Addition for interest income where only TDS was accounted for upheld. Difference between inability to pay at all and delayed payment – ITAT

Addition for interest income where only TDS was accounted for upheld. There is difference between inability to pay at all and delayed payment – ITAT

ABCAUS Case Law Citation:
ABCAUS 1269 (2017) (06) ITAT

The Grievance:
The appeal of the assessee was directed against the order passed by CIT(A) upholding the addition of interest income.

Assessment Year : 2012-13
Date/Month of Pronouncement: May, 2017

Brief Facts of the Case:
The assessee was an individual and held debentures in two companies. Interest accrued on the said debentures for the relevant year was Rs.16,00,000/-. The companies had deducted tax at source (TDS) of Rs.1,60,000/- from the above said interest income.

However, in the return of income, the assessee declared interest income of Rs.1,60,000/- only instead of Rs.16,00,000/-. When questioned, the assessee submitted that he did not receive the balance amount of Rs.14,40,000/-.

Since the assessee was not following cash basis of accounting instead he was following mercantile system of accounting, the AO assessed the balance amount of Rs.14,40,000/- in the hands of the assessee, holding that actual receipt was not relevant under mercantile system of accounting.

The CIT(A) also confirmed the same.

Contentions of the appellant assessee:
The assessee submitted that the assessee did not receive interest income, since those companies were facing financial difficulties. Since the recovery of principal itself was in doubt, the assessee chose to offer interest income on receipt basis. It was submitted that the even “mercantile system of accounting” contemplates accounting of real income and the Accounting Standard also prescribes accounting of real income.

It was submitted that the assessee wrote to those companies and they had expressed their financial difficulty. Since those parties have paid only the TDS amount of Rs.1,60,000/-, the assessee had chosen to offer the same as his income. Accordingly he submitted that the balance amount of Rs.14,40,000/- was not real income, since its receipt was in doubt. Accordingly he contended that the Ld CIT(A) was not justified in confirming the assessment of notional income of Rs.14,40,000/-.

Contention of the Respondent Revenue:
On the contrary, the Revenue submitted that the assessee had been following mercantile system of accounting and hence the assessee was required to offer interest income on accrual basis. The above said companies had duly

TDS, meaning thereby, they cannot be said to be in great problem. It was further submitted that, in any case, the assessee had not substantiated his claim with supporting materials and hence the same was liable to be rejected.

Observations made by the Tribunal:
It was observed that the assessee had not brought on record any material to show that the financial position of said two companies were not good and there was no chance of recovery of principal itself.

In the absence of any material to support the contentions of the assessee, the ITAT opined that mere oral submissions would not help the assessee. There is difference between inability to make payment at all and delayed payment. In the former case, the income may not be recognized, but in the later case the income is required to be recognized.

It was observed that the fact that the above said two companies had deducted tax at source showed that they were intending to pay interest though belatedly.

Held:
CIT(A) was justified in assessing the interest income as income of the assessee.