D.b. Income Tax Appeal v. Assistant Commissioner Of Income Tax, Circle-6, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 105 / 2012 Rajasthan State Beverages Corporation Limited Having ItsPrincipal Office At Vitta Bhawan, D-Block, First Floor, JaipurThrough Its General Manager, Aged About 50 Years, (Finance), Sh.Sarvesh Tiwari S/o Sh. G.l. Tiwari, R/o Milap Nagar, Tonk Road,Jaipur ----Appellant Versus Assistant Commissioner of Income Tax, Circle-6, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sanjay Jhanwar with Ms. Archana For Respondent(s) : Mr. K.D. Mathur and Mr. Prateek Kedawat for Mr. R.B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 11/09/2017 1.By way of this appeal, the assessee has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the assessee confirming the order of A.O.as well as CIT(A). 2.While admitting the matter on 24.09.2012, the Court framed the following substantial questions of law:- “1.Whether under the facts and circumstances of the caseand in law the order passed by the learned ITAT is notperverse, arbitrary and without application of mind?and in law the order passed by the learned ITAT is notperverse, arbitrary and without application of mind? 2.Whether the demurrage charge to the tune orRs.7,70,806/- itself exempted/waived by the assesseeduring the accounting year itself can be considered to bean income ‘accrued’ to the assessee under mercantilesystem of accounting for holding it as taxable income ofthe assessee under the provisions of Income Tax Act,Rs.7,70,806/- itself exempted/waived by the assesseeduring the accounting year itself can be considered to bean income ‘accrued’ to the assessee under mercantilesystem of accounting for holding it as taxable income ofthe assessee under the provisions of Income Tax Act, 1961? 3.Whether the compass/ambit of the provisions contendunder Income Tax Act, 1961 is not restricted to taxing of‘real income’ of an assessee only and cannot be stretchfurther to tax an income which has neither received norreceivable and is therefore hypothetical in nature?” 3.Brief facts of the case are that the appellantCorporation is carrying on the business of canalizing the sale ofIndian made foreign liquor (IMFL) and Beer and to regulate theliquor distribution in the State of Rajasthan. 4.Counsel for appellant has taken us to balance sheet as at 31.03.2007 and he has also taken us to the page 47 and50 of Second Annual Report 2006-07 of the assessee which reads as under:- Auditor’s Report Reply (f) Refer Note No. 08 in Notes onDemurrage charges, if any, uptoaccounts during the year company31.03.06 on these brands werehas sold unapproved brands for Rs.recovered. Considering slow moving19,81,205/- which is contrary to LSPnature of these brands and respective2007. Demur-rage charges of Rs.manufacturers are no longer as7,70,806/- not credited to profit &sociated and registered their brandsloss account on sale of unapprovedto Corporation, leave no option tobrand. Thus the profit are understandCorporation, but to exempt theby Rs. 7,70,806.00 and consequentlydemurrage charges, if any.Loans and Advanaces are understatedby Rs. 5,00,080/- and Currentliabilities are overstated by Rs.2,70,726.00/-. 5.He contended that authority has taken the view contrary to the following judgments of the Supreme Court:- 1. Godhra Electricity Co. Ltd. vs. Commissioner of Income Tax(1997) 225 ITR 0746 which reads as under:- “6. Under the Act income charged to tax is the incomethat is received or is deemed to be received in India in 5.He contended that authority has taken the view contrary to the following judgments of the Supreme Court:- 1. Godhra Electricity Co. Ltd. vs. Commissioner of Income Tax(1997) 225 ITR 0746 which reads as under:- “6. Under the Act income charged to tax is the incomethat is received or is deemed to be received in India in the previous year relevant to the year for whichassessment is made or on the income that accrues orarises or is deemed to accrue or arise in India duringsuch year. The computation of such income is to be madein accordance with the method or accounting regularlyemployed by the assessee. It may be either the cashsystem where entries are made on the basis of actualreceipts and actual outgoings or disbursements or it maybe the mercantile system where entries are made onaccrual basis, i.e., accrual of the right to receive paymentand the accrual of the liability to disburse or pay. In CITvs. Shoorji Vallabhdas & Co. (supra), it has been laiddown: “Income-tax is a levy on income. No doubt, the IT Acttakes into account two points of time at which theliability to tax is attracted, viz., the accrual of the incomeor its