M/s. LML LTD., MUMBAI V. ACIT III, MUMBAI

ITA 2579/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49219 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2011
• Appeal Filed By: Assessee
• Bench Allotted: H
• Next Hearing Date: 30-05-2011
• Assessment Year: 1994-1995
• Appeal Filed On: 11-04-2008
• Court: TRIBUNAL
• Department Lawyers: KUBAL
• Keywords: Reopening of assessment; Rectification of order; Deemed to accrue or arise in india; Bad and doubtful debts; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H BEFORE SHRI J. SUDHAKAR REDDY (AM) & SHRI VIJAY PAL RAO (JM) I.T.A.NO. 2579/MUM/2008 (ASSESSMENT YEAR : 1994-95 ) M/S. LML LIMITED 714, RAHEJA CHAMBERS 213, NARIMAN POINT MUMBAI-400 021. VS. ACIT III MUMBAI APPLICANT RESPONDENT PAN/GIR NO. : AAACL0141N ASSESSEE BY : SHRI SUNIL NAHTA DEPARTMENT BY : SHRI M.R. KUBAL ORDER PER J. SUDHAKAR REDDY (AM) :- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LEARNED CIT(A)-III, MUMBAI, DATED 16.1.2008 FOR A.Y. 1994-95. 2. FACTS IN BRIEF :- ASSESSEE IS A PUBLIC LIMITED COMPANY AND IS IN THE BUSINESS OF MANUFACTURING TWO WHEELERS. IT FILED ITS RETURN OF INCOME ON 30.11.1994, DECLARING TOTAL INCOME OF ` NIL, AFTER SETTING OFF OF BROUGHT FORWARD LOSSES OF ` 10,48,06,175/-. RETURN OF INCOME WAS PROCESSED U/S . 143(1) ON 15.3.1995, AFTER MAKING CERTAIN ADJUSTMENTS. ASSESS EE CARRIED THE MATTER IN APPEAL AND THE FIRST APPELLATE AUTHORITY GRANTED CERTAIN RELIEF. THE DEPARTMENT CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL WHICH WAS DISPOSED OF ON 25.9.2002. IN THE MEANWHILE, THE ASSESSING OFFICER PASSED AN ORDER U/S. 154 ON 31.8.1998. THEREAFTER HE PASSED A SECOND ORDER U/S. 154 ON 28.3.2002. IN THE MEANWHILE THE ASSESSING OFFICER ISSUED A NO TICE U/S. 148, REOPENING ASSESSMENT U/S. 147. THE REASONS FOR REOP ENING ARE MENTIONED AT PAGE 2&3 LAST PARAGRAPH OF THE ASSESSM ENT ORDER WHICH IS EXTRACTED FOR READY REFERENCE :- M/S. LML LIMITED 2 IT IS NOTICED FROM RECORDS THAT THE ASSESSEE HAS D EBITED TO THE P/L ACCOUNT AN AMOUNT OF ` 39.08 LAKHS AS PROVISION FOR DOUBTFUL DEBITS AND ` 91.31 LAKHS AS PROVISIONS FOR DOUBTFUL LOANS AND ADVANCES. SUCH PROVISION FOR DOUBTFUL DEBTS AND LOA NS AND ADVANCES BEING MERE PROVISIONS ARE NOT ALLOWABLE AS REVENUE EXPENDITURE SINCE THEY ARE CONTINGENT IN NATURE. FU RTHER, IN ACCORDANCE WITH THE TAX AUDIT REPORT, ANNEXURE B AN AMOUNT OF ` 82,827/- WAS SPENT ON ARTICLES INTENDED FOR PRESENT ATION IN EXCESS OF ` 1000/- ATTRACTING THE PROVISIONS OF RULE 6B. FURTH ER IT IS SEEN THAT EXCISE DUTY ON UN-CLEARED FINISHED GOODS LYING IN BONDED WAREHOUSE AND CUSTOM DUTIES ON IMPROVED RAW MATERIA L COMPONENTS ETC OR FOR GOODS IN TRANSIT AS ON 31.3.1 994 BEING ` 372.64 LAKHS WAS NOT PROVIDED FOR IN THE ACCOUNTS B Y THE ASSESSEE AND NOT CONSIDERED FOR VALUATION OF INVENTORIES. EV EN OTHERWISE IT SHOULD HAVE BEEN ACCOUNTED FOR ON ACCRUAL BASIS AND SINCE NOT ACTUALLY PAID, SHOULD HAVE BEEN DISALLOWED WHICH WA S NOT DONE BY THE ASSESSEE IN THE RETURN OF INCOME. 