M/s. GILL & CO. LTD., MUMBAI V. DCIT Rg. 2(1), MUMBAI

ITA 4703/MUM/2005

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6263 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-10-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 28-06-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARIGOVIND SINGH
• Assessee Lawyers: SATISH S JHUNJHUNWALA
• Keywords: Gift
• Section: 143(3); 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE D. MANMOHAN, VICE PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER I.T.A. NO. 4703/MUM/2005. ASSESSMENT YEAR : 2001-02. GILL & CO., DY. COMMISSIONER OF INCOME-TAX, NTC HOUSE, VS. RANGE-2(1), MUMBAI. NARROTTAM MORARJI MARG, BALLARD ESTATE, MUMBAI. PAN AAACG3743M. APPELLANT. RESPONDENT. I.T.A. NO. 4775/MUM/2005 ASSESSME NT YEAR : 2001-02. DY. COMMISSIONER OF INCOME-TAX, VS. GILL & CO. LTD., RANGE-2(1), MUMBAI. MUMBAI. APPELLANT RESPONDENT ASSESSEE BY : S/SHRI NITESH JOSHI AND SATISH S. JHUNJHUNWALA. DEPARTMENT BY : SHRI HARI GOVIND SINGH. O R D E R PER J. SUDHAKAR REDDY, `A.M. : THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST T HE ORDER OF THE CIT(APPEALS)-II, MUMBAI DATED 31-03-2005. 2 2. THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF TRADING IN COTTON BAILS AND GREEN PEAS, RICE, SUGAR, AND IS HA VING COMMISSION INCOME. IT ALSO PLACES FUNDS IN BILL DISCOUNTING ACTIVITIES, INTER -CORPORATE DEPOSITS ETC. IT FILED ITS RETURN OF INCOME ON 29-10-2010 DECLARING INCOME OF RS.94,86,621/-. THE ORDER U/S 143(3) WAS PASSED ON 25-03-2004 BY THE AO, INTER AL IA, DISALLOWING VARIOUS AMOUNTS UNDER DIFFERENT HEADS TOTALING TO RS.92,90, 023. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL. 3. THE FIRST APPELLATE AUTHORITY GRANTED PART RELIE F. ON THE ISSUES WHERE THE CIT(APPEALS) GRANTED RELIEF, THE REVENUE HAS COME U P IN APPEAL AND ON THE ISSUES WHERE THE FIRST APPELLATE AUTHORITY CONFIRMED THE O RDER OF THE AO, THE ASSESSEE HAS FILED THIS APPEAL. 4. WE FIRST TAKE UP THE ASSESSEES APPEAL IN ITA NO .4703/MUM/2005. 5. WE HAVE HEARD MR. NITESH JOSHI ON BEHALF OF THE ASSESSEE AND MR. HARI GOVIND SINGH, THE LEARNED DR. 6. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE AND A PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF T HE AUTHORITIES BELOW, WE HOLD AS FOLLOWS. 7. THE LEARNED COUNSEL FOR THE ASSESSEE FILED A PAP ER BOOK RUNNING INTO 108 PAGES. WE DISPOSE OF THE APPEAL GROUND-WISE IN SERI ATIM. 8. GROUND NO. 1 IS ON THE ISSUE OF DISALLOWANCE OF EXPENSES U/S 14A. BOTH PARTIES AGREED THAT THE ISSUE NOW STANDS COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOY CE MANUFACTURING CO. LTD. (2010) 234 CTR (BOM.) 1. IN VIEW OF THE ABOVE SUBMI SSION, WE SET ASIDE THE 3 MATTER OF DISALLOWANCE OF EXPENSES U/S 14A TO THE F ILE OF THE AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. 