1 ITA No. 2852/Kol/2013 Kirti Jhunjhunwala, AY 2002-03 IN INCOME TAX APPELLATE TRIBUNAL C BENCH: KOLKATA [Before Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM] I.T.A No. 2852/Kol/2013 Assessment Year: 2002-03 Income-tax officer, Wd-30(1), Kolkata. Vs. Kirti Jhunjhunwala (PAN: ACUPJ1908Q) (Appellant) (Respondent) Date of hearing: 21.09.2016 Date of pronouncement: 14.10.2016 For Appellant: Shri Rajat Kr. Kureel, JCIT, Sr. DR For Respondent: Shri Ravi Tulsiyan, FCA ORDER Per Shri M. Balaganesh, AM: This appeal by revenue is arising out of order of CIT(A)-XIV, Kolkata vide appeal No. 169/CIT(A)-XIV/09-10 dated 02.09.2013. Assessment was framed by ITO, Ward- 30(1), Kolkata u/s. 147/143(3) of Income tax Act, 1961 (hereinafter referred to as Act ) for AY 2002-03 vide his order dated 03.12.2009. 2. only issue to be decided in this appeal is as to whether ld CITA is justified in deleting addition made towards interest receivable on land on notional basis in facts and circumstances of case. 3. brief facts of this issue is that assessee is HUF following mercantile system of accounting. AO observed that assessee had advanced loan to one Shri Ashok Kumar Podder who was recognized stock broker in stock market during AY 2001-02 bearing interest rate of 18% per annum. Accordingly, for AY 2001-02, total provision of Rs.7,84,603/- was made on account of interest on said loan on accrual basis and offered tax out of which amount of Rs.5,95,479/- was realized. assessee did not charge interest on said loan during AY 2002-03. Accordingly, assessee was show caused as to why interest income on said loan should not be taxed in year under appeal at interest rate of 18%. assessee replied by stating that said party became defaulter in Stock Exchange at Kolkata and got arrested around September/October, 2002. It was also submitted that assessee along with other family 2 ITA No. 2852/Kol/2013 Kirti Jhunjhunwala, AY 2002-03 members had filed case against said party in Calcutta High Court for such default vide case No. C.S. No. 60 of 2004 dated 11.03.2004. Criminal proceedings were also initiated by family members of assessee against said defaulter in court of Ld. 12th Metropolitan Magistrate in G.R. No. 3439 of November 2001. Accordingly, it was submitted that party to whom loan was advanced became defaulter during FY 2001-02 relevant to AY under appeal and it is for this reason only, no provision for interest was credited in accounts of assessee during AY 2002-03 as revenue could not be recognized and said party being defaulter, there was no expectation of principal amount being recovered from and possibility of recovering interest was very doubtful. It was also submitted that said party was absconding and so criminal complaint was also lodged against him in November 2001 and subsequently arrest warrant was also obtained to arrest party. Thus, assessee explained that in year under appeal it had come to knowledge of assessee that principal amount itself was not recoverable and as such, question of charging interest on doubtful loan does not arise. Ld. AO, however, not being convinced with this argument proceeded to add interest component @ 18% per annum and completed assessment. 4. Before ld CITA, assessee reiterated submissions and also stated that subsequently i.e. in AY 2003-04, both principal and interest portion which was outstanding in said party s account was written off as bad debt by assessee and claimed as deduction which was also allowed by AO in assessment. It was argued that subsequent action itself strengthens non-charging of interest in AY 2002-03 and party becoming defaulter and thereby chance of recovering interest being doubtful is proved beyond doubt. Ld. CIT(A) duly appreciated contentions of assessee and deleted addition vide para 4.2 of his order by observing as under: 4.2. I have considered said submissions of appellant and I am in agreement with same. Action of Appellant by filing various cases against defaulter shows that said loan had become bad during FY 2001-02 relating to AY 2002-03 itself. Once principle amount itself had become irrecoverable and bad thereafter no presumption of accrual of interest can be drawn on said principal amount. In fact, AO himself has accepted that said loan had become bad by allowing appellant s claim in its assessment done under section 143(3) for AY 2003-04. Therefore, there is no doubt on facts that said loan had become bad and irrecoverable in FY 2001-02 itself related to present assessment year. Even AS9 makes it clear that income cannot be said to have accrued unless assessee is certain of receiving same. In present case, even principal amount had become uncertain and was also subsequently written off in immediately subsequent year and was also allowed by AO. In view of same I hold that addition of Rs.8,33,535/- made by AO is not as per law and I delete same. 3 ITA No. 2852/Kol/2013 Kirti Jhunjhunwala, AY 2002-03 Aggrieved, revenue is in appeal before us on following grounds: 1. CIT(A) erred in ignoring fact that during AY 2002-03, loan debtor of assessee was traceable, solvent and assessee should have disclosed accrued interest on loan asset existing in Balance Sheet as at 31.3.2002, as receipt. 2. CIT(A) erred in not considering fact that any incident happened to assessee in later year cannot be referred to get relief in present year. 5. Ld. DR relied on order of AO. In response to this, Ld. AR vehemently relied on order of CIT(A). 6. We have heard rival submissions and gone through facts and circumstances of case. We find lot of force in order of Ld. CIT(A) wherein categorical finding has been given that concerned loan debtor Shri Ashok Kr. Podder had become defaulter and chance of recovering even principal amount was very doubtful much less interest thereon. This finding has not been controverted by revenue before us. Under these circumstances, following principles of real income theory we hold that interest should not be brought to tax on notional basis when it is proved beyond doubt even that recovery of principal itself is in jeopardy. Hence, we do not find any infirmity in order of Ld. CIT(A) and same is hereby upheld. Appeal of revenue is dismissed. 7. In result, appeal of revenue is dismissed. Order pronounced in open court on 14.10.2016 Sd/- Sd/- (N. V. Vasudevan) (M. Balaganesh) Judicial Member Accountant Member Dated : 14th October, 2016 Jd.(Sr.P.S.) Copy of order forwarded to: 1. APPELLANT ITO, Ward-30(1), Kolkata. 2 Respondent Shri Kirti Jhunjhunwala, 68, Ballygunge Circular Road, Kolkata-700 019. 3. CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order, Asstt. Registrar. Income-tax officer, Wd-30(1), Kolkata v. Kirti Jhunjhunwala