2019 (9) TMI 455 - AT - Income Tax

Reopening of assessment - interest receipts addition - method of accounting - amount actually paid during the year towards interest paid outstanding were considered and excess of interest credited - HELD THAT - Addition made on the ground that assessee followed cash system in respect of interest receipts, whereas for payments, followed mercantile system of accounting. The case of the assessee is that the payees themselves requested the assessee to retain the interest payments, therefore he followed mercantile system of accounting. The assessee has not given satisfactory explanation before the CIT(A), therefore CIT(A) confirmed the order of the AO. Even before us, assessee has not given any explanation why he is following two different methods for receipts and payments. We have gone through the order of the CIT(A) and find no error in it. - Decided against assessee

Summary

Issues:
1. Discrepancy in accounting methods for interest receipts and payments.
2. Disallowance of excess interest credited under mercantile system.
3. Appeal against the orders of Assessing Officer and CIT(A).

Analysis:
1. The case involved a discrepancy in the accounting methods used by the assessee for interest receipts and payments. The Assessing Officer disallowed an excess interest amount credited under the mercantile system, which was not physically paid, leading to an addition to the total income of the assessee. The CIT(A) upheld the Assessing Officer's decision, noting that the assessee maintained books on a cash basis for interest receipts but claimed interest payments on a mercantile basis. The CIT(A) found the explanation provided unsatisfactory and confirmed the order of the Assessing Officer. The Tribunal observed that the assessee failed to justify the use of two different accounting methods and upheld the CIT(A)'s decision, dismissing the appeal filed by the assessee.

2. The CIT(A) considered the appellant's argument that interest amounts claimed were for family members and not paid to avoid duplication of transactions. However, the Tribunal found this argument baseless, stating that the intention was to reduce tax liability by not making actual payments. The Tribunal highlighted that the loans did not appear to be for business purposes, making the interest paid not allowable as business expenditure. The Tribunal dismissed all grounds raised by the appellant on this issue and upheld the addition made by the Assessing Officer.

3. The Tribunal dismissed both appeals filed by the assessee, noting that the facts in both appeals were similar. The decision in one appeal applied mutatis mutandis to the other. The Tribunal found no reason to interfere with the orders passed by the CIT(A) and upheld the dismissal of the appeals.

In conclusion, the Tribunal upheld the disallowance of excess interest credited under the mercantile system, emphasizing the need for consistency in accounting methods and dismissing the appeals filed by the assessee against the orders of the Assessing Officer and CIT(A).