JUDGMENT : K.S. Jhaveri, J. 1. As the questions referred to this Court in all these appeals are common, at the request of learned advocates, the appeals are heard together and are disposed of by this common judgment. 2. Being aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'D' (hereinafter referred to as 'the Tribunal'), the revenue has preferred the present Tax Appeals assailing the following orders: Tax Appeal No. Date of Tribunal’s Order IT(SS)A No. Assessment Year 871 of 2009 25/09/08 597/Ahd/2007 2000-01 872 of 2009 25/09/08 598/Ahd/2007 2003-04 873 of 2009 25/09/08 599/Ahd/2007 2004-05 589 of 2010 09/10/09 1766/Ahd/2009 2006-07 794 of 2011 04/03/11 1311/Ahd/2008 2001-02 795 of 2011 04/03/11 1312/Ahd/2008 2002-03 796 of 2011 04/03/11 1313/Ahd/2008 2005-06 3. The following questions of law were raised for consideration by this Court: TAX APPEAL NO. 871 OF 2009 "(A) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the addition of the notional interest income of Rs. 7,16,056/-? (B) Whether on the facts and in the circumstances of the case, the finding arrived at by the Income Tax Appellate Tribunal that there was no evidence on record that the principal amount was doubtful of recovery, is perverse?" TAX APPEAL NO. 872 OF 2009 "(A) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the addition of the notional interest income of Rs. 11,01,363/-? (B) Whether on the facts and in the circumstances of the case, the finding arrived at by the Income Tax Appellate Tribunal that there was no evidence on record that the principal amount was doubtful of recovery, is perverse?" TAX APPEAL NO. 873 OF 2009 "(A) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the addition of the notional interest income of Rs. 11,01,363/-? (B) Whether on the facts and in the circumstances of the case, the finding arrived at by the Income Tax Appellate Tribunal that there was no evidence on record that the principal amount was doubtful of recovery, is perverse?" TAX APPEAL NO. 11,01,363/-? (B) Whether on the facts and in the circumstances of the case, the finding arrived at by the Income Tax Appellate Tribunal that there was no evidence on record that the principal amount was doubtful of recovery, is perverse?" TAX APPEAL NO. 589 OF 2010 "(A) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the addition of the notional interest income of Rs. 7,16,056/-? (B) Whether, in the facts and in the circumstances of the case, the interest be compulsorily charged on the loans granted by an assessee so as to tax it on that notional interest income?" TAX APPEAL NO. 794 OF 2011 "(A) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the addition of the notional interest income of Rs. 7,81,152/-? (B) Whether on the facts and in the circumstances of the case, the finding arrived at by the Income Tax Appellate Tribunal that there was no evidence on record that the principal amount was doubtful of recovery, is perverse?" TAX APPEAL NO. 795 OF 2011 "(A) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the addition of the notional interest income of Rs. 9,01,152/-? (B) Whether on the facts and in the circumstances of the case, the finding arrived at by the Income Tax Appellate Tribunal that there was no evidence on record that the principal amount was doubtful of recovery, is perverse?" TAX APPEAL NO. 796 OF 2011 "(A) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the addition of the notional interest income of Rs. 10,94,163/-? (B) Whether on the facts and in the circumstances of the case, the finding arrived at by the Income Tax Appellate Tribunal that there was no evidence on record that the principal amount was doubtful of recovery, is perverse?" 4. The main ground of appeal in these appeals is with regard to addition of notional interest on loan advanced. Tax Appeal No. 871 of 2009 is being taken as lead matter in these set of appeals and therefore we advert to the facts of the said case. The main ground of appeal in these appeals is with regard to addition of notional interest on loan advanced. Tax Appeal No. 871 of 2009 is being taken as lead matter in these set of appeals and therefore we advert to the facts of the said case. For A.Y. 2000-01, the return of income was filed on 27.11.2000 declaring income of Rs. 2,60,550/- which was accepted u/s. 143(1) of the Act. Subsequently, the assessment was reopened u/s. 147 since it was noticed by the A.O. that the company had failed to offer for taxation the accrued interest in respect of loan advanced to M/s. Chandan Metal Products P. Ltd. in the year 1995-96. It was submitted by the assessee that interest income was not offered for tax since the financial position of M/s. Chandan Metal was precarious and there was almost no chance of recovery of the principal amount itself and hence the interest on sticky loan was not accounted for. This explanation was not accepted on the ground that the interest in respect of 1996-97 to 1999-2000 was duly offered for taxation on accrual basis. 