ACIT, New Delhi V. M/s. The Delhi State Co-operative Bank Ltd., New Delhi

ITA 518/DEL/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6830 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 29-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUNIL CHANDER SHARMA
• Assessee Lawyers: S C GUPTA
• Keywords: Gift; Bad and doubtful debts; Notional interest; Revised return
• Section: 143(3); 139(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SRI C.M.GARG, JM AND SRI O.P. KANT, AM ITA NO. 518/DEL./2014 : A SSTT. YEAR : 2010-11 ACIT CIRCLE-30(1), NEW DELHI VS THE DELHI STATE CO-OPERATIVE BANK LTD. 31, NETAJI SUBHASH MARG, DARYA GANJ (APPELLANT) (RESPONDENT) PAN NO. AAACD4173C ASSESSEE BY : SH. S.C.GUPT A REVENUE BY : SH. SUNIL CHA NDER SHARMA, CIT, DR DATE OF HEARING : 07.01.2016 DATE OF PRONOUNCEMENT : 10.02.2016 ORDER PER C.M.GARG, J.M. THIS APPEAL BY THE REVENUE HAS BEEN DIRECTED AGAINS T THE ORDER OF THE CIT(A) XXV, DATED 3.10.2013 PASSED IN FIRST APPEA L NO. 20/2013-14 FOR AY 2010-11. 2. THE GROUNDS RAISED BY THE APPELLANT READS AS UN DER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, L D. CIT (A) HAS ERRED IN DELETING ADDITION OF RS. 99,42,761/- MADE ON ACCOUNT OF PREMIUM WRITTEN OFF ON GOVT. SECURITIES (G.SECS.) 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS. 1,08,80,188/- ON ACCOUN T OF DEDUCTION OF PROVISION ON NON-PERFORMING ASSETS. ITA NO. 518/DEL/2014 THE DELHI STATE CO-OPERATIVE BANK LTD. 2 GROUND NO. 1 & 2 3. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND C AREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD BEFORE US. THE L D. DR SUPPORTING THE ACTION OF THE AO SUBMITTED THAT THE CIT(A) HAS ERRED IN DELET ING ADDITION MADE ON ACCOUNT OF PREVIOUS WRITTEN OFF GOVT. SECURITIES. T HE LD. AR SUPPORTING THE FIRST APPELLATE ORDER SUBMITTED THAT THE ISSUE IS SQUAREL Y COVERED IN FORM OF THE ASSESSEE BY THE ORDER DATED 27.03.2015 OF THE ITAT DELHI HBENCH IN ASSESSEES OWN CASE I.E. ITA NO. 2535/DEL/2012 FOR AY 2008-09 WHICH WAS FOLLOWED BY THE CIT(A) WHILE GRANTING RELIEF TO THE ASSESSEE ON BOTH THE GROUNDS. 4. ON CAREFUL PERUSAL OF PART OF PARA 4 AT LAST P AGE OF IMPUGNED ORDER WE NOTE THAT THE CIT(A) GRANTED RELIEF TO THE ASSESSEE BY FOLLOWING ORDER OF HIS PREDECESSOR FOR AY 2008-09 WHICH HAS BEEN UPHELD BY THE TRIBUNAL ORDER DATED 27/03/2015 (SUPRA). THE RELEVANT PART OF THIS TRIBU NAL ORDER READ AS UNDER : 6.2 WE FIND THAT THE ASSESSEE INVESTS IN GOVT. SEC URITIES AND OTHER FINANCIAL DOCUMENTS AS OTHER CO-OPERATIVE BANKS AS PER THE GUIDELINES OF THE RBI AND SO AS PER THE RBI MASTER CIRCULAR NO.DBOD.BP.BC.13/21.04.141/2012-13 DATED JULY 2,201 2, CONTAINING CONSOLIDATED INSTRUCTIONS/GUIDELINES ISS UED TO BANKS TILL JUNE 30, 2012, ON MATTERS RELATING TO PRUDENTIAL NO RMS FOR CLASSIFICATION, VALUATION AND OPERATION OF INVESTME NT PORTFOLIO BY BANKS, INVESTMENTS CLASSIFIED UNDER HTM (HELD TO MA TURITY) NEED NOT BE MARKED TO MARKET AND WILL BE CARRIED AT ACQUISIT ION COST, UNLESS IT IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREM IUM SHOULD BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. TH E BOOK VALUE OF THE SECURITY SHOULD CONTINUE TO BE REDUCED TO THE E XTENT OF THE AMOUNT AMORTIZED DURING THE RELEVANT ACCOUNTING PERIOD. AN D AS HELD IN THE CASE OF CIT VS. HIMACHAL FINANCE CORPORATION (2010) 186 TAXMANN ITA NO. 518/DEL/2014 THE DELHI STATE CO-OPERATIVE BANK LTD. 3 2005 (H.P.) AND INDIAN RAYON AND INDUSTRIES LTD. (2 010) 38 DTR 313 (BOMBAY) IT WAS HELD THAT DISCOUNT ON BONDS AND PRE MIUMS ON REDEMPTIONS OF DEBENTURES ARE ALLOWABLE AS EXPENSE PROPORTIONATELY SPREAD OVER THE PERIOD OF SECURITY. SO THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE NEEDS TO BE REMANDE D BACK TO THE FILE OF THE AO TO VERIFY WHETHER THE ITA NO. 2537/DEL/2 012 ASSESSEE HAS CLAIMED THE EXPENSES PROPORTIONATELY I.E. THE PREMI UM AMOUNT WHICH IS IN ADDITION TO THE FACE VALUE PROPORTIONATELY SP READ OVER THE LIFE OF SECURITY AND IF IT IS SO COMPUTED AND CLAIMED IT BE ALLOWED. THEREFORE THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 7. WITH REGARD TO DELETION OF ADDITION OF RS 2,46,7 3,078/- UNDER THE HEAD DEDUCTION U/S 36(1)(VIIA) IS CONCERNED, WE FIN D THAT ASSESSEE IS A CO- OPERATIVE SOCIETY AND WAS CLAIMING DEDUCTION U/ S 80P(2)(A)(I) OF THE ACT UP TO A Y 2006-07 @ 100%. THIS BENEFIT HAS BEEN WITHDRAWN IN THE CASE OF URBAN CO-OPERATIVE SOCIETY AFTER A Y 2006-07 AS PROVIDED U/S 80P( 4) AS PER THE FINANCE ACT , 2006. SINCE THE BENEFIT OF DEDUCTION U/S 80P(2)(A)(I) HAS BEEN WITHDRAWN IN TH E CASE OF URBAN CO-OPERATIVE SOCIETIES, SIMILAR BENEFITS OF DEDUCTI ON OF 'PROVISION FOR BAD & DOUBTFUL DEBTS' HAS BEEN INTRODUCED AND ALLOW ED FROM A Y 2007-08 U/S 36(1)(VIIA) AS PER THE FINANCE ACT , 2007. THE CO- OPERATIVE SOCIETIES WERE NOT ALLOWED THIS BENEFIT U P TO A Y 2006-07 AS THE DEDUCTION WAS ALLOWED TO THEM U/S 80P(2)(A)(I). THE ASSESSEE HAS BEEN CLAIMING THE BENEFIT OF 100% DEDUCTION OF ITS INCOME U/S 80P(2)(A)(I). AND THEREFORE THE ASSESSEE WAS NOT AW ARE OF THE CHANGE IN LAW AND SO DID NOT MAKE THE CLAIM IN RESPECT OF BAD DEBT (N.P.) WHILE FILING THE RETURN. THE ASSESSEE HAD FILED THE RETURN INCOME OF RS 30,43,17,299/- ON 31/03/2010. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE DETECTED THE MISTAKE AND FILED A REVISED COMPUTATION CLAIMING THE DEDUCTION OF RS 2,46,73,07 8/- WHICH IS ALLOWABLE U/S 36(L)(VIIA) @ 7.5% OF THE TOTAL NP. T HE AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT FILING TIME FOR REVISED RETURN HAS EXPIRED ULS 139(5) AND THE ASSES SEE WAS NOT ENTITLED TO MAKE A FRESH CLAIM OR DEDUCTION AND THE AO RELIE D ON THE CASE OF GOETZE INDIA LTD VS CIT, 284 ITR 323 (SC) [2006]. W E FIND THAT THE LD. COUNSEL OF THE ASSESSEE SUBMITTED BEFORE THE LD . CIT(A) THAT AO ITA NO. 518/DEL/2014 THE DELHI STATE CO-OPERATIVE BANK LTD. 4 WAS NOT JUSTIFIED TO DISALLOW THE STATUTORY AND GEN UINE CLAIM OF THE ASSESSEE ON TECHNICAL GROUNDS. HE SUBMITTED THAT SI NCE NEW PROVISIONS WERE INTRODUCED FOR BAD AND DOUBTFUL DEBTS INRESPEC T OF COOPERATIVE SOCIETIES W.E.F. A Y 2007-08 U/S 36(1)(VIIA), THE A SSESSEE WAS NOT ABLE TO KEEP TRACK OF THE AMENDED/NEW PROVISIONS AND THE RE WAS A BONA FIDE MISTAKE IN NOT BEING ABLE TO MAKE THE CORRECT CLAIM OF ITA NO. 2537/DEL/2012 DEDUCTION IN THE ORIGINAL RETURN. IT WAS SUBMITTED BY THE LD AR THAT THE AO IS ALSO DUTY BOUND TO ALLOW T HE GENUINE CLAIM OF THE ASSESSEE AS PER THE BOARD CIRCULAR NO. 14 (XL-3 5) DATED 11104/2005 & F.NO. 81127/65-IT(B) DATED 18/0511965 WHICH STATES THAT THE AO SHOULD NOT TAKE ADVANTAGE OF THE IGNORA NCE OF THE ASSESSEE AND THE AO SHOULD NOT ACT AGAINST THE ASSESSEE IN S ECURING THE GENUINE RELIEF DUE TO THE ASSESSEE. IT WAS ALSO SUB MITTED THAT THE CASE OF THE GOETZE INDIA LTD (SUPRA) HAS BEEN DECIDED IN A DIFFERENT CONTEXT IN WHICH THE ASSESSMENT WAS NOT PENDING WHEREAS IN THE PRESENT CASE THE ASSESSMENT WAS PENDING AND THE ASSESSEE HAD MAD E THE GENUINE CLAIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS I TSELF THROUGH A REVISED COMPUTATION. THE LD AR RELIED ON THE FOLLOW ING CASES:- - CIT VS BHARAT ALUMINIUM CO LTD, 303 ITR 256 (DEL) [2008] - CHICAGO PNEUMATIC INDIA LTD VS DCN SPL. RANGE-45, [2007] 15 SOT 252 (MUM) - EMERSON NETWORK POWER INDIA P LTD VS ACIT, [2009] 122TTJ 67 (ITAT MUM) 7.2 WE FIND THAT THE ASSESSEE HAS MADE T HE PROVISIONS OF RS.3,66,33,543/- FOR BAD AND DOUBTFUL DEBTS IN ITS PROFIT & LOSS A/C BUT BY MISTAKE WHILE SUBMITTING THE RETURN THE SAME WAS TAKEN AS R S.1,35,28,498/- INSTEAD OF RS.3,66,33,543/-. WE