TMI Blog2016 (5) TMI 1006X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, there cannot be said to be any real accrual of income. Thus, having regard to the legal position and the facts and circumstances of the case, we are inclined to hold that the lower authorities have faulted in concluding that interest income accrued to the assessee-company during the year under consideration. Thus, we set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition - Decided in favour of assessee Disallowance being expenses on account of power and fuel expenses - Held that:- Identical issue has been decided in favour of the assessee by the Pune Bench of the Tribunal in assessee’s own case relating to assessment year 2002-03 wherein held part of power and fuel expenses were incurred on providing lights to the residential colony and also to the common facilities provided by the assessee to its employees, which was the obligation of the assessee company and hence, expenditure incurred towards discharge of said obligation is business expenditure of the assessee company and is duly allowable in the hands of assessee. Further, the expenditure relatable to residential quarters is no doubt to be recovered from the employees or is to be incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was further stated that both the subsidiary companies had stopped manufacturing operations since long and there was no hope for recovery or interest. The assessee also submitted that it is following Accounting Standards (AS 9) issued by Institute of Chartered Accountants on Revenue Recognition and no interest income was accounted for as there was uncertainty of recovery. With regards to the transactions with one of the subsidiaries viz. MAPL, it was explained that the subsidiary had availed loan from SICOM and the assessee company was guarantor of the loan. There was a tripartite agreement with the assessee, SICOM and MAPL for the said loans in terms of which, the MAPL was liable to repay the loan as well as interest to SICOM. Since, assessee was a guarantor of the loan, interest charged by SICOM was routed through books of account of the assessee without affecting the Profit Loss Account. The accounting transaction was that interest payable to SICOM was shown as unsecured loan and corresponding amount receivable from MAPL was shown as current asset in the Balance Sheet without any effect on Profit Loss 3 ITA No.1120/PN/2014 Account. Therefore, it was submitted that interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome on such loans in its books of account. For the assessment year 2001-02 and the subsequent years, assessee did not record in its books of account such interest income The assessee contended that there was no real accrual of such interest. With regard to MAPL it was pointed out that vide order dated 14-1-1997 of the BIFR, such company was declared to be a sick industrial company within the meaning of sec. 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985, a copy of such order has been placed in the Paper Book at page 5. In terms thereof, it emerges that the net-worth of the said subsidiary was fully wiped out on account of accumulated losses as on 31-3-1996. It was therefore, contended by the assessee that there was no hope of recovery of interest from the subsidiary and therefore, no interest was accounted for as it cannot be said to have accrued. Similarly, with regard to MSDPL it was also explained that the said subsidiary had become sick under the Sick Industrial companies (Special Provisions) Act, 1985. As per Note No. 12(x) of Schedule 24, being the Notes on Accounts annexed to and forming part of the audited financial statements for the year under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emed to accrue or arise in India during such year. The computation of such income is to be made in accordance with the method of accounting regularly employed by the assessee, which may either be cash system or the mercantile system. It referred to the following passage from its earlier decision in the case of CIT Vs. Shoorji Vallabhdas and Co. (1962) 46 ITR 144 (SC) wherein it had been stated as under: Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book keeping; an entry is made about a hypothetical income, which does not materialize. 10. The Hon ble supreme Court noticed that the aforesaid principle was applicable even if the accounts are maintained on mercantile system of accounting. In fact, the Hon ble supreme court applied the principle that even if the accounts are maintained on mercantile system, what is to be seen is whether income can be said to have really accrued to the assessee or not. In coming t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether income can be said to have really accrued to the assessee. In examining whether any income had accrued in a given situation, it is necessary to have regard to the reality and speciality of the situation rather than purely theoretical aspect of the matter. Keeping the aforesaid in mind, in our considered opinion, the stand of the Revenue to the effect that interest accrued to the assessee cannot be upheld merely because the loan agreement with the subsidiary companies continued to exist. It is imperative that all the attendant facts, circumstances and realities of the situation have to be considered in their proper commercial perspective before it can be evaluated as to whether interest income really accrued in the hands of the assessee. The facts noted by us in para 7 above, are not in dispute. It is also not in dispute that the assessee company has not recovered any dues from the two subsidiaries till now, as asserted by the learned Representative before us. After considering the entire gamut of facts and circumstances, it is an inescapable conclusion that the realization of the interest income in question is highly suspect and therefore, there cannot be said to be any real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd ors., order dated 10.03.2016. The relevant para of the order of the Tribunal dated 10.03.2016 (supra) is reproduced hereunder for reference :- 17. We have heard the rival contentions and perused the record. The first aspect of the issue is the determination of loss in the hands of assessee, which in turn, has been adjusted against the brought forward losses, which at the close of the year are also further available to the assessee for adjustment. Secondly, we find merit in the claim of the assessee vis- -vis the deduction on account of power expenses. The residential colony established by the assessee company has been provided to its employees and it is incumbent upon the assessee to provide power facilities to the said area. On one hand, the residential colony comprises first the residential accommodation provided to the employees and it is the case of assessee before us that in case any expenditure is incurred vis- -vis residential quarters of the employees, the same is recovered from them. Even in case the same is not recovered from them, does not merit the disallowance made in the hands of assessee. Further, part of power and fuel expenses were incurred on providing lig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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