receipt, but the substance of the matter is theincome. If income does not result at all, there cannot bea tax, even though in book-keeping, an entry is madeabout a hypothetical income, which does notmaterialise.” This principle is applicable whether the accounts aremaintained on cash system or under the mercantilesystem. If the accounts are maintained under themercantile system what has to be seen is whetherincome can be said to have really accrued to theassessee-company. In H.M. Kashiparekh & Co. Ltd. vs.CIT (1960) 39 ITR 706 (Bom) : tc 39R. 791, theBombay High Court had said: “Even so, (the failure to produce account losses) weshall proceed on the footing that the assessee-companyhaving followed the mercantile system of account, theremust have been entries made in its books in theaccounting year in respect of the amount of commission.In our judgment, we would not be justified in attachingany particular importance in this case to the fact thatthe company followed mercantile system of accounting.They would not have any particular bearing in applyingthe principle of real income in the facts of this case.” The said view was approved by this Court in CIT vs. BirlaGwalior (P) Ltd. (supra) where the assessee maintainedits accounts on the mercantile system. In that case thisCourt, after referring to the decision in Morvi IndustriesLtd. vs. CIT 1974 CTR (SC) 149 : (1971) 82 ITR 835(SC) : TC 39R. 720, which was also a case where theaccounts were maintained on mercantile system, hassaid: “Hence, it is clear that this Court in Morvi Industriescase did emphasise the fact that the real question fordecision was whether the income had really accrued or not. It is not a hypothetical arrrual of income that hasgot to be taken into consideration but the real accrualof the income.” In Poona Electric Supply Co. Ltd. vs. CIT (supra), thisCourt has said: “Income-tax is a tax on the real income, i.e., the profitsarrived at on commercial principles subject to theprovisions of the IT Act.” In that case the Court has approved the followingprinciple laid down by the Bombay High Court in H.M.Kashiparekh & Co. Ltd. vs. CIT (supra) : “Hence, it is clear that this Court in Morvi Industriescase did emphasise the fact that the real question fordecision was whether the income had really accrued or not. It is not a hypothetical arrrual of income that hasgot to be taken into consideration but the real accrualof the income.” In Poona Electric Supply Co. Ltd. vs. CIT (supra), thisCourt has said: “Income-tax is a tax on the real income, i.e., the profitsarrived at on commercial principles subject to theprovisions of the IT Act.” In that case the Court has approved the followingprinciple laid down by the Bombay High Court in H.M.Kashiparekh & Co. Ltd. vs. CIT (supra) : “The principle of real income is not to be so subordinatedas to amount virtually to a negation of it when asurrender or concession or rebate in respect of managingagency commission is made, agreed to or given ongrounds of commercial expediency, simply because ittakes place some time after the close of an accountingyear. In examining any transaction and situation of thisnature the Court would have more regard to the realityand speciality of the situation rather than the purelytheoretical or doctrinaire aspect of it. It will lay greateremphasis on the business aspect of the matter viewed asa whole when that can be done without disregardingstatutory language.” An acceptable formula of co-relating the notion of realincome in conjunction with the method of accounting forthe purpose of the computation of income for thepurpose of taxation is difficult to evolve. Besides, anystrait-jacket formula is bound to create problems in itsapplication to every situation; it must depend upon thefacts and circumstances of each case. When and howdoes an income accrue and what are the consequencesthat follow from accrual of income is well-settled. Theaccrual must be real taking into account the actuality ofthe situation. Whether an accrual has taken place or notmust, in appropriate cases, be judged on the principlesof real income theory. After accrual, non-charging of taxon the same because of certain conduct based on theipse dixit of a particular assessee cannot be accepted. Indetermining the question whether it is hypotheticalincome or whether real income has materialised or not,various factors will have to be taken into account. Itwould be difficult and improper to extend the concept ofreal income to all cases depending upon the ipse dixit ofthe assessee which would then become a valuejudgment only. What has really accrued to the assesseehas to be found out and what has accrued