9. GROUND NO. 2 IS ON THE SAME ISSUE AS GROUND NO. 1 AND HENCE IT REQUIRES NO SEPARATE ADJUDICATION. THE ISSUE IS SET ASIDE TO TH E FILE OF THE AO. FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. 10. GROUND NO. 3 IS ON THE ISSUE OF DISALLOWANCE OF BUSINESS PROMOTION EXPENSES ON ADHOC BASIS. THE FIRST APPELLATE AUTHOR ITY HAS AT PAGE 8 PARA 5 OF HIS ORDER, CONSIDERED THE ISSUE. THE SAME IS EXTRACTED BELOW FOR READY REFERENCE : 5. THE GROUND OF APPEAL NO. 7 AND 9 RELATE TO DISA LLOWANCE OF EXPENDITURE OF RS.3,02,619/- AND RS.1,31,476/- OUT OF BUSINESS PROMOTION EXPENSES. THE ASSESSEE INCURRED EXPENSES OF RS.4,03 ,493/- THROUGH CREDIT CARD OF THE DIRECTORS AND EXECUTIVES. THE AO OBSERV ED THAT IT CAN NOT BE SAID WITH CERTAINTY THAT THESE EXPENSES WERE INCURR ED FOR BUSINESS PURPOSE. HE, THEREFORE, DISALLOWED 75% OF THESE EXPENSES AMO UNTING TO RS.3,02,619/- . FURTHER, OUT OF REMAINING BUSINESS PROMOTION EXPE NSES OF RS.1,31,476/- WHICH WERE INCURRED ON CLOTHS, READY-MADE GARMENTS ETC. WHICH WERE CLAIMED TO HAVE BEEN GIVEN BY THE ASSESSEE TO FOREI GN PRINCIPALS REPRESENTATIVES THE AO HELD THAT THE NATURE OF EXPE NSES STRONGLY SUGGEST THAT THEY ARE FOR PERSONAL PURPOSES. THE AO, THEREFORE, DISALLOWED THE ENTIRE EXPENSES OF RS.1,31,476/- RESULTING IN TOTAL DISALL OWANCE OF RS.4,34,095/- (RS.3,02,619 + RS.1,31,476). 11. THE LEARNED COUNSEL FOR THE ASSESSEE DRAWS OUR ATTENTION TO PAGE 29 OF THE ASSESSEES PAPER BOOK AND POINTS OUT TO THE EARNING S IN FOREIGN EXCHANGE AS WELL AS THE TURNOVER OF THE ASSESSEE AND SUBMITS THAT THE F INDING OF THE AO AS CONFIRMED BY THE CIT(APPEALS) ON THIS ISSUE IS ERRONEOUS. HE FUR THER SUBMITS THAT THE ASSESSEE BEING A COMPANY, THIS CANNOT BE CALLED EXPENDITURE OF PERSONAL NATURE. 12. AFTER HEARING RIVAL SUBMISSIONS, WE FIND THAT T HE ASSESSEE HAS NOT DISCHARGED THE ONUS THAT LAY ON IT TO PROVE THAT THE EXPENDITU RE DISALLOWED IS IN FACT INCURRED FOR THE PURPOSE OF BUSINESS. THE FINDINGS OF THE AO AS WELL AS THE CIT(A) THAT THE 4 EXPENDITURE WERE INCURRED FOR PURCHASE OF CLOTH, BO UTIQUE ETC. AND HENCE NOT FOR THE PURPOSE OF BUSINESS ARE NOT CONTROVERTED BY EVIDEN CE. THUS WE CONFIRM THE SAME. 13. SIMILARLY GROUND NO. 4 IS ON THE DISALLOWANCE O F RS.1,31,476/-. HERE ALSO IT IS A QUESTION OF EVIDENCE AND AS THE ASSESSEE HAS NOT SUBSTANTIATED THE SAME, WE CONFIRM THE DISALLOWANCE. THE CIT(APPEALS) WHILE R EJECTING THE CLAIM OF THE ASSESSEE, DISMISSED THIS GROUND, OBSERVING AS FOLLO WS AT PAGE 10 PARA 5.2 : 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E APPELLANTS SUBMISSIONS. FROM THE PERUSAL OF THE DETAILS OF EXP ENSES AS GIVEN ABOVE, IT CAN BE SEEN THAT ALL THE EXPENSES ARE IN THE NATURE OF PERSONAL NATURE. THE APPELLANT HAS NOT FURNISHED THE DETILS AS TO WHOM T HE GIFTS WERE GIVEN. THE EXPLANATION GIVEN