TMI Blog2016 (4) TMI 1087X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Assessing Officer for the reason that the Assessing Officer cannot sit in the chair of the businessman and direct him to do business in a particular fashion. The outstanding amount due from the debtor is on account of trading liability. It is not a case of the Assessing Officer that the outstanding loan amount is a stock in trade of assessee and assessee is in the business of money lending to charge interest on the outstanding balance by following the mercantile system of accounting. Though, assessee charged interest for the last financial year, he explained the reasons for not charging the interest for the current financial year under consideration. From the perusal of the facts, it appears that the reasons given by the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. It was further noticed that the assessee has charged interest on the outstanding debtor balance for the financial year 2006-07 relevant to assessment year 2007-08. However, the assessee has failed to charge any interest for the year under consideration, therefore, issued a show cause notice and asked to explain why interest shall not be charged for the current financial year. In response to show cause notice, the assessee filed its written submission and stated that the balance shown in the name of M/s. Kumar Kotex Limited was on account of supply of goods. The debtor owed money for the past 6 years and has not paid any amount during the financial year under consideration. We do not have the custom of calculating interest for the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer. The assessee further submitted that the debtor company s financial position was very weak and it went to BIFR for liquidation. The bankers have taken the possession of the assets of the company. Therefore, we are not in a position to recover even principal outstanding from the debtor and hence, charging interest on the same does not serve any purpose. The assessee further submitted that though we are following the mercantile system of accounting, charging interest on the outstanding debtors under accrual concept is simply creating an additional income without any possibility of recovery. The assessee further submitted that we do not have any practice of charging interest on the outstanding debtor balances, as a matter of fact for the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebtor balance, but failed to offer any reasons for not charging the interest for the current financial year. Under these circumstances, the order passed by the Assessing Officer should be upheld. The Ld. A.R. of the assessee strongly supported the order of the CIT(A). 5. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The Assessing Officer charged interest @ 12% on the outstanding debtors balance on the ground that the assessee itself has charged the interest in the previous financial year. The Assessing Officer was of the opinion that the assessee has not offered any reasons for not charging the interest on the outstanding debtor balance. The A.O. further he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition, the A.O. cannot direct the assessee to charge interest on sundry debtors. The A.O. charged interest mainly on the ground that assesee has charged interest for the previous financial year and not offered any reasons for not charging interest for the current financial year. We do not see any merits in the findings of the A.O., as charging interest on sundry debtors is purely a mutual agreement between the assessee and debtors. The A.O. has not brought on record any evidence, to show that such agreement is existed between the parties to justify his action. 7. The assessee contends that the financial position of debtor is weak and its efforts are not yielded any results of recovery. On perusal of the records, we find that the debt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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