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Section 5 of the Income-tax Act, 1961 - Income - Accrual of - Assessment years 1978-79 and 1979-80 - IAC made addition to income of assessee-company on account of interest accrued but not charged against loans advanced by it to two firms - Tribunal deleted addition on ground that financial position of debtors had deteriorated and recovery even of principal amount had become doubtful - Whether since findings recorded by Tribunal were based on relevant material and evidence, Tribunal had not committed any error in deleting amount in question - Held, yes FACTS The assessee-company had advanced loan to two firms on which it had charged interest in the earlier years. However, during the previous years relevant to the assessment years in question, the interest was not charged. Therefore, the IAC made addition on account of accrual of interest. However, the Commissioner (Appeals) reduced the addition. The Tribunal had examined the accounts of the debtors for the two years and had found that apart from the outstanding loan advanced of small amounts in cash and by cheque had been made during the assessment years in question in order to enable the debtor to clear off its taxes and its liabilities as the assessee wanted to take over these firms in satisfaction of its debt and held that the financial position of the debtors had deteriorated and recovery even of the principal amount had become doubtful and deleted the additions. On reference : HELD The Tribunal from the evidence and material on record, had found that the financial position of the debtors had deteriorated to such an extent that even the chance of the principal amount being recovered was very dim. If on those circumstances, it had not charged any interest from the debtors, it could not be said that it had acted as prudent businessman. [Para 7] Therefore, the Tribunal had not committed any error in deleting the amount in question and the findings recorded by it were based on relevant material and evidence. [Para 9] CASES REFERRED TO State Bank of Travancore v. CIT [1986] 158 ITR 102/ 24 Taxman 337 (SC) [Para 5], UCO Bank v. CIT [1999] 237 ITR 889/ 104 Taxman 547 (SC) [Para 7] and CIT v. Dhampur Sugar Mills…

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