TMI Blog2017 (11) TMI 966X X X X Extracts X X X X X X X X Extracts X X X X ..... es when there is reasonable certainty for realising any receipts or revenue. Hypothetical income cannot be taken into account. In respect of sticky loans and advances, the income is recognized when interest is actually collected. Merely on the basis of accrual it cannot be recognized in the absence of any certainty of its collection. The circular of October 9, 1984, also serves another practical purpose of laying down a uniform test for the assessing authority to decide whether the interest income which is transferred to the suspense account is, in fact, arising in respect of a doubtful or “sticky” loan. This is done by providing that nonreceipt of interest on a doubtful loan. But if after three years the payment of interest is not rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequently, the assessee filed revised return of income on 28.3.2013 declaring NIL income after claiming set off of losses and income u/s. 115JB at ₹ 92,91,86,141/-. In the revised computation, the assessee declared NIL income and books profits u/s. 115JB of ₹ 93,47,72,934/-. The case was selected for scrutiny and notice under section 143(2) was issued on 7.8.2012. Notice u/s. 142(1) was issued on 5.8.2013. Questionnaire u/s. 142(1) was issued dated 30.10.2014. Due to change of incumbency issued fresh notice u/s. 142(1) on 21.11.2014. In response to notices, the AR of the assessee appeared from time to time and filed the requisite details. Assessee company is engaged in the business of consumer and auto finance. During the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, Section 209 w.e.f. 15.06.1988 makes it obligatory for all companies to maintain their accounts on accrual basis and according to double entry system of accounting. In view of this amendment all the companies are required to keep their accounts on accrual basis of accounting in respect of any accounting year closing on or after 15.6.1988. In the instant case for the purpose of audited accounts prepared as per the Companies Act, 1956 the income on sticky loans is provided and recognized as income. Subsequently the entry is reversed on the close of accounting year and income on the claimed sticky loans is not recognized. This implies that mercantile system is not being followed as far as interest income is concerned on the loans which becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervation of the ITAT in A.Y.2001-02 in Appeal No. 3476 is reproduced as under: The assessee had not recognized the interest income on sticky loans keeping in view the mandatory guidelines of RBI in regard to NBFC. Under the mercantile system of accounting an income accrues when there is reasonable certainty for realising any receipts or revenue. Hypothetical income cannot be taken into account. In respect of sticky loans and advances, the income is recognized when interest is actually collected. Merely on the basis of accrual it cannot be recognized in the absence of ITA Nos. 3192,3476,2809 2445/0ell2007 any certainty of its collection. The Hon'ble Supreme Court in the case of UCO Bank vs. CIT, 237 ITR 891 has held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X
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