must beconsidered from the point of view of real income takingthe probability or improbability of realisation in arealistic manner and dovetailing of these factors together but once the accrual takes place, on theconduct of the parties subsequent to the year of closingan income which has accrued cannot be made ‘noincome’ together but once the accrual takes place, on theconduct of the parties subsequent to the year of closingan income which has accrued cannot be made ‘noincome’ 7. If the matter is examined in the light of theaforementioned principles laid down by this Court, itmust be held that even though the assessee-companywas following the mercantile system of accounting andhad made entries in the books regarding charges forthe supply made to the consumers, no real income hadaccrued to the assessee-company in respect of thoseenhanced charges in view of the fact that soon after theassessee-company decided to enhance the rates in1963 representative suits (Civil Suits Nos. 152 of 1963and 50 of 1964) were filed by the consumers whichwere decreed by the trail Court and which decree wasaffirmed by the appellate Court and the learned singlejudge of the High Court and it is only on 8[th] Dec., 1968that the Letter Patent Appeals filed by the assessee-company were allowed by the Division Bench of theHigh Court and the said suits were dismissed. Butappeal were filed against the said judgment by theconsumers in this court and the same were dismissedby the judgment of this Court dt. 26[th] Feb., 1969.Shortly thereafter, on 19[th] March, 1969, the UnderSecretary to the Government of Gujarat wrote a letteradvising the assessee-company to maintain the statusquo for the rates to the consumers for at least sixmonths and the Chief Electrical Inspector was directedto go through the account of the assessee-companyfrom year to year and to report to the Governmentabout the actual position about the reasonable returnsearned by the assessee-company. On 16[th] May,1969 another representative suit (Suit No. 118 of 1969)was filed by the consumers wherein interim injunctionwas granted by the Court and which was finally decreedin favour of the consumers on 23[rd] June, 1974. It wouldthus appear that appear that after the decision wastaken by the assessee-company to enhance the chargesit was not able to realise the enhanced charges onaccount of pendency of the earlier representative suitsof the consumers followed by the letter of the UnderSecretary to the Government of Gujarat and thesubsequent suit of the consumers and during thependency of the subsequent suit the management ofthe undertaking of the assessee-company was takenover by the Government of Gujarat under the Defenceof India Rules, 1971 and the undertaking wassubsequently transferred to the Gujarat State ElectricityBoard. It is no doubt true that the letter addressed by theUnder Secretary to the Government of Gujarat to theassessee-company had no legally binding effect but onehas to look at things from practical point of view. [Sec :R.B. Jodha Mal Kuthiala vs. CIT (supra )]. The assessee-company, being a licensee, could not ignore thedirection of the State Government which was couched inthe form of an advice, whereby the assess-company wasasked to maintain the status quo for at least six monthsand not to take steps to recover the dues towardsenhanced charges from the consumers during thisperiod. Before the expiry of the period of six months thesubsequent suit had been filed by the consumers andduring the pendency of the said suit the undertaking ofthe assessee-company was taken over by theGovernment of Gujarat under the Defence of IndiaRules, 1971 and subsequently it was transferred to theGujarat State Electricity Board and, as a result, theassessee-company was not in a position to take steps torecover the enhanced charges. 8. The High Court has observed that the subsequent suitthat was filed on 16[th] May, 1969 related to recovery ofenhanced charges for the period subsequent to 31[st]March, 1969 and not prior thereto. We have, however,perused the judgment of the Joint Judge (JuniorDivision), Godhra dt. 20[th] June, 1974 in the said suitwhich was annexed as Annexure ‘D’ to the statement ofthe case. The said judgment does not show that the suitwas confined to the period subsequent to 31[st]March,1969. On the other hand, it shows that theplaintiffs in that suit were challenging the enhancementin charges made in 1963 and had sough a declarationthat the assessee-company was not entitled to recovermore than 31 paise per unit for light and fans and 20paise per unit for motive power and the trial Court, whiledecreeing the said had given a declaration in theseterms. The said declaration is not confined to the periodsubsequent to 31[st] March, 1969. 