3. THE ASSESSING OFFICER COMPLETED THE REOPENED ASS ESSMENT ON 7.3.2003 U/S. 143(3) READ WITH SECTION 147, INTER-A LIA DISALLOWING THE CLAIM FOR PROVISION OF DOUBTFUL DEBTS, EXCHANGE RAT E, ETC. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL. FIRST APPELLATE AUTHORITY GRANTED PART RELIEF. FURTHER AG GRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US, ON THE FOLLOWING ISSUES : (A) VALIDITY OF REOPENING OF THE ASSESSMENT. (B) EXTENDING THE SCOPE OF ASSESSMENT, BEYOND THE ISSUE S RAISED IN THE REASONS RECORDED FOR RE-OPENING THE ASSESSMENT. (C) DISALLOWANCE IN RESPECT OF THE GUEST HOUSE EXPENSES , CLUB EXPENSES AND INTEREST RECEIVABLE FROM M/S. ESSLON SYNTHETICS LTD. 5. LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSES SEE, MR. SUNIL NAHTA, SUBMITTED THAT THE REOPENING IS BAD IN LAW F OR THE REASONS THAT THE ASSESSING OFFICER RECORDED THE VERY SAME DISALL OWANCES MADE U/S. 143(1)(A) I.E. ON THE CLAIM OF PROVISIONS FOR DOUBT FUL DEBTS AND THE PROVISIONS FOR DOUBTFUL LOANS AND ADVANCES, AS REAS ONS FOR REOPENING OF ASSESSMENT. HE ARGUED THAT THE DISALLOWANCE MADE U /S. 143(1)(A) ARE BEFORE THE APPELLATE AUTHORITIES AND IN SUCH CIRCUM STANCES THERE CANNOT BE CONSIDERED AS GOOD REASONS FOR REOPENING. M/S. LML LIMITED 3 HE FURTHER ARGUED THAT THE RE-OPENING WAS MADE ON CERTAIN POINTS BUT DURING THE COURSE OF ASSESSMENT, CERTAIN OTHER DISALLOWANCES AND ADDITIONS WERE MADE, WHICH HAVE NOT BEEN MENTIONED IN THE REASONS RECORDED FOR REOPENING. HE SUBMITTED THAT SUCH EXPA NDING OF SCOPE OF ASSESSMENT IS BAD IN LAW. ON MERITS, HE DID NOT PRESS THE DISALLOWANCES, MAD E ON GUEST HOUSE EXPENDITURE AND CLUB EXPENDITURE. ON ADDITION MADE ON INTEREST RECEIVABLE, LEARNED C OUNSEL SUBMITTED THAT THE PRINCIPAL AMOUNT WAS ITSELF IN D OUBT AND UNDER THOSE CIRCUMSTANCES, INTEREST CANNOT BE SAID TO HAVE ACCR UED. HE SUBMITTED THAT IN THE SUBSEQUENT ASSESSMENT YEAR, THE ASSESSE E HAS WRITTEN OFF THE AMOUNT RECEIVABLE FROM M/S. ESSLON SYNTHETICS LTD. AND HENCE, QUESTION OF ACCOUNTING FOR INTEREST DURING THE CURRENT YEAR, DOES NOT ARISE. ALTERNATIVELY, HE SUBMITS THAT WHEN THE PRINCIPAL I S WRITTEN OFF, INTEREST, IF TAKEN AS INCOME, SHOULD ALSO BE WRITTEN OFF IN T HAT YEAR. 6. LEARNED DEPARTMENTAL REPRESENTATIVE OPPOSED THE CONTENTION AND SUBMITTED THAT IN THE REASONS RECORDED, IT IS SUFFI CIENT IF THE ASSESSING OFFICER HAS PRIMA-FACIE BELIEF THAT INCOME