The DCIT(OSD Circle-8, Ahmedabad V. M/s. Supath Leasing & Finance Pvt. Ltd., Ahmedabad

ITA 2057/AHD/2009

• Counselvise Citation: 205720514 RSA 2009
• Duration Of Justice: 2 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-08-2011
• Assessment Year: 1996-1997
• Appeal Filed On: 26-06-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K MEENA
• Assessee Lawyers: J P SHAH
• Keywords: Unexplained cash credit; Gift

Judgement Text

ITA NO.2057/AHD/ 2009 ASSESSMENT YEAR 1996-97. 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH,A HMEDABAD. (BEFORE SHRI T. K.SHARMA AND SHRI R. C. SHARMA) I.T.A.NO. 2057/AHD/2009 (ASSESSMENT YEAR 1996-97) DEPUTY COMMISSIONER OF INCOME TAX, (OSD) CIRCLE-8, AJANTA COMMERCIAL CENTRE, ASHRAM ROAD, AHMEDABAD. (APPELLANT) VS. SUPATH LEASING & FINANCE P. LTD., 8 VALLABH SOCIETY, OPP. KRISHNA CINEMA, NARODA, AHMEDABAD. (RESPONDENT) PAN: AACCS 6210 M APPELLANT BY : SHRI S. K. MEENA, SR. D.R. RESPONDENT BY : SHRI J. P. SHAH. DATE OF HEARING : 10-8-2011 DATE OF PRONOUNCEMENT : 19-08-2011 ( (( ( )/ )/)/ )/ ORDER PER SHRI R.C. SHARMA,A.M. THIS IS AN APPEAL FILED REVENUE AGAINST ORDER OF C IT(A)-XIV, AHMEDABAD DATED 21-4-2009, FOR THE ASSESSMENT YEAR 1996-97, WHEREIN THE FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE: 1. THE LD. CIT (A) XIV, AHMEDABAD ERRED IN LAW AND ON FACTS ALLOWING RS. 3, 05,000/- ON ACCOUNT OF UNEXPLAINED CASH CREDIT. ITA NO.2057/AHD/ 2009 ASSESSMENT YEAR 1996-97. 2 2. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING RS. 16, 52,281/- ON ACCOUNT OF SHARE TRADING LOSS. 3. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING RS. 11, 76, 266/- ON ACCOUNT OF INERTEST INCOME. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 5. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD . COMMISSIONER OF INCOME-TAX (A)-XIV, AHMEDABAD MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. RIVAL CONTENTIONS HAVE HEARD AND RECORDS PERUSED . FACTS IN BRIEF ARE THAT WHILE FINALIZING THE ASSESSMENT ORDER U/S. 143 (3) OF THE I.T.ACT ON 30- 03-1999, THE A.O. ITO WARD 7(3), AHMEDABAD MADE ADD ITION OF RS. 3, 05,000/- AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE ACT, MADE DISALLOWANCE OF SHARE TRADING LOSS RS. 16, 52,281/- AND MADE ADDITI ON OF INTEREST INCOME ON ACCRUAL BASIS OF RS. 11, 76,266/- AND DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 96,171/-. IN THE APPEAL, THE CIT (A)-XIV, VIDE ORDER DATED 13-10-2003, HAS DISMISSED THE APPEAL FILED BY THE APPELLANT BY CONFIRMING THE ABOVE ADDITIONS. IN FURTHER APPEAL AGAINST THE ORDER OF C IT(A), THE HONBLE ITAT, VIDE ITS ORDER DATED 30-01-2009, SET ASIDE THE ORDE R OF THE CIT(A) WITH THE OBSERVATION THAT IN THE IMPUGNED ORDER, NOWHERE IT IS MENTIONED BY THE CIT(A) THAT ENOUGH DATES OF HEARING WAS PROVIDED TO THE ASSESSEE WHICH WERE NOT COMPILED BY IT. THE LD. CIT (A) OUGHT TO H AVE PROVIDED ONE MORE OPPORTUNITY OF HEARING. THEREFORE, THE TRIBUNAL DIRECTED THE CIT (A) TO DECIDE THE APPEAL AFRESH AFTER PROVIDING ADEQUATE O PPORTUNITY OF HEARING TO BOTH THE SIDES. ITA NO.2057/AHD/ 2009 ASSESSMENT YEAR 1996-97. 