interest qua to such loan advances is warranted. See TORRENT POWER LTD [2014 (6) TMI 185 - GUJARAT HIGH COURT] - we hold that there cannot be any disallowance of interest expenses as alleged by the authorities below. Accordingly we set aside the finding of the learned CIT(A) and direct to the AO to delete the addition made by him - Decided in favour of assessee.
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