TMI Blog1998 (8) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... at it was immaterial whether the borrower had paid the interest or not or whether he was in a position to pay it or not, when the accounts were maintained on mercantile basis. Hence addition was made of the impugned amount. 3. The CIT(A) noted that after much discussion between the assessee and the borrower, ultimately 9% rate of interest was agreed upon which was accounted for by the assessee and the sum of ₹ 62,100 represented the difference of 6%. He deleted the addition on the ground that reduction of interest on commercial ground was nothing but alteration of the original contract. He also observed that though alteration was effected immediately after the end of the accounting year, yet effect had to be given in the current year. 4. The ld. D.R. submitted that the accounting year ended on 31-3-1987 whereas the dispute was settled on 27-7-1987, i.e., almost 4 months after the end of the accounting year and hence income of ₹ 62,100 had accrued for the year ending on 31-7-1987. Thus, it was pleaded for the restoration of the addition. 5. The ld. counsel submitted that while finalising the accounts, assessee took into consideration the reality of the situation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applies, the concept of real income should not be so read as to defeat the provisions of the Act. (5) If there is any diversion of income at source under any statute or by overriding title, then 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 treated 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 entry but 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-recognised limits. 7. Of the above, point Nos. (1), (2), (4), (6) and (8) are very relevant for the case before us. However, before we resolve the dispute before us in the light of the above points, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows, therefore, that the assessee surrendered 6% of interest after it had accrued and after it had become due, though not unilaterally. 11. In the case of State Bank of Travancore (supra), interest income on sticky advances was held to have accrued to the assessee and hence taxable, mainly because the Bank did not treat the advances as irrecoverable and though it was credited to Interest Suspense account, at the same time the corresponding debit was given to the accounts of respective parties. 12. In the case before us, though the borrower was not in a sound financial position, the assessee had never considered the loan to be bad. Moreover, since the rate of interest was modified by negotiations, and the settlement was reached before the accounts were finalised, the assessee did not make any entry relating to it in its books of account. 13. Finally we deal with the decision in CIT v. Shoorji Vallabdas Co. (1962) 46 ITR 144 (SC). Under the managing agency agreement, the assessee firm, as a managing agent of two shipping companies, certain commission became due to it which was taken credit of in the books of corresponding debits to the managed companies. This commission wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a higher rate had accrued to assessee. The first request from the borrower to reduce the interest came after the close of the year on 10-4-1987 when the assessee had already sent a statement of account showing interest calculation at the rate of 15%. For quite some time, the request was protested also by the assessee, and finally it agreed to the reduced rate on 27-7-1987. 17. Thus, in our opinion, considering the principles laid down by the Supreme Court in the various decisions discussed above, in the case before us, the assessee cannot escape its tax liability on the income of ₹ 62,100 accrued to it. Accordingly we restore the addition of ₹ 62,100 deleted by the CIT(A). 18. The second ground is against the order of the CIT(A) restoring back the issue of addition of ₹ 3 lakhs made by the Assessing Officer on account of cash credits. Assessee obtained loans from various persons including companies, amongst which M/s. Ganpati Udyog Ltd., West Bengal was one of the lenders. At the beginning of the year the outstanding was ₹ 2,51,662 and further ₹ 3 lakhs were advanced during the year on 27-3-1987. Assessing Officer observed that the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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