Advocates:
['S N BHATTAD', '', 'FOR/P', 'ABHISHEK JAYANT BHOOT', 'PN CHANDURKAR', 'A PARCHURE/P', 'LS DEWANI', 'KP DEWANI/R']

1

1012itr96.94

FARAD CONTINUATION SHEET

IN THE HIGH COURT OF JUDICATURE AT BOMBAY,

NAGPUR BENCH : NAGPUR.

INCOME TAX REFERENCE (itr) No. 96 (B) OF 1994

The Commissioner of Income Tax

v.

M/s Central Province Manganese Ore Co. Ltd. Ngp.

------------------------------------------------------------------------------------------------------------------------

Office Notes, Office Memoranda of Coram

Courts’s or Judge’s orders

appearances, Court’s orders or directions

and Registrar’s orders.

------------------------------------------------------------------------------------------------------------------------

Coram : B.P .Dharmadhikari and

V.M.Deshpande, JJ.

Date : 10

^th DECEMBER, 2015

By this application under Section 256(1) of the Income Tax

Act, 1961, following question has been referred to this Court :

“Whether on the facts and in the circumstances of the case,

the ITAT was justified in deleting interest chargeable on amounts

advanced to M/s Ritz Ltd. and S.P. Builders?”

Facts are not in dispute. Perusal of order of ITAT dated

20.1.1993 reveals that in the immediate preceding Assessment Year, i.e.

1993-94, addition of interest by the Assessing Officer was deleted by the CIT

(Appeals). Insofar as the interest which otherwise would have been received

by the assessee from M/s S.P. Builders, the CIT (Appeals) has followed its

earlier view and deleted that addition.

2

1012itr96.94

The assessee could not recover even the principal amount from

M/s S.P. Builders and, therefore, urged before CIT (Appeals) that there was

no question of recovery of interest. In addition, it was also contended that as

such amount of interest written off in the account, interest could not have

been deemed as accrued. This contention has been accepted by CIT

(Appeals).

The addition of interest amount insofar as recovery of its claim

by the assessee against M/s S.P. Builders is concerned, was ordered by the

Assessing Officer only on account of mercantile system of accounting being

followed. Facts show that in a suit instituted for recovery of its dues by the

assessee against M/s Ritz Ltd., the issue was compromised and accordingly

the assessee could not and did not recover the interest which would have

been normally earned by it. These facts find consideration in paragraph 3 of

the above mentioned order of ITAT. The facts, therefore, establish that on

account of legal and valid compromise, the assessee received less interest

and has accordingly disclosed it. The interest to which it was not entitled

under decree of Court, therefore, could not have been added back.

Same analogy was also applied insofar as proceedings against

S.P. Builders are concerned. The assessee could not charge any interest from

S.P. Builders and, therefore, for the assessment year 1983-84 it was written-

off as irrecoverable. The validity or correctness of this action again is not in

dispute.

Our attention has been invited to the order dated 20.4.2007

passed in Income Tax Application No. 56 of 1995 where the Department had

approached against the very same assessee urging that deduction of

3

1012itr96.94

Rs.14,49,347/- under Section 57(iii) of Income Tax Act was not an

expenditure. While examining this controversy for the very same assessment

year, this Court found that the assessee has sought deduction of difference

between the principal amount payable by Ritz Ltd. as per its book and the

amount actually received under the Head “Income from Other Sources”.

This entitlement of deduction has been maintained.

Facts show that interest income expected was rendered

irrecoverable and accordingly the CIT (Appeals) has deleted the additions by

the Assessing Officer. The treatment extended in the earlier assessment year

was also followed for the said purpose. We, therefore, answer the question

in the affirmative, i.e. in favou