Allahabad High Court
Cit vs Govind Agencies (P) Ltd. on 16 August, 2007
Bench: R.K. Agrawal, Vikram Nath
JUDGMENT
1. The present appeal has been filed under Section 260A of the Income Tax Act, 1961, (hereinafter referred to as "the Act"), arising out of the order of the Income Tax Appellate Tribunal, Allahabad, dated 7-6-1999. It has been admitted vide order dated 8-12-2006, on the following substantial question of law:
Whether, on the facts and in the circumstances of the case and the material available on the records, the Income Tax Appellate Tribunal was legally justified in confirming the order of the Commissioner (Appeals), deleting the addition of Rs. 1,59,980 made by the assessing officer on account of interest chargeable from M/s. Gee key Consumers Products Pvt. Ltd.?
2. Briefly stated the facts giving rise to the present appeal are as follows.
3. The respondent-assessee is a private limited company. Its previous year is the financial year. In the assessment year 1988-89, it had filed its return of income on 31-8-1988, declaring income of Rs. 1,14,340. Proceedings under Section 143(3) of the Act were initiated. During the course of the assessment proceedings, the assessing officer found that the respondent-assessee had not charged any interest during the previous year relating to the assessment year in question from M/s. Gee Key Consumers Products Pvt. Ltd., Delhi, to which a sum of Rs. 8,38,793 had been advanced. During this year it had made a further advance of Rs. 1,00,000 and had received interest of Rs. 6,933 from the said company. The assessing officer while passing the assessment order had added the notional interest income of Rs. 1,59,980. Feeling aggrieved the respondent-assessee preferred an appeal before the Commissioner (Appeals) who had partly allowed the appeal and deleted the addition of Rs. 1,59,980 which order has been affirmed by the Tribunal in the revenue 's appeal.
4. We have heard Sri Shambu Chopra, learned Counsel for the revenue , and Sri Rakesh Kumar, learned Counsel for the respondent-assessee.
5. Sri Shambu Chopra submitted that in the previous years as also in the assessment year in question the assessee had charged interest. During the assessment year in question it had received a sum of Rs. 6,933 as interest from M/s. Gee Key Consumers Products Pvt. Ltd., and there was no reason whatsoever not to charge the interest in the entire year.
6. It has come on record that the financial position of M/s. Gee Key Consumers Products Pvt. Ltd. had become bad and it was agreed between the assessee and the said company that no further interest would be charged and in order to recover the amount the company will sell its land to the respondent-assessee for a sum of Rs. 12,00,000 and after adjusting the debit balance remaining amount shall be paid.
7. It is to be remembered that earning of the income whether actual or notional has to be seen from the view point of a prudent assessee. If in given facts and circumstances the assessee decides not to charge interest in order to safeguard the principal amount and ensure its recovery it cannot be said that he had acted in a manner in which no reasonable person can act. The present is one of such cases where the respondent-assessee acting as a prudent person in order to recover the amount has agreed not to charge interest on the remaining amount during the assessment year in question and to recover the principal amount by purchase of the debtor's land.
8. In these circumstances there does not arise any question of bringing to charge notional income. The order of the Tribunal, therefore, does not suffer from any infirmity. The substantial question of law is hereby answered in favour of the assessee and against the revenue. Consequently, the appeal fails and is hereby dismissed.
9. However, there shall be no order as to costs.