Smt. Neelam Agrawal, Indore V. The ITO., Indore

ITA 436/IND/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2802 (ITAT-INDORE)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-06-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 28-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Assessee Lawyers: ANIL KHANDELWAL

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER ITA NO.436/IND/2009 A.Y. 2006-07 NEELAM AGRAWAL PAN ADLPA 3222 A C/O KHANDELWAL & JHAVER, CAS, 7/1, USHAGANJ, 3 RD FLOOR, CHHAWANI, INDORE APPELLANT VS INCOME TAX OFFICER, WARD-5(3), INDORE RESPONDENT APPELLANT BY : SHRI ANIL KHANDELWAL, CA RESPONDENT BY : SMT. APARNA KARAN, SR. DR O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THIS APPEAL IS BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A)-II, INDORE, DATED 23.6.2009 ON THE FOLLOWING GROUND: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.5,56,082/- AS TAXABLE ACCRUED INTEREST. 2 2. DURING THE HEARING OF THIS APPEAL, MR. ANIL KHAN DELWAL, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT A CRIMINAL COMPLAINT WAS FILED BEFORE THE COMPETENT COURT U/S 138 OF THE NEGOTIABL E INSTRUMENT ACT R.W.S. 420 OF THE IPC IN NAGPUR, FOR WHICH, OUT ATT ENTION WAS INVITED TO PAGE 3 ONWARDS OF THE PAPER BOOK TO THE EFFECT THAT THE ACCUSED ISSUED A CHEQUE BEARING NO. 396232 DATED 21.5.1998 FOR A S UM OF RS.5 LACS AND ON PRESENTATION OF SUCH CHEQUE, IT WAS DISHONOU RED DUE TO INSUFFICIENCY OF FUNDS. LEGAL NOTICE WAS ISSUED. TH E CRUX OF ARGUMENTS IS THAT EVEN THE PRINCIPAL AMOUNT WAS DISPUTED. ON THE OTHER HAND, MRS. APARNA KARAN, LD. SR. DR STRONGLY DEFENDED THE ADDI TION. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON TH E FILE. BRIEF FACTS ARE THAT THE ASSESSEE DERIVES INCOME FROM HOUSE PROPERT Y, CAPITAL GAIN, FINANCE BUSINESS AND OTHER SOURCES. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND EARNED INTEREST FROM ACTIVITIES OF LEASING AND FINANCE FROM SEVERAL PREVIOUS YEARS. AS PER THE REVENUE, THE ASSESSEE DID NOT ACCOUNT FOR THE ACCRUED INTEREST O F RS.5,52,082/- WHEREAS ALL THE EXPENSES RELATING TO FY 2005-06 WER E ACCOUNTED FOR. THE STAND OF THE ASSESSEE WAS THAT THE SUM OF RS.5 LACS EACH WAS ADVANCED TO M/S. SHRIRAM ENTERPRISES AND M/S. SHREE FOODS IN THE YEAR 1998 AND BOTH THESE FIRMS FAILED TO RETURN THE MONE Y AND THEIR CHEQUES 3 WERE BOUNCED. NOW THE QUESTION ARISES WHETHER ANY I NTEREST WAS RECOVERED BY THE ASSESSEE. WE HAVE PERUSED THE RECO RD, LEGAL NOTICE GIVEN TO THE RESPECTIVE FIRMS ALONG WITH CRIMINAL C OMPLAINT NO.880/1998 FILED IN THE COURT OF JUDICIAL MAGISTRATE, FIRST CL ASS, NAGPUR U/S 138 R.W.S. 420 OF THE IPC (PAGES 1 TO 6A OF THE PAPER BOOK). T HIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE REVENUE. IT IS ALSO AN ADMITTED FACT THAT THE AMOUNT OF RS.5 LACS WAS PAID THROUGH CHEQUE DATED 1 7.7.1998 (PAGE 11 OF THE PAPER BOOK). THE CHEQUE WAS DISHONOURED DUE TO INSUFFICIENCY OF FUNDS AS PER REPORT OF THE SYNDICATE BANK (PAGE 13 OF THE PAPER BOOK). IN SUCH A SITUATION, WHEN THE PRINCIPLE AMOUNT WAS ITSELF DISPUTED, THEREFORE, THERE IS NO QUESTION OF ACCRUAL OF INCOM E. TAKING INTO ACCOUNT THE ACTUALITY OF SITUATION, THE ACCRUAL MUST BE REA L. