Law:

Section:

Section 5 of the Income-tax Act, 1961 - Income - Accrual of - Assessment year 1981-82 - In its cold storage unit, assessee was following mercantile system of accounting - It did not charge interest from sundry debtors outstanding for a period of more than six months as chances of recovery were almost nil - Assessing Officer held that as assessee had made no effort to realise interest, there was no reason why interest be not credited to profit and loss account of said unit - He, accordingly, worked out such interest and added to assessee's income - Tribunal deleted addition on ground that even if assessee had adopted mercantile system of accounting, it could not be said that income from interest had actually accrued to assessee on 31-10-1980, day on which accounting period ended, and found that no date was entered in agreement of loan regarding payment of interest - Whether Tribunal was justified in deleting addition on account of accrued interest - Held, yes FACTS One of the units of the assessee-company had rental income and income from cold storage. It had adopted the mercantile system of accounting. In the assessment year 1981-82, the assessee did not charge any interest from sundry debtors outstanding for a period of more than six months. It was submitted before the Income-tax Officer that as chances of recovery were almost nil, no interest was credited to the cold storage profit and loss account. The debtors were storers of potatoes. The ITO held that as the assessee-company had 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 outstanding amount and added to the taxable income. The assessment order was confirmed in appeal by the Commissioner (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 could not be said that income from the interest had actually accrued to the assessee on 31-10-1980, the day on which the accounting period ended. It had also come to the conclusion that no…

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