TMI Blog1994 (11) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... h included cost of cotton carrying charges, bank commission, labour charges, insurance, etc. The other party had paid through bank drafts total sum of Rs. 46,93,137.34 Paise. The balance amount which included service charges of Rs. 77,339 was an item of dispute. The assessee debited the above amount in the account of Punjab Spinning and Weaving Mills but did not take the sum to the Profits Loss account. It was taken to suspense account in the balance sheet. 3. The Assessing Officer added the disputed amount witty the following remarks : " From the scrutiny of the balance sheet, it is noticed that the assessee has shown a sum of Rs. 77,339/17 on the liability side in connection with ' carrying charges, receivable suspense account '. Fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourts such as 127 ITR 572 (Mad.), 124 ITR 619 (P H) and so on. The explanation offered by the assessee has been duly considered but the same is not found to be acceptable for the simple reason that the amount of carrying charges had accrued according to the mercantile system of accountancy and the assessee had debited the amount of the party with this amount. Thus, the said amount of Rs. 77,339 represents income which had accrued to the assessee firm during the year. This view is fully supported by the decision of the Hon'ble Supreme Court reported in 158 ITR 102 in the case of State Bank of Travancore v. Commissioner of Income-tax, Kerala the relevant portion of which is reproduced hereunder. . . . " The assessee challenged the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advances, by debiting the concerned parties. In the case of interest on ' sticky ' advances, instead of carrying into the profit and loss account, the appellant credited the interest to a separate account called ' the interest suspense account '. The appellant claimed that, having regard to the bad and deteriorating financial condition of the parties concerned as well as the history of their accounts, the recovery of even the principal amounts of the debt had become improbable and doubtful and as such the interest thereon, though debited to the respective debtors, was taken to the ' interest suspense account ' to avoid showing inflated profits by including hypothetical and unreal income, as such interest on ' sticky ' advances was not real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... htly treated as income which had accrued to the appellant. " It is clear from the above that right of the bank to receive interest based on contract between the parties was never doubted or disputed. In the view of the bank, recovery of principal amount was doubtful and, therefore, loan was termed as " sticky ". When recovery of principal loan was in doubt, the interest on such loan was merely a hypothetical and not real income. Above theory was not accepted by the majority decision. It was held that interest was not given up but was debited to the accounts of the parties. The conduct of the assessee showed that interest was accepted as having accrued. The accrued income, if not realised, could be claimed as a bad or irrecoverable debt un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was not permitted to withdraw the amount deposited by the State Government without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeals were allowed in its entirety, the right to payment of enhanced compensation would have fallen altogether. The extra amount of compensation of Rs. 7,24,914 was not income arising or accruing to the respondent during the previous year relevant to the assessment year 1956-57. By the court : " ' There is a clear distinction between cases such as the present one, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute between the parties relating to amount claimed as due. In other words, the fact that assessee's right to receive interest was in dispute, was not contested at any stage of proceedings. The revenue merely relied upon the fact that amount in question was debited to the account of the opposite party. But unilateral act of debiting the amount cannot give absolute right to the assessee to receive the amount. At best, it could be treated as the assessee's view of the situation or contract. But the assessee's view cannot be treated as final. The right to receive the amount would be available only when the claim is accepted by the opposite party or is established in accordance with law. Only then, it can be said that assessee had absolute ri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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