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In the instant case, the AO made addition in respect of interest of advance. The A.O. noticed that there was no business in advancing loan to M/s. Karan Associates. It is observed by the A.O. that the loan was not given for business purpose. The assessee submitted that the loans and advances to M/s. Karan Associates were given with the intention to earn interest. The interest earned during the financial year 2005-06 was duly offered to tax. He submitted that the authorities below failed to appreciate that there is a difference between not providing interest on sticky loans and interest free loans.
Reliance is placed on the judgment of the Hon'ble Supreme Court rendered in the case of UCO bank Vs. CIT 237 ITR 889.
In the present case, it is not the case that the income has in fact accrued to the assessee. In fact, the recovery of the principal amount is in doubt. Moreover, the assessee has no where claimed as business advance, it was a simple loan on which the assessee was earning interest and offering the same for tax till A.Y. 2005-06, subsequent to it loan became bad and no interest was earned. Therefore, under the peculiarity of facts and in view of the judgment of the Hon'ble Supreme Court in the case of UCO Bank Vs. CIT (supra) and the judgment of the jurisdictional High Court in the case of State Bank of Indore Vs. ITO (supra) and the decision of the coordinate bench in the case of S.N. Chitale (supra), we direct the A.O. to delete the addition.

Shanti Prime Publication Pvt. Ltd.

Section 143 of Income Tax Act, 1961—In the instant case, the AO made addition in respect of interest of advance. The A.O. noticed that there was no business in advancing loan to M/s. Karan Associates. It is observed by the A.O. that the loan was not given for business purpose.

The assessee submitted that the loans and advances to M/s. Karan Associates were given with the intention to earn interest. The interest earned during the financial year 2005-06 was duly offered to tax. He submitted that the authorities below failed to appreciate that there is a difference between not providing interest on sticky loans and interest free loans.
Reliance is placed on the judgment of the Hon'ble Supreme Court rendered in the case of UCO bank Vs. CIT 237 ITR 889.
In the present case, it is not the case that the income has in fact accrued to the assessee. In fact, the recovery of the principal amount is in doubt. Moreover, the assessee has no where claimed as business advance, it was a simple loan on which the assessee was earning interest and offering the same for tax till A.Y. 2005-06, subsequent to it loan became bad and no interest was earned. Therefore, under the peculiarity of facts and in view of the judgment of the Hon'ble Supreme Court in the case of UCO Bank Vs. CIT (supra) and the judgment of the jurisdictional High Court in the case of State Bank of Indore Vs. ITO (supra) and the decision of the coordinate bench in the case of S.N. Chitale (supra), we direct the A.O. to delete the addition.[SHRI SACHIDANAND MADHUKARRAO CHITALE VERSUS ACIT-4 (1) INDORE] [2018] [7] [ITCD Online] [19] [ITAT INDORE]