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2022 (7) TMI 1058 - AT - Income TaxAddition of interest credited in Escrow Account - AR contended that the assessee has no right to receive the interest in the impugned year and mere credit of the interest in the Escrow Account would not result in accrual until there is a right to receive the same - whether assessee had not earned any right in respect of the sale consideration nor the interest credited in the Escrow Account? - whether the interest has accrued in the relevant assessment years and can be brought to tax? - HELD THAT - In the instant case, the condition was imposed for withdrawal of the money as per clause 10 of the SPA entered by the assessee and others with M/s.Exide Industries Limited. As per clause 5.1 of the Escrow Agreement, the assessee did not have any right to receive the interest credited in the Escrow Account unless and until the Sales Tax liability was cleared. The total sales tax liability in the instant case was far exceeding the consideration which was deposited in the Escrow Account by the purchaser. The assessee s had disclosed for assessment, the entire interest income that was credited over a period of time and received by the assessee during the financial year relevant to the assessment year 2018-2019. In the light of the above said factual situation, we deem it appropriate to delete the addition made by the A.O. and sustained by the CIT(A) with reference to the interest income that is credited in the relevant assessment year. Unexplained Cash Deposit - assessee has furnished a copy of cash flow summary and the cash book along with the bank statement, wherein it is seen that there are cash withdrawals - HELD THAT - In the interest of justice and equity, we restore the issue to the files of the A.O. The A.O. is directed to examine the cash flow summary and the cash book along with the bank statement and decide the matter afresh in accordance with law. Needless to state, the assessee shall be heard before a decision is taken in the matter.
Issues Involved:
1. Taxability of interest credited in the Escrow Account. 2. Addition of Rs.17,73,900 towards unexplained cash deposits. Issue-wise Detailed Analysis: 1. Taxability of Interest Credited in Escrow Account: Facts: The assessees filed returns for the assessment years 2012-2013 to 2014-2015. During scrutiny, it was found that interest credited in the Escrow Account was not declared. The assessees had sold shares of M/s. Leadage Alloys India Limited to M/s. Exide Industries Limited, with the sale consideration deposited in an Escrow Account due to pending tax liabilities. The interest credited in the Escrow Account was Rs.71,97,569. Assessing Officer's Findings: The AO taxed the interest credited in the Escrow Account, stating that the assessees had a definite share in the sale consideration and the interest accrued on the deposit in their names, making it taxable as per the IT Act, 1961. CIT(A)'s Findings: The CIT(A) upheld the AO's decision, stating that the interest accrued to the appellant in the Escrow Account was rightly included in the total income. Tribunal's Analysis: The Tribunal examined the SPA and Escrow Agreement clauses, which restricted the assessees' right to withdraw the sale consideration or interest until the tax liabilities were settled. It was noted that the entire interest income was assessed in the assessment year 2018-2019 when the sales tax liability was settled. The Tribunal referenced the Karnataka High Court's decision in Sri. H. Shivanna v. ACIT, where it was held that interest income is taxable only when the right to receive it is established without contingencies or restrictions. Conclusion: The Tribunal concluded that the interest credited in the Escrow Account should not be taxed in the relevant assessment years as the assessees had no right to receive it until the tax liabilities were resolved. The addition made by the AO and sustained by the CIT(A) was deleted. 2. Addition of Rs.17,73,900 Towards Unexplained Cash Deposits: Facts: The AO added Rs.17,73,900 to the total income for unexplained cash deposits in Axis Bank, citing that the assessee failed to explain the source of these funds adequately. Assessing Officer's Findings: The AO rejected the assessee's explanation that the cash deposits were from withdrawals made during the year, noting the lack of detailed source explanation and the rationale for redepositing withdrawn cash. CIT(A)'s Findings: The CIT(A) dismissed the appeal due to non-appearance by the assessee, without adjudicating on merits. Tribunal's Analysis: The Tribunal reviewed the cash flow summary, cash book, and bank statements provided by the assessee, showing cash withdrawals of Rs.36 lakh. Conclusion: In the interest of justice, the Tribunal restored the issue to the AO for re-examination of the cash flow summary and bank statements, directing the AO to decide the matter afresh after hearing the assessee. Final Order: - Appeals in ITA No.691/Bang/2019, ITA No.904/Bang/2017, and ITA No.905/Bang/2017 were allowed. - ITA No.692/Bang/2019 was partly allowed, with the cash deposit issue remanded for fresh consideration. Order Pronounced: The order was pronounced on June 15, 2022.
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