3 3. IN THE SET ASIDE MATTER, AFTER RECORDING DETAILE D FINDINGS, THE CIT (A) DELETED THE ADDITION AND THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE TH ROUGH THE ORDERS OF AUTHORITIES BELOW. THE FIRST GROUND OF APPEAL IS AG AINST DELETION OF ADDITION OF RS. 3, 05,000/- MADE BY A.O BY TREATING THE DEPO SITS AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE ACT. THE A.O. NOTICED THAT TH E APPELLANT HAD ACCEPTED UNSECURED LOANS IN THE NAMES OF 18 PARTIES AS DETAI LED IN THE ASSESSMENT ORDER. THE ISSUE HAS BEEN DISCUSSED BY THE A.O. IN DETAIL AND IT WAS OBSERVED THAT NONE OF THE DEPOSITORS WAS HAVING TAXABLE INCO ME, AS STATED BY THE DEPOSITORS IN AFFIDAVITS FILED BEFORE THE A.O., THE FUNDS FOR THE DEPOSITS WERE RAISED FROM SAVINGS OUT OF THEIR SALARY, WHICH IN N O CASE EXCEEDED RS. 4500/- PER MONTH AND MANY OF THE DEPOSITORS WERE NOT EARNI NG AT ALL AND THE DEPOSITS WERE SAID TO BE OUT OF OCCASIONAL GIFTS RE CEIVED ON BIRTH DATES, DIWALI ETC. AND IT WAS HARD TO BELIEVE THAT THE PER SONS OF SUCH MEANS WOULD ACCUMULATE THE FUNDS IN CASH AND LEND. THE A.O., TH EREFORE, HELD THAT THE AFFIDAVITS FILED BY THE DEPOSITORS, WHICH THE APPEL LANT MANAGED TO OBTAIN TO GIVE COLOUR OF GENUINENESS AND THESE AFFIDAVITS DID NOT PROVE THE IDENTITY OF THE DEPOSITORS, GENUINENESS OF TRANSACTION AND CRED IT WORTHINESS OF THE DEPOSITORS AND HE TREATED THE SAME AS UNEXPLAINED C ASH CREDIT U/S. 68 AND ADDED TO THE TOTAL INCOME OF THE APPELLANT. 5. BY THE IMPUGNED ORDER, THE CIT (A) DELETED THE ADDI TION AFTER HAVING THE FOLLOWING OBSERVATION :- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSIONS AS ADVANCED BY THE A.R. OF THE APPELLANT. I HAVE CALLE D FOR MISCELLANEOUS ITA NO.2057/AHD/ 2009 ASSESSMENT YEAR 1996-97. 4 RECORDS OF THE APPELLANT FROM THE A.O. AND VERIFIED THE SAME. I FIND THAT THE APPELLANT HAD FILED BEFORE THE A.O. AFFIDA VITS FROM 15 PARTIES AND ONE CONFIRMATION LETTER FROM RAMESH J. PRAJAPAT I. ON A PERUSAL OF THE AFFIDAVITS AND THE CONFIRMATION LETTER FILED BY THE DEPOSITORS, IT IS SEEN THAT THE PARTIES HAVE EXPLAINED THE SOURCE OF THEIR INVESTMENT MADE WITH THE APPELLANT AND CONFIRMED THE FACT THAT THEY HAVE ADVANCED THE MONEY TO THE APPELLANT. AS PER THE DEC ISION OF GUJARAT HIGH COURT IN ROHINI BUILDERS REPORTED IN 256 ITR 3 60, HE APPELLANT IS NOT REQUIRED TO PROVE THE SOURCE OF DEPOSITS. I FIND THAT GENUINENESS OF DEPOSITS CANNOT BE DOUBTED, AS THE APPELLANT, HA S BEEN ABLE TO PROVE THE IDENTITY OF THE DEPOSITORS AND THE CREDIT WORTHINESS BY FURNISHING THE AFFIDAVITS AND CONFIRMATION LETTER F OR 16 CREDITORS. IN RESPECT OF CREDITS OF RS. 17,000/- FROM RAKSHA K. P RAJAPATI AND RS. 15,000/- FROM MORI BHAVSANG KANUBHAI, THE APPELLANT HAS NOT FURNISHED ANY CONFIRMATION LETTERS, SO ADDITION OF CREDITS OF RS. 32,000/- IN RESPECT OF THESE TWO PARTIES IS CONFIRM ED AND FOR THE BALANCE CREDITS, I HOLD THAT THE CREDITS ARE EXPLAI NED, SO THE ADDITION MADE U/S. 68 IS NOT JUSTIFIED AND THE SAME IS DIREC TED TO BE DELETED. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FIND FR OM THE RECORD THAT ASSESSEE HAS FILED AFFIDAVIT FROM 15 PARTIES AND ON E CONFIRMATION LETTER FROM, SHRI RAMESH J. PRAJAPATI. AFTER CONSIDERING THE CON TENTS OF THE AFFIDAVIT AND THE CONFIRMATION LETTER, CIT (A) FOUND THAT ASSESSE E HAS DISCHARGED THE BURDEN CASTED ON HIM TO PROVE THE IDENTITY OF THE D EPOSITOR AND THEIR CREDIT WORTHINESS. IN RESPECT OF THE TWO CREDITORS NAMELY RAKSHA K. PRAJAPATI RS. 17,000/- AND MORI BHAVANSANG, CIT (A) FOUND THAT AS SESSEE DID NOT ITA NO.2057/AHD/ 2009 ASSESSMENT YEAR 1996-97. 5 DISCHARGE ITS BURDEN, THEREFORE, CONFIRMED THE ADDI TION WITH RESPECT TO THE SAME. AS PER THE MATERIAL PLACED ON RECORD, WE FIND THAT ASSESSEE HAS DISCHARGED ITS BURDEN AND THE CIT (A) AFTER FOLLOWI NG THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF ROHINI BUI LDERS 256 ITR 360 DELETED THE ADDITION. THE FINDING RECORDED BY THE CIT(A) HA S NOT BEEN CONTROVERTED, BY BRINGING ANY POSITIVE MATERIAL ON RECORD, WE THE REFORE, DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CIT (A) FOR DELETING THE ADDITION OF RS. 3,05,000/-. 7. THE SECOND GROUND OF APPEAL IS AGAINST DELETION OF DISALLOWANCE OF RS. 16, 52,281/- BY HOLDING THAT THE LOSS OF RS. 16, 72 ,102/- INCURRED ON TRADING OF SHARES OF LALBHAI FINANCE LTD. IS NOT GENUINE. T HE A.O. NOTICED THAT THE APPELLANT COMPANY HAS CLAIMED LOSS OF RS. 16,52,281 /- ON SHARE TRADING IN THE P & L A/C. AND ON SCRUTINY OF DETAILS, IT WAS FOUND THAT THE APPELLANT HAD PURCHASED 3,95,400 SHARES OF LALBHAI FINANCE LTD. FROM VARIOUS PARTIES AND SOLD 3,07,800 SHARES TO M/S. LALBHAI SECURITIES LT D. AND IN THE PROCESS, SUFFERED LOSS OF RS. 16,72,102/-. THIS ISSUE HAS BE EN DISCUSSED BY THE A.O. IN DETAIL IN THE ASSESSMENT ORDER AND THE A.O. OBSE RVED THAT SINCE THE APPELLANT IS A PART OF CORPORATE VEIL OF LALBHAI FI NANCE GROUP OF COMPANIES AND HE LIFTED THE CORPORATE VEIL OF THESE COMPANIES AND HELD THAT THE TRANSACTIONS WITHIN THEMSELVES WERE NOT COMMERCIAL TRANSACTIONS, BUT WERE EXTRA COMMERCIAL TRANSACTIONS ENTERED INTO FOR COLL ATERAL PURPOSE OF MANIPULATING AND REDUCING PROFITS AND SO HE DISREGA RDED THEM. THE A.O. DISREGARDED THE CORPORATE ENTITY. HE ACCORDINGLY DI SALLOWED THE LOSS IN SHARE TRADING AS NOT GENUINE AND ADDED RS. 16, 52,281/- T O THE TOTAL INCOME OF THE APPELLANT. ITA NO.2057/AHD/ 2009 ASSESSMENT YEAR 1996-97. 