HAS ESCA PED ASSESSMENT. HE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ACIT VS RAJESH JHAVERI STOCK BROKERS (P) LTD. (SC) 291 ITR 500. ON THE ISSUE OF ADDITIONS BEING MADE OTHER THAN THE ITEMS WHICH WER E MENTIONED IN THE REASONS RECORDED, THE LEARNED DEPARTMENTAL REPRESEN TATIVE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF C IT VS. SUN ENGINEERING WORKS P. LTD., 198 ITR 297, AND SUBMITT ED THAT ONCE THE ASSESSMENT IS VALIDLY RE-OPENED, THEN THE ASSESSING OFFICER HAS THE POWERS TO ASSESS ALL THE INCOME WHICH HAS ESCAPED A SSESSMENT. ON THE ISSUE OF INTEREST RECEIVABLE FROM M/S. ESSLO N SYNTHETICS LTD., HE SUBMITTED THAT THE INTEREST WAS RIGHTLY BR OUGHT TO TAX. 7. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSAL OF THE PAPER S ON RECORD AND ORDERS OF AUTHORITIES BELOW AS WELL AS CASE LAWS CI TED, WE HOLD AS FOLLOWS:- ON THE ISSUE OF REOPENING, WE UPHOLD THE ORDER OF LEARNED CIT(A), FOR THE REASON THAT THE ASSESSING OFFICER HAD PRIMA -FACIE BELIEF THAT THE M/S. LML LIMITED 4 INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. AT THE TIME OF RECORDING OF REASONS, COURTS HAVE HELD THAT, IT WOULD BE SUFF ICIENT IF THE ASSESSING OFFICER HAS A PRIMA-FACIE BELIEF THAT CERTAIN INCOM E HAS ESCAPED TAXATION. AT THIS STAGE, HE NEED NOT INDULGE IN A LONG DEBATE AND REASONING. THE ASSESSEE, IN THIS CASE, HAS NOT EVEN CHALLENGED THE REASONS RECORDED ON CERTAIN DISALLOWANCES, SUCH AS U/R 6B. THE ARGUMENT THAT THE ISSUES WHICH ARE MENTIONED I N THE REASONS RECORDED FOR REOPENING, ARE BEFORE THE ITAT, WE FIN D THAT THE ONLY ISSUE THAT WAS APPEALED, IS WHETHER SUCH ADDITION CAN BE MADE BY WAY OF PRIMA-FACIE ADJUSTMENTS U/S. 143(1)(A). THERE IS NO APPEAL OR DECISION ON MERITS. THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. (SUPRA) COVER S THE ISSUE IN FAVOUR OF THE REVENUE. COMING TO THE ISSUE OF MAKING ADDITIONS OF DISALLO WANCE ON ITEMS WHICH ARE NOT MENTIONED IN THE REASONS RECORDED, WE HOLD THAT THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF SU N ENGINEERING WORKS PVT. LTD. (SUPRA) IS CLEAR ON THE MATTER AND THIS ARGUMENT OF THE ASSESSEE HAS TO BE DISMISSED. COMING TO THE DISALLOWANCE OF GUEST HOUSE EXPENSES , ASSESSEE HAS NOT PRESSED THE ISSUE AND HENCE, THE SAME IS DISMIS SED AS SUCH. COMING TO THE DISALLOWANCE OF CLUB EXPENSES, THE A SSESSEE HAS ALSO NOT PRESSED THE ISSUE AND HENCE, THE SAME IS D ISMISSED. COMING TO THE LAST GROUND OF INTEREST DUE FROM M/S . ESSLON SYNTHETICS LTD., THE ISSUE IS BROUGHT OUT AT PAGE 5 &6 OF THE ASSESSMENT ORDER AND IS EXTRACTED FOR READY REFERENCE :- INTEREST DUE FROM M/S. ESSLON SYNTHETICS LTD . THE ASSESSEE COMPANY WAS SPECIFICALLY ASKED AS TO W HY INTEREST OF ` 4,60,70,030/- DUE TO M/S. ESSLON SYNTHETICS LTD. SHOULD NOT BROUGHT TO TAX IN THE LIGHT OF APEX COUR TS DECISION IN THE CASE OF KERALA CORPORATION VS. CIT, 210 ITR 129 . IN RESPONSE TO THIS QUERY, THE ASSESSEE VIDE LETTER DATED 19.2. 