Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Accrual of Where assessee was following mercantile system of accounting, interest accrued to it on advance was chargeable on accrual basis and merely because it was waived by a resolution of Board passed after close of accounting year, that would not stop its accrual on basis of real income thereof The assessee was following the mercantile system of accounting. In the assessment year 1982-83, for which the year closing was on 31-3-1982, no provision was made for interest in the books of account of the assessee. According to the assessee the interest was waived off by a resolution of its board dated 26-6-1983. Held that the decision to waive off loan or interest should be taken on the basis of commercial expediency and should be taken before the end of the accounting year. In the instant case the decision to waive off the loan was taken at a much later stage. The resolution to waive off the loan was passed after the income had already accrued. Once the income had accrued the passing of resolution after the close of the accounting year would be of no consequence. The decision to waive off the interest should have been taken during the accounting year or prior thereto. The concept of real income would not apply in such case. If the debt had become bad the deduction could be claimed only in compliance with the provisions of the Act and the Rules. Once the provisions of the Act were applicable and the income had already accrued, the concept of real income could not be brought into use to defeat the provisions of the Act. CASE REVIEW State Bank of Travancore v. CIT[1986] 158 ITR 102 (SC)/[1986] 2 SCC 11 and CIT v.Shiv Prakash Janak Raj and Co. (P.) Ltd.[1996] 222 ITR 583 (SC)/[1996] 11 SCC 530followed & relied upon. JUDGMENT Deepak Gupta, J.-The following question of law has been referred for the opinion of this court under section 256(2) of the Income-tax Act, 1961 : "Whether, in the facts and in the circumstances of the case, the Tribunal was right in upholding the addition of interest of Rs. 15 lakhs on accrual basis" ? The brief facts giving rise to this question are that the assessee M/s. H.P. Mineral and…

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