ORDER
P. Pradhan, A.M.
1. This appeal is by the Revenue against the CIT(A)’s order, dated 26th February, 1993, for the asst. yr. 1989-90.
2. The first ground of appeal is regarding deletion of Rs. 42,27,001 on account of interest pertaining to earlier years.
3. During the course of assessment, the AO has disallowed Rs. 42,27,001 on account of interest pertaining to earlier years with the following observation :
“11. The amount of interest debited by the assessee in the accounts is Rs. 2,17,54,063. As per the Tax Audit Report a sum of Rs. 40,27,001 included therein relates to earlier years. Since the assessee is maintaining its accounts according to the mercantile system the expenditure which does not relate to the relevant accounting period cannot be allowed as a deduction in computing its income of the relevant accounting period. Consequently the same is being disallowed.”
4. On appeal by the assessee, the CIT(A) has deleted the same with the following observation :
“The next ground of appeal is against addition of Rs. 42,27,001 on account of interest.
The learned authorised representative submitted that the appellant followed mercantile system of accounting. The appellant took term loan from U.B.I. During the year under appeal, an interim injunction was prayed before the High Court restraining the bank from debiting any interest for the year 1988 which was granted vide order dated 28th December, 1988. Accordingly, no interest was charged by the bank for the period January, 1988 to March, 1988. The appellant also did not make any provision of interest for the said period to safeguard its interest before the Court in the writ. However, the bank filed a suit against the appellant for realisation of all dues including interest up to July, 1989. The copy of the said suit was communicated to the appellant before finalisation of accounts for asst. yr. 1989-90 but after finalisation of accounts for asst. yr. 1988-89. The appellant accordingly had to provide interest for the period January to March, 1988, amounting to Rs. 42,27,001 in the accounts relating to asst. yr. 1989-90 as because the accounts for the asst. yr. 1988-89 were already closed. The liability arose only during the previous year relevant to asst. yr.1989-90 though it is related to earlier year.
I have considered the submissions of the learned authorised representative and gone through the interim injunction, Suit filed by the bank and the observations of the AO made in the assessment order. There is no two opinion about the allowance of the payment of interest. The only point of dispute is in the year in which the same should be allowed. In normal circumstances the claim should have been allowed in asst. yr. 1988-89. But in this case there was abnormal situation. The AO did not consider the same on this perspective. He has made the disallowance simply stating that the expenses related to earlier year. But the fact remained that the liability arose during the previous year relevant to the asst. yr. 1989-90 consequent upon interim injunction and suit filed by the bank. In view of its business interest, the appellant was not in a position to change interest for the period January to March, 1988 in the accounts, for asst. yr. 1988-89. The matter should have been considered by the AO considering the peculiar situation of the case. The liability of the interest though relating to the asst. yr. 1988-89 arose in asst. yr. 1989-90. Therefore, there was nothing wrong in debiting the same in the accounts for asst. yr. 1989-90, in view of the fact that the accounts for asst. yr. 1988-89 were already closed. The claim was an admissible deduction and there is no bar in allowing the same in this year keeping in view the abnormal situation of the case. The addition of Rs. 42,27,001 is accordingly deleted.”
5. The Revenue is aggrieved by the said finding of the CIT(A) and is in appeal before the Tribunal.
6. During the course of appeal hearing, learned Departmental Representative fully relied on the findings of the AO. Learned authorised representative of the assessee, on the other hand, relied on the finding of the CIT(A) and also submitted that the assessee maintains books of account on mercantile basis. The interest accrued on term-loan taken from UBI is provided for the full year. It was also submitted that during the year under appeal, and interim injunction was prayed for before the Hon’ble Calcutta High Court for restraining the UBI from debiting any interest for the year 1988 and the Hon’ble High Court has acceded to its prayer and hence for the asst. yr. 1988-89 the assessee did not charge any interest for the period from January, 1988 to March, 1988.
7. It is also submitted that subsequently the bank filed a suit No. 51 of 1989 for realising the dues which includes interest up to 24th July, 1989, and the copy of the said suit was communicated to the assessee before finalisation of the account for the asst. yr. 1989-90 and as such, the assessee had to provide interest for the period from January, 1988 to March, 1988, amounting to Rs. 40,27,001 in the accounts for the year beyond 31st March, 1989, relevant to the asst. yr. 1989-90. In view of the above facts, it is submitted that the liability of payment of interest of Rs. 40,27,001 relating to the period from January, 1988 to March, 1988 arose during the year because of the claim of the bank presented in the suit filed before the Hon’ble High Court and hence, the said interest though relating to earlier year is allowable as deduction in the year under appeal, and the CIT(A) has rightly deleted the same which should be upheld. The authorised representative has also filed a paper-book containing pp. 1 to 22.
8. We have considered the submissions of the parties, gone through the case laws relied on by the Departmental Representative and have also gone through the paper-book filed by the relevant authorised representative of the assessee and are not inclined to agree with the findings of the CIT(A). The only issue involved in the present appeal is regarding the allowability of deduction of interest of Rs. 42,27,001. The Departmental stand is that the amount in question cannot be allowed as deduction in the asst. yr. 1989-90, whereas the assessee’s stand is that he is entitled for the deduction in the asst. yr. 1989-90, which has also rightly been allowed by the CIT(A). After carefully considering the various issues involved in the present ground, we are inclined to agree with the findings of the AO and the submissions made by the learned Departmental Representative. In this connection it may be mentioned that it is not in dispute that as per the interim injunction prayed for by the assessee, Hon’ble Calcutta High Court has acceded to the request of the assessee for not charging interest for the year 1988 but the bank filed a suit No. 51 of 1989 for realising all the dues and the copy of the said suit was communicated to the assessee before finalisation of the accounts for the year under appeal. The assessee has accordingly charged interest on the basis of the receipt of the suit copy without waiting for the result or outcome of the said suit. This according to us is not in order as the interim order of the Hon’ble High Court and the suit of the bank are in a flux and fluid stage. Therefore, debiting of the interest during the year under appeal is not at all correct. We may also mention here that at the time of hearing before as it was specifically asked regarding the fate of the said suit by the bank and it was stated that the said suit is still pending for disposal. In this connection, we may further mention the Supreme Court decision in the case of CIT vs. Hindustan Housing & Land Development Trust Ltd (1986) 161 ITR 524 (SC).
