- (1.) THE Income-tax Appellate Tribunal (Chandigarh Bench) has referred the following question for our opinion: " Whether, on the facts arid in the circumstances of the case, the Tribunal was right in law in deleting the addition of Rs. 1,24,000 made on account of accrual of interest ? "
(2.) THE assessee used to carry on business of finance and hire purchase, but later on was ordered to be officially wound up under the orders of this court. For the assessment year 1969-70, the assessee filed a return declaring a loss of Rs. 2,60,322. During the course of assessment, the ITO noticed that there was an account in the name of Shri. B. K. Bedi showing a sum of Rs. 10,81,931 due from him as on 1st April, 1968, which was reduced to Rs. 10,17,981 as on 31st March, 1969, but no interest was charged on this account.
(3.) THE ITO called for the explanation of the assessee for not charging any interest on the amount due from Shri B. K. Bedi. The assessee's explanation was that the financial position of Shri Bedi was bad and there was no hope of recovery even of the principal amount and, therefore, it was not considered necessary to charge any interest and for that reason no interest was added to the amount due from him during the previous year. The ITO found that a sum of Rs. 1,05,000 was paid by Shri Bedi during the year in question on different dates and also obtained an advance of Rs. 29,000 on 17th June, 1968, and, therefore, it could not be said that the financial position of Shri Bedi was really bad. It was also found that the non-charging of interest on account of bad financial position of Shri Bedi was neither confirmed by the board of directors nor there was any resolution available in that regard. Since the method of accounting followed by the assessee was on mercantile basis, the ITO added interest of Rs. 1,24,000 (at the rate of 12 per cent. per annum) and computed the total income of the assessee and framed the assessment on 28th October, 1971.;