BY THE ASSESSEE IS VERY GENERAL E XPLANATION. AS THE APPELLANT HAS NOT BEEN ABLE TO PROVE THAT THE EXPEN DITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS THE DISALLOWANCE MADE BY THE AO IS CONFIRMED. THE GROUND OF APPEAL NO.7 T O 9 ARE DISMISSED. WE AGREE WITH THESE OBSERVATIONS. THUS, WE DISMISS GROUND NO. 3 AND 4 OF THE ASSESSE E. 14. COMING TO GROUND NO.5, IT IS AGAINST THE ADDITI ON OF RS.46,776/- ON THE GROUND THAT THEY ARE PRIOR PERIOD EXPENDITURE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS IS A CASE OF SHORT PROVISION FOR EXPENDITURE. HE RELIES ON THE DECISION OF THE MUMBAI D-BENCH OF THE TRIBUNAL IN T HE CASE OF STERLITE INDUSTRIES (INDIA) LTD. VS. ADDL.CIT 102 TTJ (MUM) 53. 15. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT T HE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF STERLITE INDUSTRIES (INDIA) LTD. HAS HELD THAT WHERE A SMALL PORTION OF PRIOR PERIOD EXPENSES WAS ACCOUNTED IN T HE RELEVANT YEAR, AS SOME OF THE BRANCHES OF THE ASSESSEE COMPANY, WHICH WAS SITUATE D IN DISTANT PLACES, AND THERE ARE BILLS AND VOUCHERS FOR EXPENSES COULD BE RECEIV ED IN THIS YEAR, DEDUCTION IS ALLOWABLE IRRESPECTIVE OF THE FACT THAT THE ASSESSE E HAS BEEN FOLLOWING MERCANTILE 5 SYSTEM OF ACCOUNTING. THE JUDGMENT OF THE HONBLE G UJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT AND CHEMICALS INDUSTRIES LTD. 213 ITR 523 WAS FOLLOWED. 16. IN THE CASE ON HAND THE DISALLOWANCE IS SIMILAR . EVEN GOING BY THE CONCEPT OF MATERIALITY, EXPENDITURE SHOULD BE ALLOWED. 17. IN THE RESULT, GROUND NO. 5 IS ALLOWED. 18. GROUND NO. 6 IS ON THE ISSUE OF DISALLOWANCE OF RS.2,44,000/- BEING PROVISION FOR EX GRATIA PAYMENT TO STAFF. THE ASSES SEE SUBMITS THAT THIS IS A CASE OF DOUBLE DISALLOWANCE. THE LEARNED DR SUBMITS THAT TH E SAME MAY BE SET ASIDE TO THE FILE OF THE AO TO VERIFY WHETHER THIS ITEM HAS BEEN DISALLOWED TWICE. 19. IN VIEW OF THE ABOVE SUBMISSIONS, WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO, TO VERIFY WHETHER IT IS A CASE OF DOUBLE DISALL OWANCE. IN CASE IT IS A DOUBLE DISALLOWANCE, NECESSARY RELIEF MAY BE GRANTED TO TH E ASSESSEE. 20. GROUND NO. 7 IS ON AN ISSUE OF ADDITION OF NOTI ONAL INTEREST OF RS.2,94,000/- AS RECEIVABLE FROM M/S RUSHABH PRECISION BEARING LT D. FOR THE PERIOD POST DUE DATE. ADMITTEDLY THIS ISSUE IS COVERED BY THE DECIS ION OF THIS BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSME NT YEAR 1998-99, D-BENCH, WHERE AT PARA 8 PAGE 7 IT IS HELD AS FOLLOWS : 8. IN RESPECT OF M/S JORD ENGINEERS LTD., M/S RUSH ABH PRECISSION BEARING LTD., AND AMRUT INDUSTRIES IN PRINCIPLE WE HOLD THAT THE INTEREST REALIZED WITH REASONABLE CERTAINTY TILL THE DATE OF MATURITY OF INSTRUMENT HAS BEEN ACCRUED TO THE ASSESSEE AND THE SAME IS LIABLE TO TAX. HOWEVER, INTEREST FOR POST MATURITY PERIOD IS TO BE