Case Law Details
Nutan Warehousing Co. Pvt. Ltd. Vs ACIT (ITAT Pune)
The concept of `accrual of income’ needs to be considered in the hue of the ‘real income theory’. Where accrual of an income takes place but its realisation becomes impossible, such hypothetical income cannot be charged to tax. In the case of mercantile system of accounting, an accruing income can be charged to tax only when it is likely to be received under the given circumstances. In a case where receipt of income, after its accrual, is marred with complete uncertainty as to its realization, such an accrual gets deferred to the point of clearing of the clouds of uncertainty over it.
Assimilating the entire factual scenario prevailing in the instant case, it is seen that even the principal amount of deposit made by the assessee became irrecoverable. These facts indicate that the assessee did not receive any such interest income from Rupee Co-op Bank Ltd. whose functions were banned by the RBI. When we consider the mercantile system of accounting in juxtaposition to ‘real income theory’ in the facts and the circumstances of the instant case, the inescapable conclusion which follows is that the interest income of Rs.26,125/- cannot be included in the total income of the assessee for the year under consideration. Such an income may be appropriately charged to tax on the regularisation of the operations of the bank coupled with the possibility of receipt of income in foreseeable future. Insofar as the instant year is concerned, we hold that the interest cannot be charged to tax.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the assessee arises out of the order dated 04-12-2017 passed by the CIT(A)-3, Pune in relation to the assessment year 2013-14.
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