6.In Commissioner of Income Tax vs. BalarampurCommercia Enterprises Ltd. (2003) 262 ITR 0439 as under :- 15. The assessee cannot escape the liability to tax byomitting to make an entry or making a wrong entry in theaccounts. The date of taxability of income is the datewhen the appropriate entries are made or should be madein the accounts in accordance with the method ofaccounting regularly employed by the assessee. Thesubstantive part of s. 36(1) (vii) makes it clear that the income is to be computed ‘in accordance with the methodof accounting regularly employed’. The ITO may include inthe computation of income an amount which does notfigurre in the accounts but the inclusion of which isrequired by the assessee’s method of accounting that is tosay, the ITO may, without deviating from the assessee’smethod, make such adjustment in the P&L a/c as thenecessary for giving full and true effect to that methoditself. Having adopted a regular method of accounting, theassessee cannot be allowed to change it or depart from itfor a particular year or for part of the year or in respect ofparticular transaction. 17. It is settled that the income of the assessee is to bedetermined according to the provisions of the Act inconsonance with the method of accountancy regularlyemployed by the assessee. The method of accountingregularly employed by the assessee helps thecomputation of income, profit and gains under s. 28 ofthe Act and the taxability of that income under the Actwill then have to be determined. The question is, whetherthe income, which has been computed according to themethod of accounting followed regularly by an assesseecan be diminuted or diminished by any notion of realincome. This has to be judged in the light of the well-settled principles. 17. It is settled that the income of the assessee is to bedetermined according to the provisions of the Act inconsonance with the method of accountancy regularlyemployed by the assessee. The method of accountingregularly employed by the assessee helps thecomputation of income, profit and gains under s. 28 ofthe Act and the taxability of that income under the Actwill then have to be determined. The question is, whetherthe income, which has been computed according to themethod of accounting followed regularly by an assesseecan be diminuted or diminished by any notion of realincome. This has to be judged in the light of the well-settled principles. 22. The concept of real income is now an acceptedproposition. But it has to be applied in a given casedepending on the facts and circumstances. No strait-jacket formula can be involved. In the mercantile systemof accounting, income accrues as soon it is due to accrue.Such accrual of income is required to be reflected in thebook of accounts. The system of accounting cannot bealtered or changed. Once it is entered in the book ofaccount that the income has accrued, the same becomeschargeable to tax. Such chargebility continues even if theassessee waives or gives up the interest subsequently.But despite the income having accrued under themercantile system, the income is not entered in the booksof account in the relevant previous year, then such non-entry can be construed to establish that the income hasnot accrued. But this is dependent on the facts andcircumstances of the case and the conduct of theassessee. Whether the facts and circumstances of thecase and the conduct of the asseessee establish that theincome has not accrued is a question of afct. The AO hasto decide this question having regard to the facts andcircumstances of each case. The subsequent attempt torecover the income will not negative the non-entry in thebooks of accounts and render the income to haveaccrued. If the debt becomes bad and the assessee treats the same as bad debt and such treatment is apparentfrom the facts of the case and the conduct of theassessee and it can be so concluded by the AO, in thatevent, subsequent attempt to recover the bad debt wouldnot mean that the income had accrued in that particularprevious year. It is not when the amount becomesrecoverable and not when the assessee gives up the claimthat the debt becomes bad. It is not that if the debt is noteasy to recover, the debts become bad. A debt becomesbad when the recovery is commercially inviable. At thesame time, it is not that when the debt becomesirrecoverable, the debt becomes bad but depends on thefacts of each case to ascertain whether the debt was bad.This bad debt is to be determined on the basis of theevidence that might be on record with relation to the factsas well as the