2013 (10) TMI 1291 - AT - Income Tax

Suspense, individual and Society - CIT(A) deleted the addition - Held that - The issues raised in the ground are fully covered in favour of the assessee by the decision of ACIT vs. Rohtak Central Co-op. Bank Ltd. 2011 (6) TMI 728 - ITAT DELHI wherein also the assessee was a cooperative society engaged in accepting deposits and giving loans as per guidelines of NABARD. If the amount deposited in the said account belong to the various depositors, who intended to open the bank account with the assessee, then the said amount cannot attain the character of 'income' in the hands of the assesee unless it is shown that the said amount has become the income of the assesee. If the said amount does not belong to the assessee and the assessee has utilized the same until the said amount is refunded back, no notional interest can be added to that amount as either the assesee has to pay interst if the said amount is credited to the saving account or the amount itself has to be refunded back in case the account is not opened. There is no question of assessing any notional interest on the said amount.- Decided in favour of assessee. Suspense interest realized - CIT(A) deleted the addition - Held that - Submission of the assessee which is well supported by RBI / NABARD circular dated 17.8.2002 vide para No. 3.1 clearly states that the policy of income recognition should be based on record of recovery and therefore unrealized income should not be taken into profit and loss account by State Co-op Bank / Central Co-op Banks and that the provisions of Section 43D of the Act are clear regarding the recognition of interest income on NPA. The Ld. CIT(A) in our view has thus rightly held that overdue interest not realized during the year and credited to suspense interest account cannot be taken tobe the income of the assessee. Thus the Ld. CIT(A) has thus rightly deleted the addition in question. - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition made on account of 'Suspense, individual and Society' for Rs. 18,45,181/-.
2. Deletion of addition made on account of 'Suspense Interest Realised' for Rs. 29,40,274/-.
3. Deletion of addition made on account of interest income on Rs. 18,45,181/- amounting to Rs. 64,581/-.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of 'Suspense, Individual and Society' for Rs. 18,45,181/-
The revenue questioned the deletion of an addition of Rs. 18,45,181/- made by the Assessing Officer (AO) under the account 'Suspense, individual and Society'. The assessee argued that this amount was deposited by individuals and societies eager to open new accounts but could not do so due to incomplete documentation or legal formalities. These amounts were transferred to the suspense account and later to the respective accounts once formalities were completed. The AO added this amount to the total income of the assessee, which was contested before the CIT(A). The CIT(A) deleted the addition, concurring with the assessee's explanation that these amounts were refundable and not income. The Tribunal upheld the CIT(A)'s decision, referencing a similar case (ACIT vs. Rohtak Central Co-op. Bank Ltd.), where such amounts were not considered income unless shown otherwise.

Issue 2: Deletion of Addition on Account of 'Suspense Interest Realised' for Rs. 29,40,274/-
The AO noted an interest of Rs. 1,00,51,715/- realized under 'suspense interest realized' and added Rs. 29,40,274/- to the income. The assessee argued that the overdue interest was not taxable as it was not realized during the year, citing RBI guidelines and the Supreme Court ruling in UCO Bank vs. CIT, which supports recognizing income on a cash receipt basis. The CIT(A) agreed with the assessee, stating that unrealized interest should not be taken to the profit and loss account, supported by RBI/NABARD circulars and Section 43D of the Act, which allows income recognition on a cash basis. The Tribunal upheld the CIT(A)'s deletion of the addition, rejecting the revenue's contention that the assessee had no objection to the addition.

Issue 3: Deletion of Addition on Account of Interest Income on Rs. 18,45,181/- Amounting to Rs. 64,581/-
The AO added Rs. 64,581/- as interest income on the Rs. 18,45,181/- deposited in the suspense account, assuming an interest rate of 3.5% per annum. The assessee contested this, stating that the funds were available to the bank free of cost and were to be refunded or transferred to respective accounts, making the addition of notional interest inappropriate. The CIT(A) agreed, and the Tribunal upheld the CIT(A)'s decision, referencing the Rohtak Central Co-op. Bank case, where similar facts led to the deletion of such additions.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s deletion of additions on all grounds. The decisions were based on established precedents, RBI guidelines, and the specific nature of the deposits and interest in question. The Tribunal emphasized that the amounts in the suspense accounts were not income and that notional interest could not be added unless the amounts were shown to belong to the assessee. The judgment reinforced the principle that unrealized income should not be taxed and recognized only on a cash basis as per relevant guidelines and legal provisions.

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