6 8. AFTER HAVING THE FOLLOWING OBSERVATION, THE CIT (A) DELETED THE ADDITION. THE SECOND GROUND OF APPEAL IS AGAINST DELETION OF DISALLOWANCE OF RS. 16, 52,281/- BY HOLDING THAT TH E LOSS OF RS. 16, 72,102/- INCURRED ON TRADING OF SHARES OF LALBHAI F INANCE LTD. IS NOT GENUINE. THE A.O. NOTICED THAT THE APPELLANT COMPAN Y HAS CLAIMED LOSS OF RS. 16,52,281/- ON SHARE TRADING IN THE P & L A/C. AND ON SCRUTINY OF DETAILS, IT WAS FOUND THAT THE APPELLAN T HAD PURCHASED 3,95,400 SHARES OF LALBHAI FINANCE LTD. FROM VARIOU S PARTIES AND SOLD 3,07,800 SHARES TO M/S. LALBHAI SECURITIES LTD. AND IN THE PROCESS, SUFFERED LOSS OF RS. 16,72,102/-. THIS ISSUE HAS BE EN DISCUSSED BY THE A.O. IN DETAIL IN THE ASSESSMENT ORDER AND THE A.O. OBSERVED THAT SINCE THE APPELLANT IS A PART OF CORPORATE VEIL OF LALBHAI FINANCE GROUP OF COMPANIES AND HE LIFTED THE CORPORATE VEIL OF THESE COMPANIES AND HELD THAT THE TRANSACTIONS WITHIN THE MSELVES WERE NOT COMMERCIAL TRANSACTIONS, BUT WERE EXTRA COMMERCIAL TRANSACTIONS ENTERED INTO FOR COLLATERAL PURPOSE OF MANIPULATING AND REDUCING PROFITS AND SO HE DISREGARDED THEM. BY PLACING RELI ANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF JU GGI LAL KAMLAPAT, 73 ITR 702, THE A.O. DISREGARDED THE CORPORATE ENTI TY, AS IT WAS USED FOR TAX EVASION OR TO CIRCUMVENT TAX OBLIGATION. HE ACCORDINGLY DISALLOWED THE LOSS IN SHARE TRADING AS NOT GENUINE AND ADDED RS. 16, 52,281/- TO THE TOTAL INCOME OF THE APPELLANT. 9. AGAINST THE ABOVE ORDER REVENUE IS IN FURTHER AP PEAL BEFORE US. 10. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FIND F ROM THE RECORD THAT SHARES SOLD BY THE ASSESSEE AT AN AVERAGE RATE AND TRANSACTIONS WERE EFFECTED THROUGH BROKERS IN THE NORMAL COURSE OF ITS BUSINES S. SINCE THE ASSESSEE WAS MAINLY DOING BUSINESS OF FINANCING AND MONEY LENDIN G, EVEN THE EXPLANATION TO SECTION 73 WAS NOT APPLICABLE TO IT. THE LOSS S O SUFFERED BY THE ASSESSEE WAS IN THE NORMAL COURSE IN ITS BUSINESS AND THE SA ME WAS FOUND TO BE GENUINE BY THE CIT (A). THE SHARES WERE SOLD BY TH E ASSESSEE AT RS.14 PER SHARE. NO WHERE THE A.O. HAS POINTED OUT THAT ON TH E DATE OF SALE TO M/S. ITA NO.2057/AHD/ 2009 ASSESSMENT YEAR 1996-97. 7 LALBHAI SECURITIES LTD., THE MARKET PRICE OF SHARES WERE HIGHER THAN THE RATE AT WHICH ASSESSEE HAS SOLD THE SHARES TO M/S. LALBH AI SECURITIES UNLESS ANY MATERIAL IS BROUGHT OUT ON RECORDING TO SUGGEST THA T SHARES WERE SOLD TO SISTER CONCERN AT A PRICE LOWER THAN PREVAILING MARKET RAT E ON THAT DATE, NO ADDITION IS WARRANTED. ACCORDINGLY, WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF THE CIT (A) DELETING THE ADDITION. 