2015 (12) TMI 692 - AT - Income Tax

Addition on account of accrued interest receivable by assessee on unpaid compensation - CIT(A) deleted the addition - Held that - In the instant case the interest income is not from a definite source as it is subject to litigation. The assessee received a sum of 15.00 crores as part payment out of the total compensation and the balance was still to be received subject to the decision of the Apex Court. So it is quite clear that the interest income is also a subject matter of the final order of the court. Hence interest cannot be taxed till finality is achieved in this case. - Decided in favour of assessee.

Summary

Issues:
1. Addition of accrued interest receivable by the assessee on unpaid compensation.

Analysis:
The appeal by the Revenue challenged the deletion of an addition of accrued interest amounting to Rs. 3,64,64,577 by the Commissioner of Income Tax (Appeals) in relation to the assessment year 2009-10. The facts of the case revolved around the compensation awarded to the assessee by a Special Commission for a hydroelectric project, which included interest. The Assessing Officer (AO) added the interest amount to the assessee's income, citing a stay order granted by the Supreme Court. However, the assessee contended that the interest had not accrued as the matter was still under litigation and the order had not attained finality. The CIT(A) deleted the addition based on precedents and the fact that the interest income was not legally enforceable until the litigation concluded.

The assessee's argument was supported by the decision in their own case by the ITAT Kolkata 'B' Bench for the assessment year 2004-05, where it was held that interest did not accrue until the matter was finalized. The CIT(A) relied on this decision and other relevant judgments to support the deletion of the addition. The AO's contention that the matter had reached finality based on a subsequent order from the Supreme Court was dismissed as the interest income was still subject to the final outcome of the litigation.

The Tribunal upheld the CIT(A)'s decision, emphasizing that income tax liability arises only when income is unconditionally received by the assessee. Since the interest income was contingent on the resolution of the litigation, it could not be taxed until the matter was conclusively settled. The Tribunal referred to previous judgments and maintained a consistent view in favor of the assessee, ultimately dismissing the Revenue's appeal and affirming the deletion of the addition of accrued interest.

In conclusion, the Tribunal ruled that the interest income on the unpaid compensation could only be taxed in the assessment year when the litigation was finalized, as per the principles of the Income Tax Act and established legal precedents. The decision highlighted the importance of finality in determining tax liability and upheld the deletion of the addition made by the AO.