By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
fiogf49gjkf0d
New Page 2
37 (2008) 300 ITR (AT) 159 (Delhi)
Pranav Vikas (India) Ltd. v.
ACIT
ITA No. 3322/Del./2004 (A.Y. 2001-02)
A.Y. 2001-02. Dated : 27-7-2007
Concept of ‘Real Income’ — Investment in debentures —
Assessee-company decided not to recognise interest income on debentures due to
financial difficulties of M/s. PAL Enterprise (P) Ltd. — Held that, No interest
income accrued to the assessee.
Facts :
The assessee-company had received interest free advance of
Rs.20 lakhs from M/s. Premier Automobiles Ltd. (PAL) for development of certain
products and since the said project was being delayed considerably, M/s. PAL
required the assessee to invest the said amount in their other group company
i.e., M/s. PAL Enterprise (P) Ltd. (PALEL) by way of 13% unsecured
optionally convertible debentures. For the F.Y. 2000-01, the assessee company
did not recognise the revenue arising out of interest on debenture, because both
M/s. PAL as well as M/s. PALEL became sick and there was no possibility of
recovery of any interest on the debenture. The AO made an addition of
Rs.2,40,000 disregarding AS-9 issued by ICAI, which was mandatory u/s.211(3C) of
the Companies Act, 1956 for the assessee company and the minutes of the BOD
acknowledging the uncertainty of collection of the said interest and the same
was also confirmed by the CIT(A).
On appeal to the Tribunal, it was held that :
1. The request of M/s. PALEL to treat the investment made
by the assessee-company as interest-free was accepted by it insofar as the
year under consideration is concerned and the right to receive interest income
on the said debentures, thus, was waived by it with prospective effect. The
decision to take the ‘appropriate measures’ as discussed in the meeting of the
BOD is to be understood to be restricted to the recovery of principal amount
and the interest accrued thereon for the earlier years.
2. Further, even if a decision of waiver is taken after the
F.Y., but within a reasonable proximity such that it results into a formal
resolution, it cannot be said that the said decision is inapplicable to the
relevant F.Y.
3. In the instant case, as the right to receive interest
income on the said debentures was waived by the assessee company for the year
under consideration, there was no real income that can be bought to tax in the
hands of the assessee company on accrual basis. Hence, the impugned order of
the CIT(A) was set aside deleting the addition of Rs.2,40,000.
Cases referred to :
(i) CCE v. Dai Ichi Karkaria Ltd., [(1995) 156 CTR
172];
(ii) Ashokbhai Chimanbhai [(1956) 56 ITR 42];
(iii) CIT v. Shoorji Vallabhdas and Co., [(1962) 46
ITR 144];
(iv) State Bank of Travancore v. CIT, [(1986) 158
ITR 102] and others.
(2008) 300 ITR (AT) 193 (Mumbai)
ITO v. Bhoruka Roadlines Ltd.
A.Y. 2002–03. Dated : 27-6-2007
S. 194C, S. 201 and S. 201(1A)
