Harparshad & Co. Pvt. Ltd., New Delhi v. DCIT, New Delhi

ITA NO. 3236/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T.A. NO. 3236/DEL/2010 A.Y. : 2006-07 HARPARSHAD & CO. PVT. LTD. 202 1 ST FLOOR OKHLA INDL. ESTATE PHASE-III NEW DELHI 110 020 (PAN/GIR NO. : AAACH0131J) VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 12(1) C.R. BUILDING NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. RM MEHTA ADV. & SH. ARUN BHATIA CA DEPARTMENT BY : SMT. MONA MOHANTY SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 26.5.2 010 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCO ME TAX (APPEALS) ERRED IN SUSTAINING THE ADDITION OF ` 8 44 750/- BEING THE INTEREST ON CERTAIN LOANS GIVEN BY THE ASSESSEE COMP ANY IN PRECEDING ASSESSMENT YEARS BUT WHICH HAD BECOME DOUBTFUL OF RE COVERY. 3. IN THIS CASE ASSESSING OFFICER NOTED THAT A PER USAL OF THE AUDIT REPORT REVEALS THAT ASSESSEE IS FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING. ASSESSEE HAS GIVEN CERTAIN LETTERS TO TWO COMPANIES VIZ. M/S GI POWER LTD. AND M/S GTZ SECURITIES LTD. ON WHICH A TOTAL INTEREST OF ` 8 44 750/- HAS ACCRUED BUT THE SAME HAS NOT BE EN DISCLOSED IN THE ITA NO. 3236/DEL/2010 2 INCOME OF THE ASSESSEE. ON QUERY IN THIS REGARD ASSESSEE STATED THAT ASSESSEE COMPANY HAD WRITTEN SEVERAL LETTERS T O THESE COMPANIES FOR THE PAYMENT OF LOANS BUT THEY HAVE NOT RESPONDE D EVEN FOR THE PRINCIPAL AMOUNT WHAT TO SAY FOR THE INTEREST AND HE NCE THE INTEREST WAS NOT CHARGED IN THE ACCOUNTS BECAUSE THE LOANS H AVE BECOME DISPUTED AND DOUBTFUL FOR RECOVERY. ASSESSING OFF ICER REJECTED HIS CONTENTION ON THE GROUND THAT ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND ASSESSEE HAS NOT FURNISHED ANY EVIDENCE IN SUPPORT OF THE CONTENTION THAT THE LOANS HAVE BEC OME BAD AND DOUBTFUL FOR RECOVERY. IN THESE CIRCUMSTANCES HE ADDED THE INTEREST DUE IN THE YEAR AMOUNTING TO ` 844750/-. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE ASSESSING OFFICERS ACTION REF ERRING TO THE ASSESSEES MERCANTILE SYSTEM OF ACCOUNTING. 5. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEF ORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND THE PRECEDENT RELIED UPON. IT IS A SETTLED LAW THAT IT IS A REAL INCOME THAT SHOULD BE TAXED AND NOT THE NOTIO NAL INCOME. 6.1 IN THIS REGARD DECISION OF THE HONBLE APEX COU RT IN THE CASE OF GODHRA ELECTRICITY CO. LTD. VS. C.I.T. 746 ITR 225 IS RELEVANT. IN THIS CASE THE HONBLE APEX COURT HAS EXPOUNDED THAT INCO ME TAX IS A LEVY OF INCOME. NO DOUBT THE INCOME TAX ACT TAKES INT O ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATT RACTED 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 CAN NOT BE A TAX EVEN THOUGH IN BOOK KEEPING AN ENTRY IS MADE ABOUT A H YPOTHETICAL INCOME WHICH DOES NOT MATERIALIZE. ITA NO. 3236/DEL/2010 3 6.2 CONSIDERING THE PRESENT ISSUE IN LIGHT OF THE AFORESAID JUDGEMENT THE MERE FACT THE ASSESSEE IS FOLLOWING THE MERCANTIL E SYSTEM OF ACCOUNTING CANNOT BE SAID TO BE GUIDING FACTOR TO A CCOUNT FOR THE INTEREST ACCRUED ON A LOAN WHICH HAS BECOME DOUBTF UL. HOWEVER WE NOTE THAT BEFORE THE LOWER AUTHORITIES IT HAS NOT B EEN PROPERLY DEMONSTRATED AS TO HOW THE SAID AMOUNT IS BAD AND D OUBTFUL. BEFORE US THE LD. COUNSEL OF THE ASSESSEE HAD SUBMITTED LE TTERS OF TWO COMPANIES DATED 22.4.2004 AND 23.4.2004 WHEREIN THE AMOUNT GIVEN HAS BEEN ASKED TO BE RETURNED ALONGWITH INTEREST IMM EDIATELY. WE FIND THAT VERACITIES OF THESE DOCUMENTS NEED EXAMIN ATION AT THE LEVEL OF ASSESSING OFFICER . ASSESSING OFFICER IS DIR ECTED TO EXAMINE THE VERACITIES OF THESE LETTERS ISSUED BY THE ASSESSEE TO THE DEBTORS AND ACCORDINGLY DECIDE THE MATTER AFRESH. 7. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 4/2/2011. SD/- SD/- [RAJPAL YADAV [RAJPAL YADAV [RAJPAL YADAV [RAJPAL YADAV] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 4/2/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES