TMI Blog2017 (5) TMI 1221X X X X Extracts X X X X X X X X Extracts X X X X ..... w involved in this appeal are covered by Shoorji Vallabhdas (1962 (3) TMI 6 - SUPREME Court) and Poona Electric (1965 (4) TMI 20 - SUPREME Court ). The interest income could not said to have had accrued for the appellant for the assessment year in the background of the resolutions taken for waiver of interest. - Decided in favour of the assessee. - ITA No. 134 of 2001 - - - Dated:- 30-3-2017 - Aniruddha Bose And Arindam Sinha, JJ. Mr.G.R.Sharma,Advocate For the Appellant Mr.Prabir Bhowmick, Mr.P. Dudheria, Mr. Yogesh Vats, Advocates For the Respondent ORDER The Court : After hearing the appellant-assessee, we admit the appeal on the following two questions as suggested by the assessee. 1. Whether on the facts and in the circumstances of the case Tribunal was right in confirming the addition of interest, though waived by the assessee on account of the debtors inability to pay the interest for years simply on the score that the assessee follows the mercantile method of accounting. 2. Whether the Tribunal s order is replete with incongruities and vitiated for being founded on a wrong premise that there was no resolution passed by the Board of Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 1,08,883/- as interest income from Shroff Chemicals Pvt. Ltd. and ₹ 39,635/- from Eastern Commercial Enterprises. Appeal against assessment for that year was preferred by the assessee on various grounds. So far as the present proceeding is concerned, the subject of dispute relates to the addition of income in respect of the aforesaid two borrowers. The plea of the assessee was rejected by the CIT(A), inter alia, on the following ground. In the last ground the appellant objected to the addition of notional interest from the two parties as unfair and improper since the same could not be realised from 1987. It is observed that the assessee is following mercantile system of account and therefore, interest amount on the basis of prevailing market rate has rightly been added on due basis. The addition on this score is, therefore, confirmed. 5. The assessee appealed before the Tribunal assailing the Commissioner s decision. The Tribunal, in a judgment delivered on 4th December 2000 rejected the appellant s stand on this point and held:- We heard both parties and gone through the materials available on record, from which it appears that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order passed by the Tribunal in the rectification proceeding, it becomes apparent that the plea of the assessee was primarily rejected on the ground that it maintained mercantile system of accounting, the debts were not declared as bad debts and the assessee continued to receive back the principal sums from the borrowers. On behalf of the assessee, it is submitted before us that waiver of interest was accepted by the respective Assessing Officers in the earlier assessment years subsequent to the passing of the resolution by the Board. It is further submission of Mr. Sharma, learned advocate for the assessee that the decision to waive interest was taken on the basis of commercial expediency, having regard to the reasons reflected in the resolutions themselves and these resolutions were duly taken. He has argued that mere following of mercantile system ought not to result in accrual of income from interest when there is no interest income in real terms and the statements of account of the assessee also did not reflect any credit entry in respect of interest receipt from the aforesaid borrowers. It is his specific case that commercial decision was taken by the appellant-assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue has contested this appeal. His submission is that since the borrowers dues were not declared bad debts and the assessee had applied the mercantile system of accounting, the assessing officer had rightly added the interest income as having accrued for the relevant assessment year. He has relied upon the case of Commissioner of Income Tax vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd., [(1996) 222 ITR 583]. He has invited our attention to the following passage from that said judgment:- The concept of real income cannot be employed so as to defeat the provisions of the Act and the Rules. Where the provisions of the Act and the Rules apply, it is only those provisions which must be applied and followed. There is no room nor would it be permissible for the court to import the concept of real income so as to whittle down, qualify or defeat the provisions of the Act and the Rules. In the case of Shiv Prakash (Supra) the following two questions were examined for consideration; which appears from that judgment itself:- (i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest for the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt had not accrued to the assessee. Therefore, the Tribunal was right in taking the view it did in respect of the assessment years 1969-70, 1970-71 and 1971-72. In the case of the assessment year 1968-69, however, the resolution was passed before the expiry of the accounting year and though the finding of the Tribunal is that the said waiver was not actuated by any commercial considerations, yet learned counsel for the Revenue did not press the Revenue s case so far as this assessment year is concerned. 11. One basic distinguishing feature so far as the factual background of the present appeal is concerned vis- -vis the case of the assessee in the decision of the Hon ble Supreme Court in the case of Shiv Prakash (supra) is that the assessee in this appeal had taken resolution prior to the assessment year under consideration. There is no dispute that it was a decision of the assessee based on commercial consideration. Unlike the case of Shiv Prakash (supra) in which it was found that partners of the borrowing firm and the shareholders/directors of the assessee company were same, the records of this appeal do not show any linkage or nexus between the assessee and its two borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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