9. Their Lordships in the said case at p. 527 have held that “As long as E. D. Sassoon & Co. vs. CIT (1954) 26 ITR 27 (SC), this Court considered the question as to the point at which income could be said to accrue or arise to an assessee for the purpose of the Indian IT Act. In the majority judgment delivered by N. H. Bhagwati, J., it was explained that the words ‘arising or accruing’ describe a right to receive profits, and that there must be a debt owed by somebody, it was observed, it cannot be said that he has acquired a right to receive the income or the income has accrued to him’. Their Lordships have also observed that a mere claim by the assessee is not enough. It must not be forgotten that even if a Court has awarded some amount, there is right of appeal by the Government to the High Court and the High Court may either disallow that claim or reduce the amount. As against that judgment, there is further right of appeal to the Supreme Court. The assessee also can appeal against the insufficiency of the amount granted. Therefore, in these circumstances it can be said that the income would arise or accrue only when it is finally determined. Similarly in the case of State Bank of Travancore vs. CIT (1986) 158 ITR 102 (SC) at para 2 of p. 121 it was held that Taxability is attracted not merely when income is actually received, but also when it is accrued’, and it is also true, as has been explained by this Court in CIT vs. K. R. M. T. T. Thiagaraja Chetty & Co. (1953) 24 ITR 525 (SC), and Morvi Industries Ltd. vs. CIT (1971) 82 ITR 835 (SC) that income accrues when it ‘falls due’, that is to say, when it becomes legally recoverable irrespective of whether it is actually received or not and ‘accrued income’ is that income which the assessee has a legal right to receive.”
10. The above ratio is applicable both in case of ‘income’ and ‘expenditure’ also. Unless the income or the expenditure is ascertained and they are contingent, it cannot be allowed as deduction. In the instant case, the claim of the assessee is merely on the ground of filing of the suit by the bank and the claim of the same on the basis of the receipt of the copy of the suit cannot be allowed as deduction without the said suit attaining its finality. In view of the above cited facts and considering the entire facts and circumstances of the case, we held that the CIT(A) is not justified in deleting the interest in the question and accordingly we reverse his findings and restore that of the AO.
11. The next ground of appeal is regarding the deletion of interest on loan which were not utilised for the purpose of assessee’s business. In this connection learned Departmental Representative relied on the decisions of the Allahabad High Court in the case of the CIT vs. Saraya Sugar Mills (P) Ltd. (1992) 193 ITR 575 (All) and of Bombay High Court in the case of Phaltan Sugar Works Ltd. vs. CWT (1994) 208 ITR 989 (Bom). The learned authorised representative of the assessee, on the other hand, submitted that the question has clearly been covered in the decision of Tribunal in the assessee’s own case for the asst. yrs. 1986-87, 1987-88 and 1988-89 in ITA Nos. 2961/Cal/1991, 2962/Cal/1991, and 439/Cal/1992 disposed of on 6th January,1993.
12. We have considered the submissions of the parties, gone through the case laws relied on by the learned Departmental Representative and find that those case laws are not applicable to the present case. The issue in question is clearly covered by the order of the Tribunal in the assessee’s own case as referred to in the foregoing paragraph. Therefore, respectively following the said decision in this year also we held that the deletion of interest by the CIT(A) is in order and the same is accordingly upheld and the Revenue’s ground on this issue is dismissed.
13. The last ground of appeal is regarding addition of Rs. 18,15,609 on account of apportionment of green leaves. The assessee was aggrieved by the apportionment made by the AO and took up the issue to the first appellate authority. The first appellate authority has directed the AO to accept the basis adopted in earlier years and modify the assessment accordingly. The Revenue is aggrieved by the said finding of the first appellate authority and is in appeal before the Tribunal.
14. Learned Departmental Representative in this connection relied on the findings of the AO and the learned authorised representative on the findings of the CIT(A). Learned authorised representative of the assessee further submitted that in view of the CIT(A)’s order dated 23rd November, 1992, for the asst. yr. 1988-89 and order under s. 251 of the IT Act, dated 2nd February, 1993, for the asst. yr. 1988-89, it is submitted that the computation as made by the AO after the direction of the CIT(A) is in order. Moreover, it is submitted that the assessee is consistently following the method of apportionment regularly from year to year and there is no change during the year under appeal also. Therefore, the deviation of the same by the AO without specifying any acceptable reason is not in order. Therefore, the CIT(A) is justified in deleting the same which should be upheld.
15. We have considered the submissions of the parties, gone through the records and inclined to agree with the findings of the CIT(A) and the submission of the learned authorised representative of the assessee. Normally any settled issue should not be unsettled unless there is compelling reason and circumstances for doing so. In the instant case, no such material has been brought by the Revenue to do so. Therefore, we concur with the finding of the CIT(A) and upheld the same and dismissed the ground of the Revenue on this issue.
16. In the result, the appeal is allowed in part.