2017 (8) TMI 1530 - AT - Income Tax

Accrual of income - income recognition - recognizing the notional interest income on outstanding debts when the interest is the subject matter of a decree before the Court - Addition on account of interest accrued on outstanding debt - assessee acquired the right of suit as per assignment deed and was entitled to recover the debt along with interest and cost of suit as per the deed of assignment of right - interest on debt which was receivable by Bank of Baroda, was now receivable to the assessee and as the assessee is following the mercantile system of accounting the assessee was required to offer interest income on debts on accrual basis - HELD THAT - We find that issue in controversy is covered in favour of the assessee by assessee s own case 2016 (12) TMI 1771 - ITAT MUMBAI there is no dispute on the facts about the assessee acquiring the debts from the Bank of Baroda with the borrowed funds, the loan creditors have not paid interest income to either bank or to the assessee, assessee has not recognised the income for all the assessment years under consideration etc. The legal issue i.e. to be decided on the right to recover the interest income by the assessee during the pendency of suit in Bombay City Civil Court. As examined the interpretation of the said section and the relevant explanation is already incorporated in the above paras of this order. Also see Maharashtra State Financial Corporation Ltd 2005 (7) TMI 80 - BOMBAY HIGH COURT . Also considered the reasoning given by the CIT (A) in paras 4.1.4 and 4.1.5 of his order. Considering the above, we are of the opinion, the conclusion drawn by the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, relevant grounds raised by the Revenue in all the four appeals are dismissed.

Summary

Issues: Recognition of national interest income on outstanding debt when subject to a court decree

The judgment pertains to an appeal related to the Assessment Year 2011-12 concerning the recognition of national interest income on outstanding debt subject to a court decree. The dispute revolved around whether the interest income on outstanding debts purchased by the assessee should be recognized based on the assignment date or during the pendency of a court suit. The tribunal referred to its previous order in the assessee's appeal, where it was decided in favor of the assessee. The Revenue conceded to this decision during the hearing.

The tribunal analyzed the facts and legal provisions, including Section 34 of the CPC, which governs the payment of interest on a decree for money. It was noted that the assessee had acquired debts from a bank but had not recognized the income due to non-payment of interest by the loan creditors. The tribunal considered the legal issue of the right to recover interest income during the pendency of a court suit and examined relevant explanations and interpretations. The tribunal also referred to a judgment of the Hon'ble Jurisdictional High Court and the reasoning of the CIT(A) before concluding that the decision of the CIT(A) was fair and reasonable, warranting no interference. Consequently, the tribunal dismissed the departmental appeal in line with the previous decision and the legal analysis provided.

In conclusion, the tribunal upheld the decision in favor of the assessee based on the previous order and the legal interpretations of relevant provisions. The judgment provides a detailed analysis of the issue at hand, considering both factual circumstances and legal principles to arrive at a reasoned decision.