2003 HAS SUBMITTED AS UNDER :- IN THE RETURN OF INCOME A CLAIM WAS MADE IN RESPEC T OF SUM OF ` 4,56,70,030/- BEING INTEREST RECEIVABLE FROM M/S. E SSLON SYNTHETICS LTD. NOT TO BE TAXED. ON THE COMPUTATIO N SHEET THE FOLLOWING WAS STATED ON SUPPORT OF THE CLAIM :- M/S. LML LIMITED 5 QUOTE : IN RESPECT OF AMOUNT RECEIVABLE FROM M/S. ESSLO N SYNTHETICS LTD. (FORMERLY KNOWN AS LML FIBRES LTD.) THE AMOUNT PROVIDED AS INTEREST IS CONSIDERED AS NOT ACCRUED T O US FOR THE FOLLOWING REASONS :- A) THE SAID COMPANY IS A SICK COMPANY AND HAS MADE REFERENCE TO BIFR. B) THE RELEVANT AMOUNT OF INTEREST PAYABLE BY THEM HAS NOT BEEN PROVIDED BY THEM IN THEIR BOOKS OF ACCOUNT . C) THE COMPANY HAS FILED A SUIT IN THE COURT FOR RECOV ERY OF THE SAME. D) THE SAME SHALL BE TAXED ON CASH BASIS. UNQUOTE : IT MAY KINDLY BE NOTED THAT, IN CASE YOUR HONOUR PR OPOSES TO ADD THE ABOVE REFERRED AMOUNT BASED ON THE DECIS ION QUOTED IN YOUR HONOURS QUESTIONNAIRE WE WISH TO ST ATE THAT, OUR CLAIM FOR BAD DEBT FOR A.Y. 1997-98 BE SU ITABLY INCREASED TO THE EXTENT OF ` 4,67,73,636/- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. SINCE THE APEX COURT HAS GIVEN RULING IN THE ABOVE CASE, WHICH GOES AGAINST THE ASSESSEE. I HAVE NO HESITATION IN MAKIN G ADDITION ON THIS ACCOUNT. AS FAR AS ASSESSEES REQUEST FOR ALLO WING THE DEDUCTION ON ACCOUNT OF THE BAD DEBTS IN THIS REGAR D IS NOT TENABLE AS THE ASSESSEE HAS FAILED TO SATISFY THE CONDITION S LAID DOWN U/S. 36(2). THE ASSESSEE WAS REQUIRED TO FURNISH VIDE PA RA-3 OF THE QUESTIONNAIRE ENCLOSED WITH THE STATUTORY NOTICE DA TED 17.2.2003 TO PROVIDE DISALLOWANCE OF TRAVELING EXPENSES UNDER RULE 6D ON THE BASIS OF TRIP AS FOLLOWED IN THE A.Y. 1992-93. THE ASSESSEE HAS PROVIDED THE WORKING OF THE SAME ALONG WITH A LETTE R DATED 19.2.2003, AS PER WHICH THE DISALLOWANCE HAS BEEN W ORKED OUT AT ` 7,55,821/- FOLLOWING THE DECISION ON THIS ISSUE IN THE A.Y. 1992- 93 AND ALSO TRIBUNALS DECISION IN THE CASE OF S.V. GHATALIA VS. ITO, 41 ITD 503. DISALLOWANCE ON THIS ACCOUNT COMES TO ` 7,55,821/- AS AGAINST ` 5,03,897/- MADE IN THE ASSESSMENT ORDER. THUS, THE VARIATION ON THIS ACCOUNT WORKS OUT TO ` 2,51,924/-. 