FIND THAT SECTION 36(1)(VIIA) WAS AMENDED BY FINANCE ACT , 2007, WITH EFFECT FROM 01.04.2007, BY WHICH THE WORDS 'OR A COOPERATIVE BANK OTHER THAN A PRIMA RY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY COOPERATIVE AGRICULTURA L AND RURAL DEVELOPMENT BANK' WERE INSERTED. THIS AMENDMENT IS APPLICABLE TO ASSESSMENT YEAR 2007-08 ONWARDS AND FOR THE YEAR UN DER CONSIDERATION. ACCORDINGLY, IT APPLIES TO THE CASE OF THE ASSESSEE FOR THIS YEAR. WE FIND THAT THIS ISSUE HAS NOT BEEN ADJ UDICATED ON MERITS BY ITA NO. 518/DEL/2014 THE DELHI STATE CO-OPERATIVE BANK LTD. 5 THE AO. THEREFORE, WE THINK IT FIT TO RESTORE THE M ATTER BACK TO THE FILE OF THE AO TO ADJUDICATE THE ADMISSIBILITY OF THE AM OUNT U/S 36(1)(VIIA) ON MERITS. THIS GROUND IS TREATED AS ALLOWED FOR ST ATISTICAL PURPOSES. 8. WITH REGARD TO DELETION OF ADDITION OF RS. 4,08, 38,822/- MADE BY AO ON ACCOUNT OF ACCRUED INTEREST ON NPA IS CONCERNED, WE FIND THAT THE ASSESSEE HAS NOT DECLARED THE INTEREST INCOME AMOUN TING TO RS 4,08,38,822/- ITA NO. 2537/DEL/2012 AS INTEREST INC OME FROM THE NPA (NON-PERFORMING ASSETS), SINCE THE LOANS HAVE B ECOME BAD. ACCORDING TO THE AO, THE ASSESSEE HAS NEITHER RECEI VED THE LOAN AMOUNT NOR THE INTEREST INCOME AND THE ASSESSEE HAS TREATED THE INTEREST AMOUNT AS 'INTEREST RECEIVABLE' IN THE DEB IT SIDE OF THE BALANCE SHEET AND AS A LIABILITY UNDER THE HEAD 'OV ERDUE INTEREST RESERVE ACCOUNT' IN THE CREDIT SIDE OF THE BALANCE SHEET. HOWEVER, THE AO HAS TREATED THE INTEREST INCOME AS A NORMAL BUSI NESS INCOME ON THE GROUND THAT IN THE MERCANTILE SYSTEM OF ACCOUNT ING THE ACCRUED INCOME IS TO BE TREATED AS INCOME OF THE ASSESSEE A ND ACCORDINGLY, HAS MADE THE ADDITION OF RS 4,08,38,822/-. THE LD DR RE LIED ON THE ORDER OF THE AO AND WANT US TO REVERSE THE ORDER OF THE L D CIT(A). ON THE OTHER HAND THE AR SUBMITTED THAT THE AO WAS NOT JUS TIFIED TO MAKE THE ADDITION AS THE LOAN HAS BECOME BAD (NPA); AND THE ASSESSEE HAS NOT RECEIVED THE INTEREST INCOME AND AS SUCH NO REAL IN COME HAS ACCRUED TO THE ASSESSEE. ACCORDING TO HIM, IN THE CASE OF I NTEREST ON NPAS, THE PARTY ACCOUNT IS DEBITED AND THE INTEREST ACCOUNT I S CREDITED IN THE P&L ACCOUNT AND SINCE THE INTEREST IS ACTUALLY NOT RECEIVED A REVERSE ENTRY IS PASSED AT THE YEAR-END BY WHICH THE P&L AC COUNT IS DEBITED AND THE OVERDUE INTEREST ACCOUNT IS CREDITED. IT WA S FURTHER SUBMITTED THAT THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOU NTS ON THE NPA AND ITS INTEREST ON THE BASIS OF THE RBI