5. Mr. S.N. Soparkar, learned Senior Counsel appearing with Mr. B.S. Soparkar, learned advocate for the assessee submitted that the Tribunal has erred in not appreciating that only the real income is taxable and not notional income. He submitted that the Tribunal erred in not appreciating that the assessee followed the mercantile system of accounting and interest was not credited owing to uncertainty in collection in accordance with the standards prescribed under the Act. In support of his submissions, he has relied upon the following two decisions: (I) UCO Bank vs. Commissioner of Income Tax, West Bengal - III, Kolkata reported in [2014] 43 taxmann.com 294; (II) Director of Income - tax vs. Brahamputra Capital Financial Services Ltd. reported in [2011] 12 taxmann.com 387. 6. Mr. K.M. Parikh, learned advocate appearing for the revenue has drawn the attention of this Court to the order passed by the Tribunal and submitted that the Assessing Officer had rightly added the interest. He submitted that had the loan amount been doubtful, the assessee would not have given further loan for the other years. He submitted that merely because the assessee had not credited the interest in his books of account does not mean that the interest had not accrued. 7. He submitted that had the loan amount been doubtful, the assessee would not have given further loan for the other years. He submitted that merely because the assessee had not credited the interest in his books of account does not mean that the interest had not accrued. 7. We have gone through the facts of the case and have heard learned advocates for both the sides. The assessee followed mercantile system of accounting and the interest had been duly credited by the assessee in the books of account from A.Y. 1996-97 to A.Y. 1999-2000. It is true that the assessee had been crediting the interest income in the past although no interest was actually received. Neither the debtor paid any interest nor did the creditor receive any interest either in the current year or in the previous years. Learned advocate for the revenue is not in a position to show that real income had accrued to the assessee. 7.1 In the case of UCO Bank (supra), the Calcutta High Court has held as under:- "13. Chargeable interest has been defined in Section 2(5) of the Interest Act 1974, to mean the total amount of interest referred to in Section 5, computed in the manner laid down in Section 6 thus, chargeable interest of any previous year of a credit institution is the total amount of interest (other than interest on loans and advances made to other credit institutions, co-operative societies etc. accruing or arising to the credit institution in that previous year. 14. Chargeable interest is interest that accrued or arose in the previous year, irrespective of whether such interest was actually received. Thus, where any loan or advance is given for a certain term, for example, where a loan is given for 5 years and interest is to be computed periodically, but is actually realised in advance, at the time of disbursement of the loan/advance, the interest would become chargeable periodically and not at the time when it is actually realised. Similarly, if the interest is to be computed in monthly, quarterly or yearly rests, chargeable interest would accrue at the end of the month, quarter or year, as the case may be, even though actual realisation may take place at a later date. 15. Similarly, if the interest is to be computed in monthly, quarterly or yearly rests, chargeable interest would accrue at the end of the month, quarter or year, as the case may be, even though actual realisation may take place at a later date. 15. In our view, interest on loans and advances, of which recovery has become extremely doubtful and which is written off for all practical purposes, but recorded separately, in the faint hope of recovery at some future point of time, may be, by initiation of litigation, does not come within the purview of chargeable interest within the meaning of Sections 5 and 6 of the Interest Act. 16. Moreover, the proviso to Section 5 of the Interest Act specifically provides that interest in relation to categories of bad or doubtful debts, referred to in Section 43D of the Income Tax Act, shall be deemed to accrue or arise in the previous year in which it is credited to the profit and loss account that year. If the interest, recovery of which is doubtful, is not credited in the profit and loss account of the previous year, the interest would not fall within the scope and ambit of chargeable interest under the Interest Act." 7.2 Similarly in the case of Brahamputra Capital Financial Services Ltd. (supra), the Delhi High Court has held as under: "5. Identical issue came up before this Court in batch of appeals leading case being Commissioner of Income Tax v. Vasisth Chay Vyapar Ltd., [2011] 196 Taxman 169 : 8 taxmann.com 145, this theory of "real income" was discussed in detail. That was also a case of NBFC where loan/advance given by the said assessee had become NPA and keeping in view the guidelines of RBI interest