8. LEARNED CIT(A) AT PARA 4 PAGE 4 HELD AS FOLLOWS :- DURING THE COURSE OF APPELLATE PROCEEDINGS, THE WH OLE ISSUE WAS DISCUSSED IN DETAIL AND IT WAS POINTED OUT TO REPRE SENTATIVE OF THE APPELLANT THAT IN THE FINAL BALANCE SHEET ADOPTED B Y THE COMPANY AS APPROVED BY THE BOARD OF DIRECTORS, THE AMOUNT U NDER CONSIDERATION WAS ACCEPTED TO BE INCOME OF APPELLAN T, DESPITE THE FACT THAT M/S. ESSLON SYNTHETICS LTD. BEING A SICK COMPANY WAS IN THE KNOWLEDGE OF THE BOARD OF DIRECTORS. IN SUCH A SITUATION, THE CLAIM IN THE COMPUTATION OF INCOME AMOUNTS TO A CLAIM FOR A BAD DEBT. IT WAS FURTHER POINTED OUT TO THE REPRESE NTATIVE OF THE APPELLANT THAT UNDER THE AMENDED PROVISIONS FOR ALL OWABILITY OF BAD DEBTS, IT IS NECESSARY THAT THE AMOUNT IS ACTUA LLY WRITTEN OFF IN M/S. LML LIMITED 6 THE BOOKS OF ACCOUNTS. IN THE INSTANT CASE, THIS CO NDITION IS NOT SATISFIED. THEREFORE, CLAIM CANNOT BE ENTERTAINED. IN VIEW OF THIS, STAND OF THE ASSESSING OFFICER IS HELD TO BE JUSTIF IED AND THIS GROUND OF APPEAL IS REJECTED. 9. BEFORE US, THE ASSESSEE SUBMITTED THAT IN THE SU BSEQUENT YEAR THE AMOUNT DUE FROM M/S. ESSLON SYNTHETICS LTD. WAS WRI TTEN OFF AS BAD DEBT AND THE SAME WAS ACCEPTED BY THE REVENUE. IN O UR OPINION, FROM ALL THESE FACTS, IT HAS TO BE SAID THAT NO INCOME CAN B E BROUGHT TO TAX UNDER REAL INCOME THEORY. IN THE ORDER FOR A.Y. 1997-98 D ATED 31.1.2000, THE ASSESSING OFFICER AT PAGE 35 HAS, AFTER EXAMINING T HE COPY OF BIFR ORDER AND ALLAHABAD HIGH COURT ORDER, ALLOWED THE CLAIM O F THE ASSESSEE FOR BAD DEBTS. AT PAGE NO. 35 LAST PARA HE OBSERVED THA T :- THE ASSESSEES CONTENTION HAS BEEN EXAMINED. THE A SSESSEE COMPANY HAS ALSO FURNISHED COPY OF BIFR ORDER AND A LLAHABAD HIGH COURT ORDERS GIVING DIRECTIONS FOR WINDING UP OF COMPANY M/S. ESSLON SYNTHETICS LTD. IN VIEW OF THE ABOVE F ACTS AND FACT THAT THE ASSESSEES CLAIM FOR NON-TAXABILITY OF THE AMOUNT OF ` 2,40,85,707/- BEING ACCRUED INTEREST IN A.Y. 1995-9 6 WAS NOT ACCEPTED IN THE ASSESSMENT ORDER, THE CLAIM OF BAD DEBT WRITTEN OFF TO THE EXTENT OF ` 6,74,73,794/- IN THE RETURN OF INCOME WOULD BE INCREASED BY THIS AMOUNT AND THE BAD DEBT IS BEING ALLOWED AS A DEDUCTION TO THE ASSESSEE COMPANY AMOUNTING TO ` 9,15,59,501/-. HOWEVER, THIS ALLOWANCE IS SUBJECT TO RECTIFICATION U/S. 154 OF THE I.T. ACT, IF AS A RESULT OF APPEAL, THE ACCRUED INT EREST ADDED IN A.Y. 1991-92, 1993-94 OR 1995-96 IS DELETED THEREBY ALTE RING THE CLAIM OF BAD DEBT FOR THIS YEAR. 10. HON'BLE SUPREME COURT IN THE CASE OF IN THE CAS E GODHRA ELECTRICITY CO. LTD. VS. CIT, 225 ITR 746 (SC) HELD AS FOLLOWS : UNDER THE ACT INCOME CHARGED TO TAX IS THE INCOME THAT IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN THE PREVIOUS YEAR RELEVA NT TO THE YEAR FOR WHICH ASSESSMENT IS MADE OR ON THE INCOME THAT ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE IN INDIA DURING SUCH YEAR. THE COMPUTATION OF SUCH INCOME IS TO BE MADE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULAR LY EMPLOYED BY THE ASSESSEE. IT MAY