TMI Blog1998 (1) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... MIL for short). The accounting year of the assessee closed on 31-3-1988 and it starts from 1-10- 1986 carrying 18 months period. 5. Brief facts of the issue is that the assessee-company had advanced a loan of Rs. 45 lakhs on loan to M/s RMIL, a hundred per cent subsidiary of the assessee-company. The interest was charged up to 30-9-1986. At the time of close of the year the advance including interest was to the tune of Rs. 57.03 lakhs. Thereafter, the assessee-company did not charge any interest on the said loan amount. A request was made to the assessee company by RMIL that the company is not in a sound position and facing heavy losses. Therefore, interest should not be charged on the advanced amount. Meeting of the Board of Directors of the assessee-company held at Bombay on 13-12-1987 wherein it was resolved that the charging of interest be waived and no interest be charged on the amount due from RMIL from 1-10-1986 onwards. It was also decided in the meeting that no provisions for interest be made in the accounts of the company for the period ended on 30-9-1987 and in the subsequent years. The letter which was received from RMIL wherein it was mentioned that the amount of loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been claimed in respect of capital borrowed for the purpose of the business. But, however, on the other hand, the company has advanced Rs. 45 lakhs to RMIL from which it is not charging any interest. It is not clear that to the extent of Rs. 45 lakhs, enhanced by the interest element represents the capital not utilised for the business purpose. Therefore, seeing from any aspects as discussed above, Rs. 13.68 lakhs becomes eligible to be added back in the total income of the assessee, whether it is treated as income accrued to be assessed or treated as disallowance under section 36(1)(iii) of the Income-tax Act, 1961. 7. The CIT(A) discussed this issue in paras 18 to 21 of his order. The same contentions were made before the CIT(A) and it was further stated that as the action of the appellant company was fully supported by the decision of the Board of Directors on 31-12-1987, the Assessing Officer was not justified in making the impugned additions. In support of this contention, reliance was placed on the decision of the Kerala High Court in Aspinwall Co. (Travancore) Ltd. v. CIT[1990] 52 Taxman 430 and in case of Sri Kewal Chand Bagri v. CIT [1990] 53 Taxman 536 (Cal.). The CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the difficult financial condition and an assurance was given by N for liquidation of the outstanding dues as soon as financial position permitted. The assessee acceded to the request. A resolution was passed by the Board of Directors of the Company on March 21, 1980 wherein it was decided that from April 1, 1979, the loan should be treated as non-interest bearing loan. The ITO, however, held that the resolution was passed on 21-3 -1980 when the accounting year of the assessee had almost ended and since the assessee was following the mercantile system of accounting, the interest on the loan had already accrued to it. The CIT(A) on examination of facts, held that interest had not accrued and this was affirmed by the Tribunal. 10. In the present case, the material facts are essentially the same. The assessee by passing a resolution waived the interest from 1-10-1986 onwards. In this case, the assessee received a request from its subsidiary company M/s RMIL vide letter dated 6-10-1987, which is reproduced as under : 'Dear Sir, We had borrowed from you a sum of Rs. 45,00,000 in the year 1984 as on 1-10-1986 a sum of Rs. 57 lakhs is due to you including interest. This amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal No. 176 (All.) of 1992, dated 28-5-1997], the similar issue was involved. In that case, the assessee-company had advanced a substantial amount to its two subsidiary companies Marigold Holdings Trading Co. and Dakshinanchal Finance Co. Ltd. The amount advanced on loan was of Rs. 4.50 crores each to the above companies. Rate of interest was fixed at the rate of 12 per cent per annum. On 14-3-1989, the debtor companies wrote letter to the assessee. It was stated that they were investing the amount in shares and although there was capital appreciation in respect of investments, the return by way of dividend was quite meagre and not enough to pay interest at the rate of 12 per cent per annum. A request was made to reduce the rate of interest from 12 per cent per annum to 6 per cent per annum in the following words: 'We have, therefore, to request you to kindly review the rate of interest and reduce the same from 12 per cent per annum for which we shall remain grateful. You will appreciate that in case the rate of interest is reduced the capital appreciation in respect of investments to be made by us from the above loan will ensure to your ultimate benefit. We shall, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account to the assessee-company, as no interest accrued. 