was not treated as accrued. After taking note of various judgments on the subject, the question was answered in favour of the assessee and against the Revenue. The legal position is summarized in para 17 of the said judgment which reads as under:- "In this scenario, we have to examine the strength in the submission of learned counsel for the Revenue that whether it can still be held that income in the form of interest though not received had still accrued to the assessee under the provisions of Income Tax Act and was, therefore, exigible to tax. Our answer is in the negative and we give the following reasons in support:- (1) First of all we would discuss the matter in the light of the provisions of Income Tax Act and to examine as to whether in the given circumstances, interest income has accrued to the assessee. It is stated at the cost of repetition that admitted position is that the assessee had not received any interest on the said ICD placed with Shaw Wallce since the assessment year 1996-97 as it had become NPAs in accordance with the Prudential norms which was entered in the books of accounts as well. The assessee has further successfully demonstrated that even in the succeeding assessment years, no interest was received and the position remained the same until the assessment years 2006-07. Reason was adverse financial circumstances and the financial crunch faced by Shaw Wallace. So much so, it was facing winding up petitions which were filed by many creditors. These circumstances, led to an uncertainty in so far as recovery of interest was concerned, as a result of the aforesaid precarious financial position of Shaw Wallace. What to talk of interest, even the principal amount itself had become doubtful to recover. In this scenario it was legitimate move to infer that interest income thereupon has not "accrued". We are in agreement with the submission of Mr. Vohra on this count, supported by various decisions of different High Courts including this court which has already been referred to above. (2) In the instant case, the assessee company being NBFC is governed by the provisions of RBI Act. In such a case, interest income cannot be said to have accrued to the assessee having regard to the provisions of section 45Q of the RBI and Prudential Norms issued by the RBI in exercise of its statutory powers. As per these norms, the ICD had become NPA and on such NPA where the interest was not received and possibility of recovery was almost nil, it could not be treated to have been accrued in favour of the assessee." 7.3 Thus, even from the above decisions, it is borne out that where the interest on Non Performing Assets was not received and the possibility of recovery was almost nil, it could not be treated to have been accrued in favour of the assessee. As and when the recovery of accrued interest is made, the same would be taxed in the hands of the assessee. It is settled law that in a scenario where interest on Non Performing Assets was doubtful of recovery due to adverse financial circumstances of the borrower, it was legitimate move to infer that interest income had not accrued and was therefore not eligible to tax, irrespective of the fact that assessee followed mercantile system of accounting. We do not find any infirmity in the order passed by the CIT(A). The Tribunal erred in coming to the conclusion that the said interest is chargeable to tax. In that view of the matter, both the questions are required to be answered in favour of assessee. 8. If the borrower has failed to pay the interest in immediate previous years and has no intention to pay tax interest it would be reasonable for the creditor to draw an inference from such default that the interest would not accrue to him even in the previous year relevant to assessment year concerned. As held by the Apex Court in the case of S.A. Builders Ltd. vs. Commissioner of Income Tax (Appeals) reported in 288 ITR 1 (SC) (para 34), the Assessing Officer must enter into the shoes of a businessman to understand such aspects. The Tribunal was unnecessarily swayed away by the fact that the recovery of principal amount was not doubted. The only issue which deserved consideration is whether the assessee was justified in treating the interest income as having not accrued to him. In our view, the evidence on record justified the stand of the assessee that interest income had not accrued to him and therefore, the same could not have been added merely on the basis that in past the same was brought to tax on accrual basis. 9. In the premises aforesaid, both the questions in these appeals are answered in favour of the assessee and against the revenue. The Tribunal erred in confirming the addition of the notional interest income in each appeal and the finding arrived at by the Tribunal that there was no evidence on record that the principal amount was doubtful of recovery, is wrong. Thus, the order passed by the Tribunal is quashed and set aside and the order passed by CIT(A) is restored. These appeals are allowed accordingly.