BE EITHER THE CASH SYSTEM WHERE ENTRIES ARE MADE ON THE BASIS OF ACTUAL RECEIPTS AND ACTUAL OUTGOINGS OR DISBURSEMENTS OR I T MAY BE THE MERCANTILE SYSTEM WHERE ENTRIES ARE MADE ON ACCRUAL BASIS, I.E., ACCR UAL OF THE RIGHT TO RECEIVE PAYMENT AND THE ACCRUAL OF THE LIABILITY TO DISBURS E OR PAY. IF THE ACCOUNTS ARE MAINTAINED UNDER THE MERCANTILE SYSTEM WHAT HAS TO BE SEEN IS WHETHER INCOME CAN BE SAID TO HAVE REALLY ACCRUED TO THE ASSESSEE- COMPANY. EVEN THOUGH THE ASSESSEE-COMPANY WAS FOLLOWING THE MERCANTILE SYSTE M OF ACCOUNTING AND HAD MADE ENTRIES IN THE BOOKS REGARDING ENHANCED CHARGE S FOR THE SUPPLY MADE TO THE CONSUMERS, NO REAL INCOME HAD ACCRUED TO THE ASSESS EE- COMPANY IN RESPECT OF THOSE ENHANCED CHARGES IN VIEW OF THE FACT THAT SOO N AFTER THE ASSESSEE- COMPANY M/S. LML LIMITED 7 DECIDED TO ENHANCE THE RATES IN 1963 REPRESENTATIVE SUITS (CIVIL SUITS NOS. 152 OF 1963 AND 50 OF 1964) WERE FILED BY THE CONSUMERS WH ICH WERE DECREED BY THE TRIAL COURT AND WHICH DECREE WAS AFFIRMED BY THE AP PELLATE COURT AND THE SINGLE JUDGE OF THE HIGH COURT AND IT IS ONLY ON 8TH DEC., 1968 THAT THE LETTERS PATENT APPEALS FILED BY THE ASSESSEE-COMPANY WERE ALLOWED BY THE DIVISION BENCH OF THE HIGH COURT AND THE SAID SUITS WERE DISMISSED. B UT APPEALS WERE FILED AGAINST THE SAID JUDGMENT BY THE CONSUMERS IN THIS COURT AN D THE SAME WERE DISMISSED BY THE JUDGMENT OF THIS COURT DT. 26TH FEB., 1969. SHO RTLY THEREAFTER, ON 19TH MARCH, 1969, THE UNDER SECRETARY TO THE GOVERNMENT OF GUJA RAT WROTE A LETTER ADVISING THE ASSESSEE- COMPANY TO MAINTAIN THE STATUS QUO FO R THE RATES TO THE CONSUMERS FOR AT LEAST SIX MONTHS AND THE CHIEF ELECTRICAL IN SPECTOR WAS DIRECTED TO GO THROUGH THE ACCOUNTS OF THE ASSESSEE-COMPANY FROM Y EAR TO YEAR AND TO REPORT TO THE GOVERNMENT ABOUT THE ACTUAL POSITION ABOUT THE REASONABLE RETURNS EARNED BY THE ASSESSEE-COMPANY. ON 16TH MAY, 1969 ANOTHER REP RESENTATIVE SUIT (SUIT NO. 118 OF 1969) WAS FILED BY THE CONSUMERS WHEREIN INT ERIM INJUNCTION WAS GRANTED BY THE COURT AND WHICH WAS FINALLY DECREED IN FAVOU R OF THE CONSUMERS ON 23RD JUNE, 1974. IT WOULD THUS APPEAR THAT AFTER THE DEC ISION WAS TAKEN BY THE ASSESSEE- COMPANY TO ENHANCE THE CHARGES IT WAS NOT ABLE TO REALISE THE ENHANCED CHARGES ON ACCOUNT OF PENDENCY OF THE EARLIER REPRE SENTATIVE SUITS OF THE CONSUMERS FOLLOWED BY THE LETTER OF THE UNDER SECRE TARY TO THE GOVERNMENT OF GUJARAT AND THE SUBSEQUENT SUIT OF THE CONSUMERS AN D DURING THE PENDENCY OF THE SUBSEQUENT SUIT THE MANAGEMENT OF THE UNDERTAKING O F THE ASSESSEE-COMPANY WAS TAKEN OVER BY THE GOVERNMENT OF GUJARAT UNDER THE D EFENCE OF INDIA RULES, 1971 AND THE UNDERTAKING WAS SUBSEQUENTLY TRANSFERRED TO