ACCOUNTED FOR WHE N EITHER PARTY AGREES TO PAY INTEREST OR COURT DETERMINED THE INTEREST OR ON ACTUAL BASIS. THE CONTENTION OF THE ASSESSEE IS THAT THE INTEREST FOR POST MATURITY PERIOD HAS BEEN OFFERED FOR TAXATION IN SUBSEQUENT YEARS. THE METHOD OF ACCOUNTING WHETHER FOLLOWED OR NOT AND ABOVE CONTENTIONS OF LE ARNED AR ARE SUBJECT TO VERIFICATION IF, ON EXAMINATION, AO FOUND THAT THE INTEREST INCOME FOR POST MATURITY PERIOD HAS OFFERED FOR TAXATION IN SUBSEQU ENT YEARS, NO ADDITION IS TO 6 BE MADE IN THE YEAR UNDER CONSIDERATION. WE ACCORDI NGLY REMIT THE MATTER PERTAINING TO THESE THREE PARTIES TO THE FILE OF TH E AO TO DECIDE THE MATTER IN THE LIGHT OF ABOVE DISCUSSION, AFTER PROVIDING REAS ONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE I SSUE TO THE FILE OF THE AO TO DECIDE THE MATTER AFRESH IN ACCORDANCE WITH LAW. 21. THE LAST EFFECTIVE GROUND IS GROUND NO. 8 WHICH IS ON THE ISSUE OF DISALLOWANCE OF TELEPHONE EXPENSES. THE ASSESSEE DR AWS OUR ATTENTION TO PAGE 73 OF THE ASSESSEES PAPER BOOK WHICH GIVES DETAILS OF RE SIDENTIAL TELEPHONE EXPENSES OF VARIOUS DIRECTORS AND EXECUTIVES. THE TOTAL EXPENDI TURE IS RS.4,40,753/- AND 25% OF THE SAME IS DISALLOWED. IN OUR CONSIDERED OPINIO N, ADHOC DISALLOWANCE OF SUCH EXPENDITURE IS NOT CALLED FOR THE REASON THAT THE EXPENDITURE IS NEITHER EXCESSIVE NOR IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE SAME. THIS GROUND IS ALLOWED. 22. WE NOW TAKE UP THE REVENUES APPEAL. 23. THE REVENUE DISPUTES THE DELETION MADE BY THE C IT(APPEALS) OF AN ADDITION ON ACCOUNT OF ACCRUED INTEREST ON INTERCORPORATE D EPOSITS GIVEN TO VARIOUS COMPANIES MADE BY THE AO. THE FACTS ARE BROUGHT OUT BY THE AO AT PARA 6 OF THE ASSESSMENT ORDER WHICH ARE EXTRACTED BELOW FOR READ Y REFERENCE : 6. INTEREST ACCRUED ON RECOVERABLE DEBTS: AS PER SCHEDULE 11 ATTACHED TO THE AUDITED ACCOUNTS THE ASSESSEE COMPANY HAS STATED THAT FOR AMOUNTS RECOVERABLE FROM THE FO LLOWING PARTIES TO INTER- CORPORATE DEPOSIT AND BILLS DISCOUNTED, NO INTEREST INCOME HAS BEEN PROVIDED. THE FOLLOWING IS THE LIST OF INTERCORPORATE DEPOSIT /BILL DISCOUNTING AS ON 31.03.2001 SUBMITTED BY THE ASSESSEE COMPANY VIDE L ETTER DTD. 27.02.2004. 7 INTERCORPORATE DEPOSIT AMOUNT INTEREST 1. GARWARE PAINTS - RS.50,00,000 RS. 1,00,000 2. VIKRAM PROJECTS - RS.20,00,000 RS. 4,00,000 3. VIDIANI ENGINEERS LTD. RS.15,00,000 RS. 3,00,000 4. THE PHARMACHEUTICAL PRODUCTS OF INDIA LTD. - RS.30,00,000 RS. 9,60,000 DISCOUNTED BILLS RUSHABH PRECISION BEARING LTD. - RS.14,00,000 RS. 2,94,000 TOTAL RS.1,29,00,000 RS.26,54,000 ORDER PRONOUNCED IN THE OPEN COURT ON NO V. , 2010. THE ASSESSEE STATED THAT THE COMPANIES ABOVE HAD DE FAULTED IN THE PAYMENT OF THE PRINCIPAL AMOUNT ITSELF AND SINCE THE RECOVE RY OF THIS AMOUNT WAS DOUBTFUL, THERE WAS NO QUESTION OF PROVIDING INTERE ST AS PER THE ACCOUNTING STANDARDS ISSUED BY THE ICAL. FURTHER STATING THAT IT WAS FOR THIS REASON THAT INTEREST FOR THIS YEAR WAS NOT PROVIDED ON THE LOAN ADVANCED TO THIS CO., THE ASSESSEES AR ARGUED THAT NO ADDITION ON THIS GROUN D WAS CALLED FOR. THE INTEREST OF RS.23,60,000/- WHICH ACCRUED TO THE ASSESSEE IN ACCORDANCE WITH THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED B Y IT, WAS LIABLE TO BROUGHT TO TAX IN ITS HAND. ACCORDINGLY, THIS AMOUN T IS TREATED AS THE ASSESSEES INCOME DURING THE RELEVANT ASSESSMENT YE AR UNDER CONSIDERATION. THIS AMOUNT HAS BEEN COMPUTED ADOPTING THE RATE WHI CH WAS FIXED BY THE ASSESSEE COMPANY ON THE ICDS GIVEN BY IT. THE AMOUNT OF RS.23,60,000/- INCLUDES THE INTEREST OF RS.9,60,000/- WHICH HAS ACCRUED FROM THE PHARMACEUTICALS PRODUCTS OF IN DIA LTD. DURING THE 8 ASSESSMENT PROCEEDING OF AY 1998-99 THE ASSESSEE CO MPANY HAS STATED THAT IT HAD ADVANCED A SUM OF RS.30 LAKHS TO M/S PHARMAC EUTICALS PRODUCTS OF INDIA LTD., AS AN ICD DURING THE FR 1995-96. DURING THE ASSESSMENT PROCEEDINGS OF AY 1998-99 THE ASSESSEE COMPANY HAD STATED IN ITS LETTER DTD. 22.11.2000, THAT RECOVERY OF THIS AMOUNT HAD BECOME DIFFICULT IN THIS YEAR AND THAT CONSEQUENTLY, NO INTEREST WAS PROVIDED FOR , THE ASSESSEE POINTED OUT THAT THE SAID PARTY HAD FORMULATED A REPAYMENT SCHE ME INVOLVING THE SALE OF ITS PROPERTY FOR SETTLEMENT OF ITS CREDITORS DUES A ND THAT THIS PROCEDURE WAS IN PROGRESS. THE AO IN THE ORDER U/S 143(3) DTD. 22.01 .2001, HAS STATED THAT THE ABOVE SEQUENCE OF EVENTS SHOWS THAT IN THIS CASE, R ECOVERY OF THE AMOUNT IN QUESTION CANNOT BE STATED TO BE DIFFICULT AND CONSE QUENTLY, NON PROVISION OF THE INTEREST RECEIVABLE FROM IT WOULD NOT BE JUSTIF IED AS PER THE RELEVANT PROVISIONS OF THE I.T. ACT. CONSEQUENTLY, IN THIS C ASE ALSO, INTEREST RECEIVABLE BY THE ASSESSEE IS CALCULATED @ 32% BEING THE RATE OF INTEREST FIXED BY IT ON THE UCDS AND THE AMOUNT SO COMPUTED IN ITS HANDS, W ORKS OUT TO RS.9,60,000/-. THE ASSESSEE COMPANY IN ITS BUSINESS OF TRADING IN AGRICULTURAL COMMODITIES ALSO DOES BILL DISCOUNTING BUSINESS FOR VARIOUS PAR TIES IN NEED OF FUNDS. THERE ARE NOT CASES WHERE ASSESSEE SHOULD HAVE REST ORED TO THE ACCOUNTING STANDARD ISSUED BY THE ICAI FOR NON RECOGNISATION O F ISSUE BECAUSE THE RECOVERY OF THE AMOUNTS DUE WAS NEVER DOUBTFUL. CON SEQUENTLY, THEREFORE SINCE THE INTEREST ON THESE BILL DISCOUNT AMOUNTS OF RS.14,00,000/- WAS LIABLE TO BE ACCOUNTED FOR BY THE ASSESSEE IN ITS I NCOME BUT SINCE IT DID NOT DO SO, INTEREST @ 21% AS FIXED BY THE ASSESSEE COMPANY ON THESE DISCOUNTED BILLS IS CALCULATED AND THE SUM OF RS.2,94,000/- IS BROUGHT TO TAX IN ITS HANDS ON THIS ACCOUNT. THE TOTAL DISALLOWANCE UNDER THIS HEAD WORKS OUT TO RS.26,54,400/- 24. THE FIRST APPELLATE AUTHORITY HAS DEALT WITH TH E ISSUE