2022 (9) TMI 188 - AT - Income Tax

Additions towards amount of TDS deducted on interest - accrual of interest income but not received - HELD THAT - As in this case is that there is no finding that any amount in cash or cheques on account of interest from M/s. Anjani Technoplast Ltd., has been received by the assessee except the amount deposited as TDS by M/s. Anjani Technoplast Ltd.. Even the said TDS was not traceable as on the date of filing of the return of income by the assessee on 29/02/2012. Whether because of the deposit of the aforesaid amount as TDS by M/s. Anjani Technoplast Ltd., can the assessee be taxed on the interest income when the case of the assessee is that it has not received any amount during the year under consideration either on account of principal or on account of interest income from M/s. Anjani Technoplast Ltd. and even the litigation for the recovery of loan was also going on during the year. It will not be justified in this case to charge income tax from the assessee on the interest income when neither such amount has been paid by M/s. Anjani Technoplast Ltd. to the assessee nor there is any likelihood of the payment of the same to the assessee and even the litigation is going on between the parties. Merely because, M/s. Anjani Technoplast Ltd. has deposited TDS amount that itself will not fasten liability on the assessee to pay tax on the total interest income especially under the circumstances, when the other party has failed to repay the loan amount and interest thereupon and the litigation was going on. As held by the Higher Courts that only the real income should be taxed and not the hypothetical income as that will place the assessee in a disadvantageous position as on the one hand, the assessee is struggling to recover its principal amount without any hope of receiving interest income thereupon and then to fasten liability on the assessee on accrual basis of the interest income for which there did not seem any probability of recovery of the same. Addition made by the lower authorities in this case of the amount is not justified. The only addition which can be made by the lower authorities is of the actual income received by the assessee by way of TDS in his account - The Assessing Officer is directed to deduct admissible tax upon the aforesaid income and refund the remaining amount out of the said amount to the assessee as per the provisions of the I.T. Act. With the above observations, the appeal of the assessee is treated as partly allowed.

Summary

Issues:
1. Addition of interest income not accrued to the appellant.
2. Confirmation of addition of interest income without considering the merit.
3. Justification of taxing interest income based on TDS deposited by the debtor.
4. Adjustment of credit balances between companies.

Analysis:
1. The appeal was against the order of the Learned Commissioner of Income Tax, challenging the addition of interest income of Rs. 92,28,545/- by the Assessing Officer. The assessee argued that the interest income did not accrue as the principal loan was not repaid by the debtor, M/s. Anjani Technoplast Ltd. The assessee had filed a complaint against the debtor for dishonored cheques, indicating non-receipt of any payment. The Assessing Officer relied on Form 26AS showing TDS deduction by the debtor, concluding that the interest income accrued to the assessee.

2. The assessee contended that the addition of interest income was unjustified as no payment was received, and litigation for loan recovery was ongoing. The Tribunal noted that the assessee only received TDS amount of Rs. 9,22,855/- from the debtor, not the full interest income. The Tribunal emphasized taxing real income and not hypothetical income, especially when recovery seemed improbable. It held that taxing the full interest income was unwarranted, directing the Assessing Officer to tax only the actual income received as TDS and refund the excess amount to the assessee.

3. The Tribunal analyzed the circumstances and found that the mere deposit of TDS by the debtor did not establish accrual of interest income to the assessee. It emphasized the importance of assessing real income and the impracticality of taxing income that may never be received. The Tribunal concluded that the addition made by the lower authorities was not justified and directed a partial allowance of the appeal, instructing the Assessing Officer to tax only the TDS amount received by the assessee.

4. Additionally, the assessee presented a chart showing credit balances between companies, indicating an adjustment agreement for outstanding amounts. The Tribunal considered this adjustment and the outstanding amount due from the debtor, further supporting the assessee's claim that only the TDS amount should be taxed. The Tribunal's decision highlighted the importance of considering actual receipts and the ongoing litigation in determining taxable income, ensuring a fair assessment based on real income received.

Conclusion:
The Tribunal partially allowed the appeal, emphasizing the importance of taxing only actual income received by the assessee, particularly in cases where recovery of full income is uncertain. The decision focused on the practicality and fairness of taxing real income, considering ongoing litigation and the debtor's failure to repay the principal loan. The Tribunal's analysis underscored the need for a balanced approach in determining taxable income, ensuring a just assessment based on actual receipts rather than hypothetical accruals.