GUIDELINES AND SINCE THE INCOME HAS NOT BEEN RECEIVED BY THE ASSESSEE, THE AO WAS N OT JUSTIFIED TO TREAT THE SAME AS INCOME OF THE ASSESSEE. IT WAS ALSO SUB MITTED THAT IN CASE LATER, THE INTEREST INCOME COULD BE RECOVERED IN FU TURE THE SAME WILL BE ACCOUNTED FOR AND OFFERED AS INCOME OF THE ASSESSEE . FURTHER IT WAS SUBMITTED THAT ONLY THE REAL INCOME OF THE ASSESSEE MAY BE TAXED AND NOT THE NOTIONAL INCOME. THE AR FURTHER SUBMITTED T HAT NO INTEREST ITA NO. 518/DEL/2014 THE DELHI STATE CO-OPERATIVE BANK LTD. 6 WOULD BE SET TO HAVE ACCRUED ON THE LOANS OF DOUBTF UL RECOVERY AND THE AR RELIED ON VARIOUS CASE LAWS WHICH ARE AS UND ER:- (1) CIT V SHOORJI VALLABHDAS & CO, 46 ITR 144 (SC) [1962] (2) CIT VS VASISTH CHAY VYAPAR LTD, 330 ITR 440 (DELHI), 20 11 (3) DIT VS BRAHMAPUTRA CAPITAL FINANCIAL SERVICES LTD, 335 ITR 182 (DELHI), 2011 ITA NO. 2537/DEL/2012 (4) TRO VS CUSTODIAN, 2 93 ITR 369 (DEL) (5) BARKHA INVESTMENT & TRADING CO P LTD VS C IT, 281 ITR 31 (GUJ) (6) CIT VS NANITAL BANK LTD, 309 ITR 335 (UTT ARAKHAND) (7) CIT VS ELGI FINANCE LTD, 293 ITR 357 (MAD) (8) CIT V S MOTOR CREDIT CO P LTD, 127 ITR 572 (MAD) [1981] (9) CIT V S COIMBATORE LAKSHMI INV. & FINANCE CO LTD, 331 ITR 229 (MAD) [2 011] 8.1 WE FIND THAT AS PER RBI PRUDENTIAL NORMS WHERE THE PRI NCIPAL AMOUNT IS DOUBTFUL OF RECOVERY AND BORROWER IS NOT PAYING, IN COME FROM INTEREST ON SUCH ACCOUNTS SHOULD NOT BE CREDITED TO ITS PROF IT AND LOSS ACCOUNT. THE ASSESSEE IS ADOPTING THE SAME ACCOUNTING POLICI ES SINCE LONG, SO INTEREST ACCRUED ON BAD & DOUBTFUL LOANS CANNOT BE CONSIDERED ITS INCOME. WHERE THE CHANCES OF REALIZATION OF PRINCIP AL BY THE APPELLANT FROM ITS CUSTOMERS WERE FAR FROM REMOTE EVEN BEFORE THE EVENT OF ACCRUAL OF INTEREST TAKING PLACE, THE QUESTION OF T REATING THE INTEREST ON SUCH NPA LOANS ON ACCRUAL BASIS AS INCOME DOES NOT ARISE. THERE IS NO LOSS OF REVENUE, AS THE INTEREST INCOME ON BAD L OANS IS ACCOUNTED FOR ON RECEIPT BASIS, IN THE YEAR WHEN THE LOAN IS RECOVERED /SETTLED. THE ACCOUNTING POLICY ADOPTED BY THE APPELLANT IS S PECIFICALLY AND CLEARLY MENTIONED, IN THE INCOME TAX AUDIT REPORT U /S 44AB AND ANNUAL AUDITED FINANCIAL ACCOUNTS. MORE OVER THE AS SESSING OFFICER HAS ALSO ACCEPTED THE SAME ACCOUNTING POLICY AND NE VER OBJECTED FOR THE SAME. GENERALLY INCOME OF THE ASSESSEE WAS ASSE SSED ULS 143(3) OF THE INCOME TAX ACT 1961 WITHOUT ANY REFERENCE TO CHANGE IN ACCOUNTING POLICY. 