16. In the case of Jwala Prasad Radha Krishna v. CIT [1992] 198 ITR 415 62 Taxman 251 (AR.), the High Court has held that the assessee advanced amounts to sister concern and interest was paid for some years. However, the interest was neither paid nor demanded in subsequent years because debtor concerns were in financial difficulties. It was held that no interest accrued in subsequent years in the absence of any agreement to charge interest from the parties. From this decision, an inference can be drawn that the rate of interest be charged is a matter of contract between the two parties and commercial expediency is not relevant. In case of CIT v. A. Raman Co. [1968] 67 ITR 11 (SC), it has held that income which accrues to trader is taxable in his hands. Income, he could have but not earned is not made taxable as income accrued to him. This ratio of the Hon'ble Supreme Court's decision is also helping to the assessee because of no interest income accrues to the assessee because of the resolution passed by the Board in consequence to the letter received from its subsidiary company M/s RMIL. In case of Renusagar Power Co. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd section 43B came into force from assessment year 1984-85. Therefore, provisions of section 43B are not applicable on the assessee regarding this claim. The details of the amount of provision are also given in chart placed on page No. 51 of the Paper Book. We also find weight in the contention of the ld. counsel that no deduction on this account has been claimed by the assessee in any of the year. Therefore, also, this addition cannot be made in the hands of the assessee. After considering all these facts and circumstances, we are of the view that this amount of Rs. 1,22,000 does not pertain to the previous year, i.e., relevant to assessment year 1988-89 and hence this is not hit by the provisions of section 43B. Accordingly the same is deleted. 20. Ground No. 2.iii is in regard of addition of Rs. 80,000 which is on account of cash found at Pasoond Unit. The cash of Rs. 80,000 was seized at Pasoond branch. It was explained by the appellant that most probably the cash represented the private transactions entered into by some officers of the company. The Assessing Officer while making the impugned addition of Rs. 80,000 has further observed that Shri Abhey Kumar Jain, the then Ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clearly established the underbilling to the extent of Rs. 76,997. On the basis of entries in the diary of Shri S.N. Maheshwari and Shri A.K. Jain, the Assessing Officer made an addition of this amount. It was contended before the CIT(A) that the diary was a personal diary of Shri S.N. Maheshwari and it was not maintained at the place of business. The fact is that Shri S.N. Maheshwari was on tour to Bombay on the date of Search and the diary was found on his person. It was also stated that Shri S.N. Maheshwari also left the services of the appellant company. 26. After considering the submissions and other material on record, the CIT(A) was not satisfied and he confirmed the order of the Assessing Officer. 27. The same submissions were made here before us by the ld. A/R of the assessee. On the other hand, the ld. D/R relied on the orders of the authorities below. 28. We have heard the rival submissions and considered the material on record. One thing which we noted is that the diary was found from the possession of Shri S.N. Maheshwari and he was never turned again to the business of the assessee. No doubt it is mentioned in the order of the Assessing Officer that on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, the report of an accountant, as defined in the Act. The report must be furnished along with the return. By observing these observations, the Assessing Officer found that no report was furnished along with the return. Therefore, he refused to allow deduction under section 80HHC. It was stated before the CIT(A) that the required report was filed before the assessment and, therefore, in all fairness, the deduction under section 80HHC should be allowed. The CIT(A) did not find any favour with these submissions and he confirmed the order of the Assessing Officer. The same contentions were repeated here before us. Certain case laws were relied upon by the ld. A/ R of the assessee. On the other hand, the ld. D/R relied on the orders of the CIT(A). 30. We have heard the rival submissions and perused the material on record. We find that a report was filed before the completion of assessment. This is not in dispute. In case of CWT v. Gujarat Oil Allied Industries[1993] 201 ITR 325 (Guj.), it was held that the provisions about furnishing of the auditors' report along with the return has to be treated as a procedural provision, directory in nature and its substantial compliance sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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