11. THE THIRD GROUND OF APPEAL IS AGAINST ADDITION OF RS. 11, 76,266/- AS INTEREST INCOME ON ACCRUAL BASIS. IT WAS NOTICED BY THE A.O. THAT THE APPELLANT HAD ADVANCED LOANS TO NINE PARTIES, THE T OTAL OF WHICH WAS OF RS. 87,00,000/- AND THE DETAILS REVEALED THE ACCRUED IN TEREST WAS DEBITED TO THEIR INDIVIDUAL ACCOUNTS BUT LATER ON REVERSAL ENTRY WAS PASSED IN THE CASE OF FIVE PARTIES REVERSING INTEREST OF RS. 11,76,266/-. THE A.O. FURTHER OBSERVED THAT THE APPELLANT COMPANY WAS FOLLOWING MERCANTILE SYST EM OF ACCOUNTING AND THE AUDITOR REPORTED THAT LOANS AND ADVANCES GRANTE D TO COMPANIES, FIRMS AND PERSONS ARE PRIMA FACIE NOT PREJUDICIAL TO THE INTE REST OF THE COMPANY. THE APPELLANT COMPANY WAS EARNING INTEREST INCOME ON TH E LOANS GRANTED TO LALBHAI FINANCE LTD., WHICH WERE WITHDRAWN AND ADVA NCED TO THE ABOVE NAMED PARTIES AND THE INTEREST ACCRUED OF RS. 11,76 ,266/- ON THE LOANS GRANTED TO THE ABOVE PARTIES WAS DEBITED TO THEIR A CCOUNTS, BUT ON ASCERTAINING THE INCOME FOR THE YEAR UNDER CONSIDER ATION AND AFTER VISUALIZING THE TAX LIABILITY THEREON AND AS THE PE RSONS WERE FAMILY MEMBERS OF THE GROUP, THE INTEREST WAS REVERSED BY PASSING A PAPER ENTRY AND THEREBY THE APPELLANT CONVENIENTLY UNDERSTAND ITS INCOME AN D REDUCED ITS TAXABILITY. THE A.O. THEREFORE ADDED THIS AMOUNT TO THE TOTAL I NCOME OF THE APPELLANT. 12. BY THE IMPUGNED ORDER, CIT (A) DELETED THE ADDI TION AFTER HAVING FOLLOWING OBSERVATION :- ITA NO.2057/AHD/ 2009 ASSESSMENT YEAR 1996-97. 8 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSIONS AS MADE BY THE A.R. OF THE APPELLANT. FROM THE DETAILS FURN ISHED BY THE A.R. IT IS SEEN THAT THE ADVANCES MADE TO THE PARTIES AND IT WAS AN INADVERTENT MISTAKE ON THE PART OF THE ACCOUNTANT OF THE APPELLANT TO HAVE CHARGED INTEREST IN THE BOOKS. LATER ON, ON REALIZATION THAT IT WAS A MISTA KE, THE ENTRY WAS REVERSED IN THE BOOKS ON THE SAME DAY. I AM INCLINED TO AGRE E WITH THE CONTENTION OF THE A.R. THAT SIMPLY FOR THIS REASON, THE ADDITION CANNOT BE SUSTAINED; OTHERWISE, THERE WAS NO BASIS FOR MAKING SUCH ADDIT ION, EXCEPT FOR THE WRONG ENTRY IN THE BOOKS. IT IS ULTIMATELY THE DECISION O F THE APPELLANT THAT WHETHER INTEREST IS TO BE CHARGED ON ADVANCES OR NOT AND TH E DEPARTMENT IN NO CASE CAN COMPEL THE APPELLANT IN THIS CONNECTION. CONSID ERING THE FACT THAT THE A.R. HAS FURNISHED COMPLETE DETAILS WITH REGARD TO THE RECEIPT OF INTEREST AS WELL AS PAYMENT OF INTEREST DURING THE YEAR AND THE FACT THAT THE ADDITION HAS BEEN MADE JUST BECAUSE OF ONE WRONG ENTRY, WHICH WA S LATER ON REVERSED, THE DISALLOWANCE MADE IN RESPECT OF PAYMENT OF INTEREST IS HELD TO BE NOT JUSTIFIED, HENCE I DIRECT THE A.O. TO DELETE THE DI SALLOWANCE SO MADE. 13. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF ADVANCING L OANS ON INTEREST. DURING THE COURSE OF ASSESSMENT, THE A.O. FOUND THAT ASSES SEE HAS ADVANCED A SUM OF RS.87 LACS TO DIFFERENT PARTIES, AND THE RESPECT IVE ACCOUNTS OF THE PARTIES WERE ALSO DEBITED WITH INTEREST ACCRUED THEREON AMO UNTING TO RS.11,76,266. THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING, ACCORDING TO WHICH INTEREST IS ACCRUED IN ITS FAVOUR ON THE AMOU NT OF THE LOAN GIVEN DURING THE YEAR COMPUTED @ RATE OF INTEREST ON WHICH ADVAN CE WAS GIVEN TILL THE END OF THE YEAR. WE ALSO FOUND THAT EARLIER THIS ADVANC E WAS GIVEN TO LALBHAI FINANCE LTD., ON WHICH ASSESSEE WAS CHARGING INTERE ST. THE SAID LOAN WAS WITHDRAWN AND ADVANCE WAS GIVEN TO THE PARTIES WHO ARE STATED TO BE FAMILY MEMBERS OF THE GROUP. HOWEVER, AFTER DEBITING THE RESPECTIVE ACCOUNTS OF THESE PARTIES WITH THE INTEREST ACCRUED ON THEIR AD VANCES, AT THE END OF THE YEAR, THE ASSESSEE PASSED A REVERSE ENTRY AND INTER EST INCOME WAS NOT OFFERED ITA NO.2057/AHD/ 2009 ASSESSMENT YEAR 1996-97. 9 FOR TAX. MERELY BY OBSERVING THAT IT WAS AN INADVER TENT MISTAKE OF PASSING INTEREST ENTRY AND REVERSING IT, THE CIT (A) HAS DE LETED THE ADDITION, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE CIT (A) IN SO FAR AS INTEREST INCOME WAS ALREADY ACCRUED TO THE ASSESSEE IN TERMS OF MER CANTILE SYSTEM OF ACCOUNTING BEING FOLLOWED BY IT CONSISTENTLY. WHEN THE ASSESSEE WAS IN THE BUSINESS OF ADVANCING MONEY ON INTEREST, THERE DOES NOT APPEAR TO BE ANY REASON FOR WITHDRAWING THE ADVANCE GIVEN ON INTERES T AND AGAIN GIVING ADVANCES WITHOUT CHARGING ANY INTEREST TO OTHERS. I T IS ALSO NOT THE CASE OF ASSESSEE THAT FINANCIAL POSITION OF CREDITORS WERE BAD, THEREFORE INTEREST DUE ON ADVANCES WAS DIFFICULT TO BE RECOVERED, WHEN THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING INTEREST ON LOANS A ND ADVANCES ACCRUES IN ITS FAVOUR IRRESPECTIVE OF THE FACT THAT ASSESSEE HAS N OT PASSED ANY ENTRY OF INTEREST SO ACCRUED IN ITS BOOKS OF ACCOUNTS OR MER ELY BY REVERSING THE INTEREST CHARGED IN CREDITORS ACCOUNT WILL NOT ABSO LVE THE ASSESSEE FROM SUCH INCOME. INCOME ON ACCOUNT OF INTEREST ON ADVANCES ACCRUES ON DAY TO DAY BASIS AND GOT THE RIGHT TO RECEIVE THE ACCRUED INTE REST AT THE END OF THE YEAR OR AT PROPER INTERVALS AS PER TERMS OF ADVANCING. 14. IN VIEW OF ABOVE DISCUSSION WE SET ASIDE THE OR DER OF CIT (A) ON THIS GROUND AND MATTER IS RESTORED BACK TO THE FILE OF AO FOR DECIDING AFRESH IN THE LIGHT OF OUR ABOVE OBSERVATION. 15. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWE D IN PART, IN TERMS INDICATED HEREINABOVE. ITA NO.2057/AHD/ 2009 ASSESSMENT YEAR 1996-97. 10 ORDER PRONOUNCED IN OPEN COURT ON 19 - 08 - 2011. SD/- SD/- (T K.SHARMA) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. DATED: 19 - 08 - 2011. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 11 - 8 -2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 11 / 8 / 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S - -2011. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT - -2011 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S - -2011 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK - -2011. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..