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THEREFOR E, THE RATION LAID SOWN IN FOLLOWING CASES FORTIFIES THE CASE OF THE ASSESS EE: CIT VS. SHIV PRAKASH JANAK RAJ & CO. P. LTD. (222 I TR 583) (SC), GODHRA ELECTRICITY CO. LTD. VS. CIT (225 ITR 746) (SC), CIT VS. BIRLA GWALIOR P. LTD. (89 ITR 266) (SC), STATE BANK OF TRAVANKOR VS. CIT (158 ITR 102) (SC ), CIT VS. SHOORJI VALLABHDAS & CO. (46 ITR 144) (SC ), MORVI INDUSTRIES LTD. VS. CIT (82 ITR 835) (SC), CIT VS. CHAMANLAL MANGALDAS & CO. (29 ITR 987) (B OM), INDRAMANI JATIYA VS. CIT (35 ITR 298) (SC). 4 WHETHER AN ACCRUAL HAS TAKEN PLACE OR NOT MUST, IN APPROPRIATE CASES, BE JUDGED ON THE PRINCIPLES OF REAL INCOME THEORY. AFTER ACCRUAL, NON- CHARGING OF TAX ON THE SAME BECAME OF CERTAIN CONDU CT BASED ON THE IPSE DIXIT OF A PARTICULAR ASSESSEE CAN CANNOT BE A CCEPTED. IN DETERMINING THE QUESTION WHETHER IT IS HYPOTHETICAL INCOME OR REAL INCOME, HAS MATERIALIZED OR NOT, ATTENDANT CIRCUMST ANCES HAS TO BE CONSIDERED. WHAT HAS REALLY ACCRUED TO THE ASSESSEE HAS TO BE FOUND OUT AND WHAT HAS REALLY ACCRUED MUST BE CONSIDERED IN A REALISTIC MANNER. ACCORDING TO MERCANTILE SYSTEM, IT IS WELL KNOWN THAT MERCANTILE SYSTEM OF ACCOUNTING DIFFERS SUBSTANTIALLY FROM CAS H SYSTEM OF BOOK KEEPING. UNDER THE CASH SYSTEM, IT IS ONLY ACTUAL C ASH RECEIPT/PAYMENTS WHICH ARE RECORDED AS CREDITS AND DEBITS WHEREAS UN DER THE MERCANTILE SYSTEM, CREDIT ENTRIES ARE MADE IN RESPECT OF AMOUN T DUE IMMEDIATELY THEY BECOME DUE BEFORE THEY ACTUALLY RECEIVE. SIMIL ARLY, THE EXPENDITURE ITEMS FOR WHICH LEGAL LIABILITY HAS BEEN INCURRED A RE IMMEDIATELY DEBITED EVEN BEFORE THE AMOUNTS IN QUESTION ARE ACTUALLY DI SBURSED. ACCOUNTS ARE KEPT ON MERCANTILE BASIS, THE PROFITS OR GAINS ARE CREDITED THOUGH THEY ARE ACTUALLY NOT REALIZED AND THE ENTRY IS THU S MADE REALLY SHOW NOTHING MORE THAN AN ACCRUAL OR ARISING OF THE SAID PROFIT AT THE MATERIAL TIME. IN THE PRESENT APPEAL, SINCE THE PRINCIPAL AM OUNT ITSELF HAS NOT BEEN RECOVERED, THE INTEREST THEREON WAS NOT PROVID ED IN THE BOOKS. THE INCOME-TAX IS LEVIABLE ON REAL INCOME AND NOT ON IM AGINARY ONE. IN THE 5 PRESENT APPEAL, SINCE EVEN THE PRINCIPAL AMOUNT WAS IN DISPUTE, THEREFORE, THIS APPEAL OF THE ASSESSEE HAS TO BE AL LOWED. ORDER PRONOUNCED IN OPEN COURT IN THE PRESENCE OF L EARNED REPRESENTATIVES OF BOTH SIDES AT THE CONCLUSION OF HEARING ON 17 TH JUNE, 2010. (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 17.6.2010 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE !VYAS!