THE GUJARAT STATE ELECTRICITY BOARD. IT IS NO DOUBT TRUE THAT THE LETTER ADDRESSE D BY THE UNDER SECRETARY TO THE GOVERNMENT OF GUJARAT TO THE ASSESSEE-COMPANY HAD N O LEGALLY BINDING EFFECT BUT ONE HAS TO LOOK AT THINGS FROM PRACTICAL POINT OF V IEW. THE QUESTION WHETHER THERE WAS REAL ACCRUAL OF INCOME TO THE ASSESSEE-COMPANY IN RESPECT OF THE ENHANCED CHARGES FOR SUPPLY OF ELECTRICITY HAS TO BE CONSIDE RED BY TAKING THE PROBABILITY OR IMPROBABILITY OF REALISATION IN A REALISTIC MANNER. IF THE MATTER IS CONSIDERED IN THIS LIGHT, IT IS NOT POSSIBLE TO HOLD THAT THERE W AS REAL ACCRUAL OF INCOME TO THE ASSESSEE-COMPANY IN RESPECT OF THE ENHANCED CHARGES FOR SUPPLY OF ELECTRICITY WHICH WERE ADDED BY THE ITO WHILE PASSING THE ASSES SMENT ORDERS IN RESPECT OF THE ASSESSMENT YEARS UNDER CONSIDERATION. THE AAC W AS RIGHT IN DELETING THE SAID ADDITION MADE BY THE ITO AND THE TRIBUNAL HAD RIGHT LY HELD THAT THE CLAIM AT THE INCREASED RATES AS MADE BY THE ASSESSEE- COMPANY ON THE BASIS OF WHICH NECESSARY ENTRIES WERE MADE REPRESENTED ONLY HYPOTH ETICAL INCOME AND THE IMPUGNED AMOUNTS AS BROUGHT TO TAX BY THE ITO DID N OT REPRESENT THE INCOME WHICH HAD REALLY ACCRUED TO THE ASSESSEE-COMPANY DU RING THE RELEVANT PREVIOUS YEARS. HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. EIC HER LTD., 320 ITR 410 (DEL) HELD AS FOLLOWS :- HELD, DISMISSING THE APPEAL, THAT ON THE BASIS OF THE FACTS ON RECORD THE TRIBUNAL HAD RIGHTLY HELD THAT ACTUAL IN COME IN FACT NEVER ACCRUED TO THE ASSESSEE AND THE ASSESSEE IN F ACT HAD ALREADY PAID TAX ON INTEREST INCOME ACTUALLY RECEIVED BY IT . THE TRIBUNAL, THEREFORE RIGHTLY DELETED THE ADDITION OF ACCRUED I NTEREST AS INCOME OF THE ASSESSEE. M/S. LML LIMITED 8 11. APPLYING THE PROPOSITION TO LAID DOWN IN THESE CASE LAWS TO THE FACTS OF THIS CASE, WE HAVE TO NECESSARILY HOLD THA T THE INCOME FROM THIS SICK COMPANY CANNOT BE BROUGHT TO TAX ON REAL INCOM E THEORY. WHILE HOLDING SO, AS THE ASSESSEE HAS ALREADY BEEN ALLOWE D ITS CLAIM FOR BAD DEBT ON THIS ACCRUED INTEREST IN THE SUBSEQUENT ASS ESSMENT YEAR, THE CLAIM IN THE CURRENT YEAR CANNOT BE ALLOWED, UNLESS , A RECTIFICATION ORDER IS PASSED U/S. 154 FOR A.Y. 1997-98. IF NO SUCH ORD ER IS PASSED, THEN THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED IN THIS YEA R AS IT WOULD AMOUNT TO DOUBLE DEDUCTION. WITH THESE OBSERVATIONS, WE SE T ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDIC ATION. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER HAS BEEN PRONOUNCED ON 29 TH DAY OF JUNE, 2011. SD/- (VIJAY PAL RAO) JUDICIAL MEMBER SD/- (J. SUDHAKAR REDDY) ACCOUNTAT MEMBER DATED : 29 TH JUNE, 2011. COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS