IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM WEDNESDAY, THE 5TH AUGUST 2009 / 14TH SRAVANA 1931 ITA.No. 874 of 2009() --------------------- ITA.134/COCH/2005 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT --------------------------------------- THE COMMISSIONER OF INCOME TAX, THRISSUR. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): RESPONDENT ------------------------- M/S.MALABAR CEMENTS LTD., WALAYAR, PALAKKAD. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 05/08/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & C.K.ABDUL REHIM, JJ. .................................................................... I.T. Appeal No.874 of 2009 .................................................................... Dated this the 5th day of August, 2009. JUDGMENT Ramachandran Nair, J. The question raised is whether Tribunal was justified in confirming the order of the first appellate authority cancelling the assessment of interest on loans advanced by the respondent to other Government Companies. We have heard Senior counsel appearing for the appellant and have gone through the Tribunal's order. 2. Even though Senior counsel has cited decisions of the Supreme Court in COMMISSIONER OF INCOME TAX V. STATE BANK OF TRAVANCORE reported in 158 ITR 102 and in COMMISSIONER OF INCOME TAX V. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. reported in 182 ITR 67, we do not think these decisions have any application because of the peculiar facts in this case. Respondent-assessee is a Company completely owned and controlled by the Government of Kerala. It has advanced certain loans to other companies also under the control of the 2 Government. Even though respondent debited the account of those companies and credited interest for the loans advanced, it was later realised that most of the loanees had become defunct and sick industries. Consequently not only that interest will not be recoverable, but the loan advanced had become doubtful. In the circumstances, the company reversed the credit entries in the accounts and discontinued charging interest on the loanees. Even though the Assessing Officer treated the initial credit entries as accrued interest, on facts the appellate authorities including the Tribunal held that in fact interest had not accrued to the respondent. We do not find any justification to interfere with the order of the Tribunal because no prudent lender will credit interest and pay tax on a debt which has become bad or doubtful. However, we make it clear that if any interest is recovered, the same should be accounted and tax also should be paid on cash basis. C.N.RAMACHANDRAN NAIR Judge C.K.ABDUL REHIM Judge pms