2012 (12) TMI 122 - AT - Income Tax

Accrual of interest on FDR - Revocation of bank Guarantee - held that - The argument that FDRs were under lien against the Bank Guarantee does not help the assessee, the assessee could offer it for lien only because the assessee s ownership was unfettered.- Assets whose ownership is questionable cannot be offered as lien. Even after offering them as lien the ownership is not transferred and assessee s ownership continues to be undisturbed till the occurring of the event by virtue of which the ownership passes to the party who has a lien in its favour which event has occurred on 16.12.2000 when the bank guarantee was invoked. The arguments that assessee was under a bonafide belief that maintaining FDRs from these funds and holding them as lien for the State of Bihar in terms of the requirements of the Agreement does not impact the taxability of the amount; Ignorance of law in tax matters cannot be accepted. Application of income - condonation of delay - appellant s plea for deemed application of funds u/s 11(2) for accumulation of Rs. 3.60 crores - held that - delay is condonable in certain circumstances - However on facts it is seen that no such application has been filed by the assessee for condoning the delay before the Commissioner. As such the occasion to consider and thereafter accept/reject the same did not arise. Decided against the assessee.

Summary

Issues Involved:
1. Addition of alleged interest income.
2. Initiation of reassessment proceedings under Section 147.
3. Non-consideration of Form 10 for accumulation of income under Section 11(2).

Detailed Analysis:

1. Addition of Alleged Interest Income:
The primary issue revolves around the addition of Rs. 1,76,89,280/- as interest income by the Assessing Officer (AO). The assessee argued that it never had the right to receive this interest income as it was held in trust for the Government of Bihar. The Bihar Government had advanced Rs. 40 crores to the assessee under a contract, which was kept as Fixed Deposit Receipts (FDRs) in Syndicate Bank with a lien as security for a bank guarantee. The Bihar Government invoked the bank guarantee and prematurely encashed the FDRs. The assessee contended that no income accrued to it since the contract was frustrated and the interest was held in trust.

The AO, however, observed that the interest income on the FDRs should be treated as the income of the assessee. The CIT(A) upheld this view, stating that the interest income accrued to the assessee and should be taxed accordingly. The Tribunal agreed with the lower authorities, noting that the ownership of the FDRs remained with the assessee until the bank guarantee was invoked. The interest income was thus considered taxable in the hands of the assessee.

2. Initiation of Reassessment Proceedings under Section 147:
The assessee challenged the initiation of reassessment proceedings for the assessment years 1998-99, 1999-2000, and 2000-2001, arguing that it was based on a mere change of opinion. The Tribunal noted that the original returns were processed under Section 143(1), and no scrutiny assessment was conducted. Citing the Supreme Court's decision in Rajesh Jhaveri Stock Brokers, the Tribunal held that there was no change of opinion since no opinion was formed in the original intimation under Section 143(1). The reassessment proceedings were thus upheld.

3. Non-Consideration of Form 10 for Accumulation of Income under Section 11(2):
The assessee filed Form 10 for accumulation of income during the reassessment proceedings, which was not considered by the AO. The CIT(A) rejected the assessee's plea, noting that Form 10 was filed beyond the time allowed under Section 139(1) and no application for condonation of delay was filed before the Commissioner. The Tribunal upheld this view, emphasizing that the delay in filing Form 10 could only be condoned by the Commissioner upon a proper application. Since no such application was filed by the assessee, the plea for accumulation of income was rejected.

Conclusion:
The Tribunal dismissed the appeals filed by the assessee, upholding the addition of interest income, the initiation of reassessment proceedings, and the non-consideration of Form 10 for accumulation of income. The decision reaffirmed the principles of accrual of income, the validity of reassessment under Section 147, and the procedural requirements for filing Form 10 under Section 11(2).