Question No.2: How far is the principal of AS 9 applicable in this case. Is AS 9 notified by ICAI and CBDT?
Mr. A deposited Rs. 5 Lakh in ABC Ltd, which paid interest @ 12% p.a to him. Mr. A showed interest as income in its profit & loss Account upto 31-03-2000.However ABC Ltd became insolvent after 31-03-2000 and later went into liquidation. Mr. A did not receive any interest and as there was no possibility of receiving any interest Mr. A did not show interest income on investment with ABC Ltd after 01-04-2000 to 31-03-2005. Mr. A followed mercantile system of Accounting. However the income Tax officer is not convinced and has added beck the interest accrued on deposit with ABC Ltd. on the ground that since Mr. A follows mercantile system of accounting hence Mr. A must show the interest due as income in its profit & loss for the period 01-04-2000 to 31-03-2005.
Question no.1: Is the action of the assessing officer correct in holding that the interest should be taken in to account on accrual basis even as the ABC Fin. Services Ltd where the Mr. A invested money has gone into liquidation or became insolvent? Is there case law or legal provision in the matter ?
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