conduct of the parties as to how it wastreated. If it appears that after a debt is treated to be abad debt and then in the subsequent year the debt appears to have been recovered, then itwould be treated to be deferment of income to avoidtaxability in a particular year. By introducuing the conceptof real income, an assessee cannot be allowed to defer anincome to the subsequent previous year in order to avoidtaxability of the income in the relevant previous year. Butfiling of suit for recovery of the amount would definitelybe a factor coupled with the conduct of the parties toestablish that the debt has become bad debt and requiresto be recovered through a long drawn proceedings of asuit. When the assessee treats a debt to have becomebad and waives the accrual of the income by omitting toenter the income in the books of account, then theconcept of real income comes into play. The accounting isfinalized at the end of the previous year, therefore, even ifa decision is taken after the end of the previous year, butwithin a reasonable proximity pursuant to a consideration,which weighed with the assessee during the course of theprevious year fructifying into a formal resolution after theclose of the previous year, then the decisions cannot besaid to be inapplicable in respect of the relevant previousyear for which the decision was taken. If in case therewas nothing to indicate that this question was not underconsideration of the assessee before closing of theprevious year, then the question might be otherwise theconcept of reality of the income and the actuality of thesituation depending on the conduct of the parties arerelevant factors which go to the making of the accrual ofthe income. But one accrual takes place and incomeaccrues, the same cannot be defeated by any theory ofreal income. 23. In the present case, it appears that the decision wastaken on 1[st] Aug, 1987, yet it would be applicable inrespect of previous year beginning from 1[st] July, 1986,as it appears from its implementation from January,1988. A subsequent failure was not conceived of by theassessee at the time when the decision was taken.Therefore, the same would not be relevant for thepurpose of treating the situation differently when onekind of treatment was given by the assessee to theaccrual of the income. In the present case, the assesseehad omitted to enter the accrual of the income in thebooks of accounts and, therefore, the conduct hadsupported his case that the assessee had treated thatthere was no income in reality. In the present case,even though income had accrued, yet it cannot be saidto have been accrued in reality even if the mercantilesystem is followed when it reality no interest hadaccrued and subsequent revival would not make thesame liable to tax and for that particular year it may beliable to tax after it succeeds and the amount is receivedby the asessee. But it is to be seen whether havingregard to the facts and circumstances of the case, theassessee was abusing or misusing the concept of realincome or not. In the present case, there is noallegation that there is any male fide on the part of theassessee for postponing or shifting the income tosubsequent years for the purpose of taxation. In fact,the suit is still pending and it is yet to be decided. 24. Applying the test as discussed above, in the presentcase, in our view, the income cannot be treated to havebeen accrued as was rightly found by the learnedTribunal. We, therefore, answer the question in theaffirmative in favour of the assessee. 7.In case [A] Shiv Parkash Janakraj & Co. (p) Ltd. vs. Commissioner of Income Tax (1987) 112 ITR 872 (P&H) asunder:- 24. Applying the test as discussed above, in the presentcase, in our view, the income cannot be treated to havebeen accrued as was rightly found by the learnedTribunal. We, therefore, answer the question in theaffirmative in favour of the assessee. 7.In case [A] Shiv Parkash Janakraj & Co. (p) Ltd. vs. Commissioner of Income Tax (1987) 112 ITR 872 (P&H) asunder:- 11. The submissions made by Mr. Awasthy are not whollywithout force but we are of the view that the decision ofthe case stands concluded against the Revenue by arecent judgment of their Lordships of the Supreme Courtin CIT vs. Birla Gwalior (P) Ltd. 1973 CTR (SC) 349:(1973) 89 ITR 266 (SC). In that case, the assessee-respondent was a managing agent of the National BearingCo. Ltd. And Gwalior Rayon & Silk Manufacturing Co. Asmanaging agent of the former company it was entitled toreceive a commission of 12 1/2percent. on the net profitsof the managed company together with a sum of Rs.18,000 as office allowance. In the case of the latter company