Abraham P.George, Member (A) -
(1.) THIS appeal filed by the Revenue, directed against an order dated 29.06.2011 of ld. Commissioner of Income Tax (Appeals) -IV, Kolkata. It has raised the following three grounds: -
(1) That on the facts and circumstances of the case, ld. CIT(A) erred in law in deciding the issues related to the addition of interest taking the ground that it was receivable and was not actually received.
(2) That on the facts and circumstances of the case, ld. CIT(A) has erred in law in deleting the addition of Rs. 19,00,000/ - received by the assessee as interest from M/s. ISG Traders Ltd. and Rs. 3,00,000/ - received from M/s. Davenport & Co. Pvt. Ltd.
(3) That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing.
(2.) ISSUES involved in grounds 1 & 2 are same. Assessee, a Company registered as a non -banking financial company by Reserve Bank of India, had filed its return for the impugned assessment year declaring income of Rs. 65,352/ -. During the course of assessment proceedings, it was noted that assessee had advanced a sum of Rs. 95,00,000/ - to one M/s. ISG Traders Limited of Duncans House, 31, Netaji Subhas Road, Kolkata -700 001 and a sum of Rs. 25,00,000/ - to one M/s. Davenport & Company Pvt. Ltd. of 5 & 7, Netaji Subhas Road, Kolkata -700 001, on which it had not shown any interest income. Assessing Officer was having information that the said two companies had in their respective accounts charged interest on the loans taken by them from the assessee. The amounts shown by them as interest payable came to Rs. 24,72,300/ -, of which Rs. 19,00,000/ - was of M/s. ISG Traders Limited and Rs. 3,00,000/ - was of M/s. Davenport & Company Pvt. Ltd. Assessee was put on notice to explain why interest from M/s. ISG Traders Limited and M/s. Davenport & Company Pvt. Ltd. was not accounted by it. Reply of the assessee was that it had not received any interest from the said two companies. As per the assessee, advance of Rs. 95,00,000/ - was given to M/s. ISG Traders Limited on 16.05.2002 and the sum of Rs. 25,00,000/ - was given to M/s. Davenport & Co. Pvt. Ltd. prior to financial year 2001 -02. Submission of the assessee was that it had not received any interest from M/s. ISG Traders Limited and had received only negligible interest from M/s. Davenport & Co. Pvt. Ltd. Assessee also stated that it was a Non -Banking Financial Company, and bound to follow prudential norms for recognition of income as directed by Reserve Bank of India. As per the assessee, the said prudential norms prohibited recognition of interest on loans which remained overdue for more than six months. Even otherwise, as per the assessee, there was no real income or notional interest income, accruing to it. However, Assessing Officer was not impressed by the above explanation. According to him, the two companies had taken loan from the assessee and charged interest in their respective accounts and also deducted tax at source thereon. Such tax at source was credited by them into the Government account. Therefore, as per the Assessing Officer, the concerned parties had confirmed, interests due to the assessee. Assessee was following mercantile system of accounting. Hence, it was bound to show the interest accrued on the loans. In this view of the matter, he held that the interest of Rs. 22,00,000/ - accrued on the loans given to the two companies was chargeable to tax and an addition was made accordingly.
(3.) IN its appeal before the ld. CIT(Appeals), argument of assessee was that it was bound to follow the guidelines issued by Reserve Bank of India which was mandatory. As per the assessee, no income whatsoever was received from the concerned two companies. Though it was following mercantile system of accounting, assessee submitted that only real income could be taxed.;