Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(2) of the I.T. Act, 1961, as directed by this court, the following question has been referred to this court by the Tribunal: "Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that Rs. 3,37,725 did not accrue by way of interest and loan advanced to M/s. Howrah Trading Company (P.) Ltd. and as such is not assessable in the year under consideration ?"
(2.) The present reference relates to the assessment year 1969-70. The assessee-company had advanced certain loans to M/s. Howrah Trading Co. (P.) Ltd. which was a sister concern of the assessee-company. The outstanding loan of this year was Rs. 71,10,000, The ITO found that no interest was being shown on this loan. He further found that the assessee was following the mercantile system of accounting. The ITO, therefore, added Rs. 3,37,725 as interest at 4% on the above amount of loan.
(3.) The assessee went up in appeal before the AAC. The AAC followed the reasons given in the earlier year's order and deleted the amount of Rs. 3,37,725. In the earlier year the AAC had found that the assessee-company had charged interest up to April, 1966. After that date no interest was being shown in the books, as, according to the assessee-company the recovery of the principal itself had become doubtful. A suit was instituted in the Calcutta High Court and the same was still pending before it and the debtor had denied any liability in this regard. That is the finding in respect of the year earlier to the relevant previous year of the instant reference. According to the AAC, the fact that a deduction had been allowed in the assessment of the debtor-company was not relevant for assessing the same amount in the hands of the assessee-company. Considering all the circumstances, the AAC held that the amount of interest had not accrued and not been received by the assessee.;