it was entitled to get an office allowance of Rs.30,000 per year in addition to the agreed managingagency commission. In the relevant accounting years theassessee gave up the managing agency commission duefrom both the managed companies. It also gave up theoffice allowance due from Gwalior Rayon & SilkManufacturing Company. The question arose whether theamounts of Rs. 30,00 representing the office allowance, itwas held by the Tribunal that because of the sacrificesmade by the assessee-company, the finances of themanaging company improved subsequently as a result ofwhich the assessee-company was able to earn moreprofits in the later years. On the basis of this finding, theCourt held that the Tribunal was fully justified in comingto the conclusion that the expenditure incurred camewithin the scope of s. 10(2)(xv) of the Act. With regard tothe other matter, the Court observed as under: “Now turning to the question regarding giving up of thecommission, as mentioned earlier, the assessee wasmaintaining its accounts on the basis of the mercantilesystem. Its accounting year was the financial year. It gaveup the commission after the end of the financial year.Onthe basis of these facts it was contended on behalf of theRevenue that the commission had accrued before it wasgiven up. Hence, it cannot be said that the assessee hadnot earned the commission in question. Therefore, theassessee’s case cannot be considered under s. 10(1). Weare unable to accept this conception as correct. Asmentioned earlier, no due date was fixed for the paymentof the commission under the managing agencyagreements. The commission receivable could have beenascertained only after the managed company made up itsaccounts. Hence, the mercantile system cannot lead tothe conclusion that the commission had accrued to it bythe end of the relevant accounting year.” 12. As observed earlier, no interest had actually been paidto the assessee-company nor had it made any debitentries in its account books. No date was fixed in theagreement of loan regarding the payment of the interest.In these circumstances, even if the assessee-companyhad adopted the mercantile system of accounting, itcannot be said that income from interest had actuallyaccrued to it on October 31, 1970. 13. Mr. Awasthy then relied upon CIT vs. Dr. Sham LalNarula (1972) 84 ITR 625 (Punj), for the proposition thatwhere the rate of interest is specified, it must be deemedto accrue at the end of the year. That case is alsodistinguishable. Because the assessee in that case hadbeen paid accumulated interest on the amount awardedby the Land Acquisition Collector as compensation to 13. Mr. Awasthy then relied upon CIT vs. Dr. Sham LalNarula (1972) 84 ITR 625 (Punj), for the proposition thatwhere the rate of interest is specified, it must be deemedto accrue at the end of the year. That case is alsodistinguishable. Because the assessee in that case hadbeen paid accumulated interest on the amount awardedby the Land Acquisition Collector as compensation to him, and the Division Bench clearly observed that theinterest on the compensation amount was paid to theassessee in order to compensate for the loss of incomewhich would have accrued to him year after year. Theanalogy of that case cannot be extended to the case of aloan advanced under an oral agreement. 8.In case of Commissioner of Income Tax vs. Giriraj Udyog (P) Ltd. (2005) 273 ITR 495 (All) as under:- “However, on scrutiny of the facts as found by theTribunal, we are of the considered opinion that thejudgment of the Supreme Court given in the case ofBirla Gwalior (P) Ltd. (supra), is nearer on the facts thanto the judgment given in the case of Shiv PrakashJanakraj & Co. (P) Ltd. (supra). At this stage it is apt torecapitulate the facts, as found by the Tribunal, to whichno dispute was raised by the Department. The Tribunalhas found that no date was fixed for payment ofinterest. Secondly the borrowers were agriculturists orstores who stored potatoes in the cold storage of theassessee. The genuineness of the money advanced bythe assessee to the stores, etc., was also not in dispute.The Tribunal has also come to the conclusion that theDepartment has failed to discharge the burden to provethat interest, in fact, accrued to the assessee and, assuch, the inclusion of interest income were unjustified.The assessee decided not to charge the interest beforethe end of the accounting year relevant to theassessment year in question. In the case of ShivPrakash Janakraj & Co. (P) Ltd. (supra), the finding ofthe Tribunal, which heavily weighed in the SupremeCourt was that the assessee-compnay made advances tothe firm in which the directors/shareholders of theassessee-company were interested and it was a case ofcollusion between them to evade tax liability. In the casein hand there is no such finding by any of the authoritiesincluding the Tribunal. In contra the finding is that theloan transactions were genuine transactions. The sundrydebtors stored potaotes in the storage of the assessee-company. In the absence of fixation of any date oraccrual of interest it cannot be said that any interestaccrued to the assessee-company. Also the assessee-company before the close of the accounting yeardecided not to charge any interest from its debtorswhose outstandings were for more than six months. 