TMI Blog2003 (11) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... J.-We have heard the learned counsel for the parties. This appeal is directed against the order of the Income-tax Appellate Tribunal, Jodhpur Bench, Jodhpur dated August 28,2002. The Tribunal has decided three appeals for the assessment years 1986-87, 1987-88 and 1988-89 in relation to the same assessee by a common order. This appeal relates to the assessment year 1987-88. It was an appeal by the Revenue before the Tribunal. The appellant has suggested that the following substantial questions of law arise for consideration in this appeal: "1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in deleting the addition on account of interest chargeable or the debit balances of (i) M/s. Jai Mangal Investment and Trading Co. and (ii) M/s. Banswara Textile Mills Ltd. on the ground that the debit balances were trade debts, ignoring the fact that both the companies are owned by the same group of persons and non-charging of interest is not due to their poor financial position but in fact it is waiver of interest income in favour of the sister concerns which is proved by the categorical findings given by the Assessing Officer in his order? 2. Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The second question is only an alternative stand taken by the assessee that since the two debit balances represent the trading account, in the ordinary course, interest would have been accounted for as and when the same is received and not on accrual basis. The Commissioner of Income-tax (Appeals) for the assessment year in question found in favour of the assessee by considering the fact that both the parties in whose names the debit balances were shown in the books of account of the assessee had incurred losses and cases were pending before the. BIFR suggesting that both the parties have negative net worth of capital. In view thereof, the Commissioner of Income-tax (Appeals) was of the opinion that when recovery of the principal itself was in doubt, waiver of interest can be considered to be in the interest of business and not conferring any favour by transferring profits to the debtor. This finding has been affirmed by the Tribunal. The Tribunal found that in the instant case, it is not disputed that barring a few exceptions, the assessee follows the mercantile system of accounting. One exception noticed was, and it is not disputed, that the assessee has been debiting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect from April 1, 1997. Prior to its amendment, section 145 envisaged that income chargeable under the head "Profits and gains of business or profession" or "income from other sources" shall be computed in accordance with the method of accounting regularly maintained by the assessee, whereas after the amendment, the provision envisages that income chargeable under the head "Profits and gains of business or profession" or "income from other sources" is to be computed in accordance with the accounts either on the cash or mercantile system regularly maintained. We are concerned with the assessment for the assessment year 1987-88. In this case when the computation of income was to be made in accordance with the system of accounting regularly employed by the assessee, as per the Tribunal's findings, the assessee has not accounted for interest on the trade debts standing in debit of account to charges named above as per the system of accounting regularly maintained by the assessee in respect of its trade debts and trading transactions for the purposes of accounting of the interest. This alone, in our opinion, was sufficient to hold that the amount of interest on notional basis could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the necessity for expeditious settlement thereof." Referring to this, the Commissioner of Income-tax (Appeals) deleted the additions made by the assessee. The Tribunal after considering the rival contentions noticing the fact that the assessee-company as well as BTM to whom the payment in cash has been made were running in losses and have become sick companies has recorded its conclusions as under; "The assessee has submitted that both the assessee-company as well as the payee company (BTM) are running in loss and have become sick companies. The bank has restricted their transactions and does not allow withdrawals from the account as and when required. The assessee-company does not have processing facility and, therefore, is dependent on BTM for getting its grey cloth processed. The assessee-company has made payment to its company for making day-to-day payments so as to continue the production. The only source of revenue for this company was the assessee-company's job work. Since the bank does not allow the withdrawals to BTM, the payments were to be made in cash. Thus, there was a genuine difficulty in making payments through banking channels. We are of the opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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