8.2 WE FIND THAT THE LD. CIT(A) HAS OBSERVED THAT T HE ASSESSEE HAS NOT RECEIVED THE INCOME AS THE LOAN AMOUNT ITSELF HAS B ECOME BAD AND AS SUCH THE AO IS NOT JUSTIFIED TO TREAT THE NOTIONAL INTEREST AS INCOME OF THE ASSESSEE. A PERUSAL OF THE CASE LAWS CITED BY T HE ASSESSEE ALSO SUPPORTS THE CASE OF THE ASSESSEE THAT ONLY THE REA L INCOME IS TAXABLE AND NOT THE HYPOTHETICAL INCOME IN VIEW OF THE REAL INCOME THEORY AS ITA NO. 518/DEL/2014 THE DELHI STATE CO-OPERATIVE BANK LTD. 7 NO REAL INCOME IS RECEIVED BY THE ASSESSEE AND THE SAME VIEW HAS BEEN HELD BY THE HON'BLE SUPREME ITA NO. 2537/DEL/2012 COURT IN THE CASE OF CIT VS. SHOORJI VALLABHDAS & CO ., 46 ITR 144 (SC) [1962] AND THE HEAD-NOTE OF THE CASE READS AS UNDER:- 'HELD, THAT THE SUBSEQUENT AGREEMENT HAD ALTERED TH E RATE OF COMMISSION IN SUCH A WAY AS TO MAKE THE INCOME WHIC H REALLY ACCRUED TO THE ASSESSEE DIFFERENT FROM WHAT HAD BEEN ENTERE D IN THE BOOKS OF ACCOUNT. THIS WAS NOT A CASE OF A GIFT BY THE ASSES SEE TO THE MANAGED COMPANIES OF A PORTION OF INCOME WHICH HAD ALREADY ACCRUED, BUT AN AGREEMENT TO RECEIVE A LESSER REMUNERATION THAT WHA T HAD BEEN AGREED UPON. THE ASSESSEE HAD IN FACT RECEIVED ONLY THE LE SSER AMOUNT IN SPITE OF THE ENTRIES IN THE ACCOUNT BOOKS, AND THIS LESSE R AMOUNT ALONE WAS TAXABLE. INCOME TAX IS A LEVY ON INCOME. THOUGH THE INCOME T AX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY T O TAX IS ATTRACTED VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT, YET THE S UBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, TH ERE CANNOT BE A TAX, EVEN THOUGH IN BOOK-KEEPING, AN ENTRY IS MADE ABOUT A 'HYPOTHETICAL INCOME WHICH DOES NOT MATERIALISE. WHERE INCOME HAS , IN FACT, BEEN RECEIVED AND IS SUBSEQUENTLY GIVEN UP 10 SUCH CIRCU MSTANCES THAT IT REMAIN THE INCOME OF THE RECIPIENT, EVEN THOUGH GIV EN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOU NT. DECISION OF THE BOMBAY HIGH COURT IN COMMISSIONER O F INCOME- TAX V . SHOORJI VALLABHDAS & CO. [1959] 36 I.T.R. 25 AFFI RMED. COMMISSIONER OF INCOME-TAX V. CHAMANLAL MANGALDAS & CO . [1960] 39 L.T.R. 8 (S.C.) FOLLOWED.' 8.3 IN THE CASE OF CIT V MOTOR CREDIT CO P LTD, 127 ITR 572 (MAD) [1981] THAT ONLY THE REAL INCOME IS TO BE TAXED AND THE HEAD-NOTE OF THE CASE READS AS UNDER:- ITA NO. 518/DEL/2014 THE DELHI STATE CO-OPERATIVE BANK LTD. 8 'THE REGULAR MODE OF ACCOUNTING DETERMINES ONLY THE MODE OF COMPUTING THE TAXABLE INCOME AND THE POINT OF TIME AT WHICH THE TAX LIABILITY IS ATTRACTED. IT CANNOT DETERMINE OR AFFE CT THE RANGE OF TAXABLE INCOME OR THE AMBIT OF TAXATION. WHERE