7. In the absence of any finding that waiver of interestwas actuated by any other consideration other than the business expediency on the totality of the facts of thecase, the view taken by the Tribunal is legally correct 8.Therefore, the finding of the Tribunal that even if theassessee is maintaining the accounts in the mercantilesystem, the interest did not accrue to it, is on terrafirma. We find no illegality in the order of the Tribunal.The question of law is decided in the affirmative, i.e.,against the Revenue and in favour of the assessee.” 9.In case of Commissioner of Income Tax vs. Rajasthan Financial Corporation (1994) 205 ITR 0478 as under :- 7. In the absence of any finding that waiver of interestwas actuated by any other consideration other than the business expediency on the totality of the facts of thecase, the view taken by the Tribunal is legally correct 8.Therefore, the finding of the Tribunal that even if theassessee is maintaining the accounts in the mercantilesystem, the interest did not accrue to it, is on terrafirma. We find no illegality in the order of the Tribunal.The question of law is decided in the affirmative, i.e.,against the Revenue and in favour of the assessee.” 9.In case of Commissioner of Income Tax vs. Rajasthan Financial Corporation (1994) 205 ITR 0478 as under :- “We have considered over the matter. Normally, wewould have agreed with the submission of the learnedcounsel for the Revenue that in the absence of writtencommunication the interest will be deemed to haveaccrued irrespective of the fact that it has no beenreceived. The assessee has produced the copy of theminutes which was recorded by the Secretary of theassessee with regard to his discussion with Jt. Secretary,Govt. of India in which the Jt. Secretary had informedhim that the assessee’s claim for interest had beenrejected. The said minutes have been recorded in theregular course of its business by the assessee-companyand have not been disbelieved. It is mentioned in theorder that there was a charge in the policy of the Govt.of India with regard to the payment of interestsubsequently which covers even the period underdispute. In these circumstances, the Tribunal wasjustified in upholding the order of CIT with regard todeletion of the amount of rs.56,493 which was added bythe ITO as interest accrued in the income of thecompnay.” 10.Learned counsel has further taken us to the order of AO which reads reads as under:- “4. Demurrage charges:- It is also mentioned in the annexure to he audit reportthat during the year the company has sold unapprovedbrands for Rs. 19,81,205/- which was contrary to liquorsupply policy 2007. Demurrage charges of Rs. 7,70,806/-were not credited to the profit and loss account onaccount of sale of unapproved brands. Thus the profits ofthe company were under stated by Rs. 7,70,806/-. TheA/R of the assessee could not furnish any convincingreply to the same. Accordingly, the same is added to thereturned income of the assessee. Penalty proceeding u/s 271(1)(c) are intiated for concealing the particular of thisincome.” 11.He has further invited our attention to the order of Tribunal which is as under:- “7. We have heard both the parties. Theassessee is following the mercantile system ofaccounting. In this system, one has to ascertainas to whether any item of profit or expenditurehas accrued or not. An entry in the books ofaccount is not conclusive to decide the issue. Sutlej Cotton Mills Ltd. V CIT 116 ITR 1 (S. C.) CIT V Shoorgi Vallabhdass arcl Co. 46 ITR 144 (S.C.) CIT V India Discount Co. Ltd. 75 ITR 191 (S.C.) Tuticorin Alkali and chemicals and Fertilisers Ltd. V CIT 227 ITR 172 (S.C.)” 12.We have heard learned counsel for the parties. 13.Taking into consideration the judgment in GodhraElectricity Co. Ltd. vs. Commissioner of Income Tax (1997) 225 ITR 0746, the issue is required to be answered in favour ofassessee and against the Department. 14.The appeal stands allowed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J.