COMMISSIONER OF INCOME TAX Vs. EICHER LTD.

JUDGEMENT

(1.) The present appeal of the Revenue under Section 260(A) of the Income Tax Act impugns the order dated 30.5.2008 of the Income Tax Appellate Tribunal (ITAT). The ITAT allowed the appeal of the assessee against the order of CIT(A) which authority upheld the order of the Assessing Officer(AO) whereby the AO made an addition to the return filed by holding the assessee liable with respect to accrued income not actually received on the ground that the assessee was maintaining books of accounts on mercantile basis.

(2.) THE order of Income Tax Appellate Tribunal is a very detailed one running into over 51 paragraphs. The ITAT has in substance held that no tax is payable unless the interest income is a real income and not merely accrued income more so when the principal amount is written off as bad debts in the subsequent years. The ITAT relied upon, inter alia, the judgment of the Supreme Court in the case of Godhra Electricity Co. Ltd. v. CIT : (1997) 225 ITR 746 (SC) and judgment of this Court in CIT v. Goyal M.G. Gases (P) Ltd. ITA No. 538/2007 dated July 2, 2007.

(3.) ON the above facts, the Tribunal therefore, found that it was clear that the outstanding interest amounting to Rs. 267 lacs had already been offered to tax up to 31.3.1999, and which amount of interest has been settled at only at Rs. 130 lacs i.e only Rs 130 lacs were received by the assessee company though tax had been paid on an amount of Rs 267 lacs. This thus proved that the assessee's principal amount as well as the interest accrued up to 31.3.1999 was doubtful of recovery. In Godhra Electricity Co. Ltd. The Supreme Court has held as under: Income -tax is a levy on income, No doubt, the Income -tax Act takes into account two points of time at which the liability to tax is attracted, viz. the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book -keeping, an entry is made about a hypothetical income, which does not materialize. The question whether there was real accrual of income to the assessee company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realization in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee company in respect of the enhanced charges for supply of electricity which were added by the income -tax Officer while passing the assessment orders in respect of the assessment years under consideration. The Appellate Assistance Commissioner was right in deleting the said addition made by the Income -tax Officer and the Tribunal had rightly held that the claim at the increased rates as made by the assessee -company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the Income -tax Officer did not represent the income which had really accrued to the assessee company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said views of the Tribunal.