TMI Blog2011 (1) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal and direct the Assessing Officer to exclude the interest income on the said loan as it has become sticky from the previous accounting year that is 1989-90 and also subsequent years - Decided in favour of assessee. - ITA 202 of 2001, ITA 203 of 2001, ITA 204 of 2001, ITA 205 of 2001 - - - Dated:- 28-1-2011 - Kalyan Jyoti Sengupta, Kanchan Chakraborty, JJ. K. J. Sengupta, J.:- The instant appeal has been preferred against the judgment and order of Income Tax Appellate Tribunal E Bench, Calcutta in ITA No.393 (Cal) of 2000 relating to assessment year 1989-1990 dated 23rd March, 2000. It appears from the record that the learned Tribunal by the judgment and order impugned, disposed of five several appeals preferred by the appellant before us and three several appeals preferred by the Revenue. The appellant before us preferred appeal before the learned Tribunal in relation to assessment years 1989-90, 1990-91, 1991-92 [two appeals in relation to 1991-92, ITA No.144 (Cal) of 1995 and ITA No. 739 (Cal) of 1996] and 1992-93. The Revenue preferred appeal in relation to assessment years 1990-91, 1991-92 and 1992-93. The present appeal was admitted by an order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax as the order of the BIFR has no impact as regard recovery of the said amount of loan or interest. It was also observed by the Assessing Officer no material was produced before him to establish that the said debt had become bad or the same is written off during the relevant accounting year by the assessee company. Similarly in the assessment year 1990-91 the said interest amount on the aforesaid loan was also included in the returns as being income. The assessee company again preferred appeal to the Commissioner of Income Tax (Appeal) and claimed exclusion of the said amount of interest from relevant assessment years on the ground that the same could not be recovered and in view of the order passed by the BIFR and further the company had written off the said amount of loan as being bad debt and sticky. The Commissioner of Income Tax (Appeal) granted part relief to the extent that after 22nd August 1990 the amount of interest shown to have accrued on the said loan on mercantile system of accounting could not be included in the income of the year. Therefore, in the assessment year of 1990-91 partly and 1991-92 in its entirety and subsequent year also the said interest amount on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em is adopted, there is no question of bad debts or outstanding at all in the case of mercantile system against the book profits some of the bad debts when they are found to be irrecoverable. His further contention is that the learned Tribunal in its order did not at all consider this point that the interest in question did not form part of the real income in view of the fact the said income did not reach the assessee at all even either on mercantile basis or on receipt or realization basis. He submits that the learned Tribunal failed to accept the contention of the assessee that the resolution which passed for finalization of the account by the Board was after the close of the financial year and therefore, such a resolution cannot be considered to have taken effect from very beginning of the year. In support of this contention he has referred to decisions of the Supreme Court reported in 80 ITR 566 (SC) and that of the Bombay High Court reported in 31 ITR 134 (Bom). He submits that once by resolution the company adopts the correctness of any accounts this will have the retrospective effect from the beginning of the accounting year. In this connection has relied on another decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) The SML became a sick company and was referred to BIFR in the year 1987 and ultimately a scheme was framed. (d) Thence, interest income was not reflected in the profit and loss account from the date when the said SML was referred to BIFR. (e) In the Board meeting on 28th of August 1989 for the assessment year 1989 90 and 22nd August 1990 for the relevant assessment years 1990-91 and 1991-92 the said profit and loss account was approved. (f) It appears that the said interest income was shown even when the same was not reflected in the profit and loss account and subsequently it was shown never received. (g) The BIFR framed a scheme in the year 1992 and the scheme did not materialize and no amount either of the principal or of the interest was paid to the assessee uptill now. (h) It further appears that the learned Tribunal and all the authorities below have examined the scope and purport of the said scheme framed by the BIFR. (i) The learned Tribunal as well as the Assessing Officer came to the conclusion that the said scheme does not debar the appellant/assessee to recover the said amount of loan with interest. It was also noticed by the learned Tribunal that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court while taking note of the decision in the case of State Bank of Travancore v. CIT reported in (1986) 158 ITR 102 and further distinguishing the same held as a proposition of law at page 896 as follows: Whether interest earned on what have come to be known as sticky loans, can be considered as income or not until actual realization, is a question which may arise before several Income Tax Officers exercising jurisdiction in different parts of the country. Under the accounting practice, interest which is transferred to the suspense account and not brought to the profit and loss account of the company is not treated as income. The question whether in a given case such accrual of interest is doubtful or not may also be problematic . The aforesaid decision of Three-Judges bench has really accepted minority decision rendered earlier by the Supreme Court reported in 158 ITR 102. Yet in the case of Mercantile Bank Ltd. v. CIT reported in 283 ITR 84 the supreme Court at page 86 of the report came to the same conclusion following the aforesaid UCO Bank s case. In that case the assessee maintaining mercantile system of accounting interest amount was not brought to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company] shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. (2) Where the management of the sick industrial company is taken over or changed [in pursuance of any scheme sanctioned under section18], notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or in Memorandum and Articles of Association of such company or any instrument having effect under the said Act or other law- (a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company; (b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board. Thus the said loan had become sticky is clearly established. It is also established that the said account on August 1989 not showing the said interest amount as being income has been approved by the company. Therefore, it shows that the said amount of loan as well as the interest has become i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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