- (1.) The Income-tax Appellate Tribunal, Allahabad, has referred the following question of law in pursuance of the direction issued by this court under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"): "Whether, in law and circumstances of the case, the Income-tax Appellate Tribunal was justified in deleting addition of Rs. 35,250 made by the Income-tax Officer on account of accrued interest ?"
(2.) The assessment year involved is 1981-82. The assessee is a private limited company and it has three units, one of them is Kumar Cold Storage, the income of which is generally from storage and rental. The assessee has adopted the mercantile system of accounting. In the relevant assessment year the assessee did not charge any interest from sundry debtors outstanding for a period of more than six months as it was considered doubtful as on December 31, 1980. The total amount of these debts was shown at Rs. 1,02,416. The interest was not debited to the ledger of the debtors. It was submitted before the Income-tax Officer that as chances of recovery were not considered good, no interest was credited to the cold storage profit and loss account. The debtors were storers of potatoes. The sale proceeds which were credited to the parties' account could not wipe out the debit balances. The Income-tax Officer took into consideration the assessee's past practice. It advanced money against potatoes stored and storers furnished pronotes by way of additional security against advances and interest. The Income-tax Officer held that as the assessee-company has made no effort to realise interest, there was no reason why interest, at the rate of 18 per cent. be not credited to the profit and loss account of the unit. He accordingly worked out the interest on the aforesaid outstanding amount to Rs. 18,435 at the rate of 18 per cent. The assessment order was confirmed in appeal by the Commissioner of Income-tax (Appeals). However in further appeal the Tribunal set aside the addition of interest on the finding that even if the assessee had adopted the mercantile system of accounting it cannot be said that income from the interest had actually accrued to the assessee on October 31, 1980, the day on which the accounting period ended. It has also come to the conclusion that no date was entered in the agreement of loan regarding payment of interest.
(3.) Heard Sri A. N. Mahajan, learned standing counsel for the Revenue. None appears on behalf of the assessee.;