NO INCOME HA S RESULTED IT CANNOT BE SAID THAT INCOME HAS ACCRUED MERELY ON TH E GROUND THAT THE ASSESSEE HAD BEEN FOLLOWING THE MERCANTILE SYSTEM O F ACCOUNTING. EVEN IF THE ASSESSEE MAKES A DEBIT ENTRY TO THAT EF FECT, STILL NO INCOME CAN BE SAID TO HAVE ACCRUED TO THE ASSESSEE. IF NO INCOME HAS MATERIALISED, THERE CAN BE NO LIABILITY TO TAX ON A HYPOTHETICAL INCOME. IT IS NOT THE HYPOTHETICAL ACCRUAL OF INCOME BASED ON THE MERCANTILE ITA NO. 2537/DEL/2012 SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE THAT HAS TO BE TAKEN INTO ACCOUNT, BUT WHAT SHOULD BE CONSIDERED IS WHETHER THE INCOME HAS REALLY MATERIALISED OR RESUL TED TO THE ASSESSEE. THE QUESTION WHETHER REAL INCOME HAS MATERIALISED T O THE ASSESSEE HAS TO BE CONSIDERED WITH REFERENCE TO COMMERCIAL AND B USINESS REALITIES OF THE SITUATION IN WHICH THE ASSESSEE HAS BEEN PLA CED AND NOT WITH REFERENCE TO HIS SYSTEM OF ACCOUNTING.' 8.4 IN VIEW OF THE ABOVE, WE FIND CONSIDERABLE COGE NCY IN THE FINDING OF THE LD. CIT(A) REGARDING THE NOTIONAL INTEREST I NCOME THAT THE SAME HAS NOT BEEN RECEIVED BY THE ASSESSEE AND AS SUCH T HE AO WAS NOT JUSTIFIED TO MAKE THE ADDITION ON THE BASIS OF NOTI ONAL INTEREST BECAUSE OF THE MERCANTILE SYSTEM OF ACCOUNTING ONLY AND ACC ORDINGLY, THE ADDITION WAS RIGHTLY DELETED BY THE CIT(A). IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENT RELIED UPON, WE ARE OF THE CONSIDERED VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE WELL REASONED ORDER PASSED BY THE LD. CIT(A), HENCE, WE UPHOLD TH E SAME BY REJECTING THIS GROUND OF APPEAL RAISED BY THE REVEN UE IN THE AFORESAID MANNER. 5. IN VIEW OF ABOVE, WE ARE INCLUDE TO HOLD THA T BOTH THE ISSUES ARE SQUARELY COVERED IN FORM OF THE ASSESSEE AND THUS, IN ABSENC E OF ANY OTHER MATERIALFROM THE LD. DR, WHICH COULD LEAD US TO TAKE A DIFFEREN T VIEW ON BOTH THE ISSUES, WE UPHOLD THE CONCLUSION OF THE CIT(A) SUPPORTED BY TH E TRIBUNAL (SUPRA) FOR AY 2008-09. ITA NO. 518/DEL/2014 THE DELHI STATE CO-OPERATIVE BANK LTD. 9 6. ACCORDINGLY, BOTH THE MAIN GROUNDS OF THE REVENUE BEING DEVOID OF MERITS ARE DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 10/02/2016. SD/- SD/- (O.P.KANT) (C.M.GA RG) ACCOUNTANT MEMBER JUDICI AL MEMBER DATED: 10 / 02/2016 *BINITA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ITA NO. 518/DEL/2014 THE DELHI STATE CO-OPERATIVE BANK LTD. 10 DATE INITIAL 1. DRAFT DICTATED ON 08.02.2016 2. DRAFT PLACED BEFORE AUTHOR 08.02.2016 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.