AT PARA 8. AT PARA 8.3.3, THE FIRST APPELLATE AUTHORITY HELD AS FOLLOWS : AS REGARDS THE ICDS WITH GARWARE PAINTS LTD., VIK RAM PROJECTS LTD. AND VIDIANI ENGINEERS LTD., FROM THE FACTS INFORMED BY THE APPELLANT AND DISCUSSED IN PARA.... IN CAN BE SEEN THAT THESE ICD S WERE PLACED LONG BACK. IN THE CASE OF GARWARE PAINTS LTD., THERE HAS BEEN NO RECOVERY OF INTEREST FROM THE VERY BEGINNING. IN THE CASE OF VIKRAM PROJECTS AND VIDIANI ENGINEERS, SINCE 31-3-1996 THERE IS NO RECOVERY OF INTEREST. E VEN THE RECOVERY OF THE 9 PRINCIPAL AMOUNT IS DOUBTFUL. FROM THE A.Y. 1997-98 ONWARDS THE ASSESSEE DID NOT CREDIT ANY INTEREST TO THE P & L ACCOUNT NO R DID THE AO BROUGHT TO TAX THE ALLEGED ACCRUED INTEREST. FOR THE FIRST TIM E ADDITION ON ACCOUNT OF ACCRUED INTEREST IN RESPECT OF ICDS WITH THESE PART IES HAS BEEN MADE. THEREAFTER HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF STATE BANK OF TRAVANCORE VS. CIT 158 ITR 102 AND GO DHRA ELECTRICITY CO. LTD. VS. CIT 225 ITR 746 (SC) AND HELD THAT IN THE CASE OF I MPROBABILITY OF REALISATION OF THE AMOUNT, IT CANNOT BE SAID THAT REAL INCOME ACCR UED TO THE ASSESSEE. AT PARA 8.3.8, HE OBSERVED AS FOLLOWS : IN MY VIEW, CONSIDERING THE FACT THAT THE ASSESSE E DID NOT RECEIVE ANY INTEREST SINCE THE F.Y. 1996-97, THE APPELLANT WAS JUSTIFIED IN NOT CREDITING THE INTEREST ON ACCRUAL BASIS SIMPLY BECAUSE IT WAS STILL FIGHTING THE CASE IN THE COURT. I AM, THEREFORE, OF THE CONSIDERED VIEW THAT IN VIEW OF THE FACTS OF THE CASES AND KEEPING IN VIEW THE REAL INCOME THEOR Y, THE INTEREST FROM THE ABOVE REFERRED THREE PARTIES DID NOT ACCRUE TO THE ASSESSEE. THE ADDITION MADE BY THE AO IS DIRECTED TO BE DELETED. THE GROUN D OF APPEAL NO. 18 TO 28 ARE PARTLY ALLOWED. 25. ON A CAREFUL CONSIDERATION OF THE FACTS, THOUG H ON LAW WE AGREE WITH THE PROPOSITIONS FOLLOWED BY THE CIT(APPEALS). ON FACTS , WE ARE NOT CONVINCED THAT THE ASSESSEE HAS DEMONSTRATED BEFORE THE AO THAT TH ERE IS NO RECOVERY OF SUMS FROM THESE PARTIES. IT WAS ALSO MENTIONED BEFORE US THAT THERE WERE CERTAIN SETTLEMENTS BETWEEN THE PARTIES AND THE ASSESSEE. A S THE TERMS OF THE SETTLEMENT HAVE TO BE EXAMINED AND IT HAS TO BE DEMONSTRATED T HAT THESE INTERCORPORATE DEPOSITS HAVE BECOME NON PERFORMING ASSETS, WE SET ASIDE THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LA W. 26. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED FOR STATISTICAL PURPOSES. 10 27. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART AND THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ON 24/11/2010. SD/- SD/- (D. MANMOHAN) (J. SUDH AKAR REDDY) VICE PRESIDENT. ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH NOV., 2010. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, B-BENCH (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI B ENCHES, M UMBAI.