TMI Blog2015 (2) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... and not the profit and loss account, would not, in law, be payable on mercantile accrual basis. Interest on such loans would have to be accounted for and paid as and when it is realised. See UCO BANK VS. CIT, WEST BENGAL-III, KOLKATA [2014 (1) TMI 86 - CALCUTTA HIGH COURT] - Decided in favour of the assessee. Provisions of section 34 of the Code of Civil Procedure relied particularly in view of section 5 of the Income Tax Act, 1961 - Held that:- In this case, it was not any doubtful loan and the interest has not been kept, although, the Tribunal has held, as noted herein above. . The assessee in this case was and had never decided to waive off any loan or interest, but, has filed suits and bad debts can be written-off in terms of Section 37 of the Act.- Decided in favour of the assessee. - Tax Appeal No. 249 of 2002, Tax Appeal No.463 of 2005, Tax Appeal No.467 of 2005 - - - Dated:- 1-12-2014 - KS Jhaveri And K. J. Thaker, JJ. For the Appellant : Mr. Nitin K Mehta, Adv. For the Respondents : Mr. S N Soparkar, Sr. Adv., With Mr B S Soparkar, Mrs Swati Soparkar, Adv. ORDER ( Per : Honourable Mr. Justice KS Jhaveri ) 1. Since, the issue involved in all thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company, the parties generally repay the principal amount as stipulated or rescheduled and are also generally regular in payment of interest except in the cases of seven Societies amounting to ₹ 49,09,502/- and 694 individuals amounting to ₹ 29,94,456/- where reasonable steps have been taken by the company for recovery of the principal and interest. 5.1 Further, note at Sr. No.3 of the Schedule-8 to the Auditor s report read as under:- Company has taken legal action for recovery of residential housing loans amounting to ₹ 49,09,502/- given to seven cooperative housing Societies pending the litigation, the same are considered good and no interest have been charged as per accounting policies 7. The only aspect on which the assessee was directed by both CIT(A) and AO was that having mercantile system of accounting and that the assessee having not explained the reasons for applying different yard-stick for charing interest for the debtors falling in the same category. The terminology of the word accrued / rather interest accrued was read in by the AO and the CIT(A). However, on appeal, the Tribunal gave its finding on facts and the basis for directing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onable to be paid on the principal sum adjudged, from the date of the suit to the date of the secres. It means in case a where suits have been filed, interest will be finalized by the Court and without order of the Court, the assessee did not have right to receive, since there was no right to receive interest income. It will not accrue and accordingly assessee need not account for it in books of account and it cannot be treated as income for the year under appeal. 9. After giving a deep and thoughtful consideration to the entire material and facts, we are of the considered opinion that in case of uncertainty of interest income from housing loans given to societies, which is sub judice, it can not be treated as income accrued or received to the assessee in the year under appeal. Therefore, the orders of the revenue authorities are quashed. 9. Mr. Mehta, learned Advocate for the appellant-Revenue, took us through the entire record and submitted that the substantial question of law framed are as under; [1] Whether, when the assessee was following mercantile system of accounting, the Income Tax Appellate Tribunal was justified in law and on facts in holding that the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) If there is any diversion of income at source under any statute or by overriding title, there is no income to the assessee. (6) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not. (7) Mere improbability of recovery, where the conduct of the assessee is unequivocal, cannot be treats as evidence of the fact that income has not resulted or accrued to the assessee. After debiting the debtor s account and not reversing that entrybut taking the interest merely in suspense account cannot be such evidence to show that no real income has accrued to the assessee or been treated as such by the assessee. (8) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well-recognized limits. 13. From the above, it is clear that the case of the assessee would not fall in any of the above. In the said case, the amounts were waived, whereas, in this case, it was never kept in interest so as to avoid unreal inflated profits. In this case, they become bad debts under Section 36(1) of the Act and that ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh actual realization may take place at a later date. XXX XXX XXX 18. We have already held that nonoperational sticky loans in respect of which mercantile actual of interest was shown in the suspense account and not the profit and loss account, would not, in law, be payable on mercantile accrual basis. Interest on such loans would have to be accounted for and paid as and when it is realised. Question number 3 is answered accordingly and in favour of the assessee. 15. In view of the above, without further delving, question No.1 is answered against the appellant-revenue and in favour of the assessee. 16. So far as second question is concerned, Mr. Mehta, placed reliance on a decision in H.P. MINERAL AND IND. DEVELOPMENT CORPORATION VS. CIT (Supra), wherein, the High Court of Himachal Pradesh has held as follows; 14. It is obvious that the decision must be taken immediately after the previous year. In this case the decision to waive off the loan was taken at a much later stage. The resolution to waive off the loan was passed after the income had already accrued. Once the income had accrued the passing of resolution after the close of accounting year would be of no c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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