2024 (12) TMI 777 - HC - Income Tax

Addition as interest received by the assessee - CIT(A) deleted addition restored by ITAT - Whether assessee did not receive any interest during the block period? - Revenue has supported the order passed by the Appellate Tribunal and has contended that the assessee follows the mercantile method of accounting - HELD THAT - As evident that the CIT(Appeals) on the basis of the remand report of the AO has recorded a finding that the debtors had stated that they had not paid any interest to the assessee during the block period. It has further been held that since the assessee is not a Company, interest cannot be assessed on accrual basis. The aforesaid finding of fact is recorded on the basis of material available on record. However, the aforesaid finding has been reversed by the Appellate Tribunal without assigning any reasons and without any improving reasoning on which the order of the CIT (Appeals) was based. Substantial question of law framed by this Court is answered in favour of the assessee and against the Revenue.

Summary

Issues:
Appeal under Section 260A of the Income-tax Act, 1961 regarding restoration of interest addition without proper reasoning.

Detailed Analysis:
The judgment pertains to an appeal filed by the assessee under Section 260A of the Income-tax Act, 1961, relating to the block period of 1989-90 to 1999-2000. The primary issue revolved around the addition of Rs. 1,50,303/- as interest received by the assessee. The case originated from a search and seizure operation conducted on the business and residential premises of the assessee, who is the Managing Partner of a company. Subsequently, the Assessing Officer computed the income of the assessee under the Head of Interest and directed payment of the balance tax amount. The Commissioner of Income-tax (Appeals) later held that the assessee did not receive any interest during the block period and criticized the Assessing Officer for not conducting a proper enquiry before making the addition.

The Revenue then appealed to the Income-tax Appellate Tribunal, which set aside the order of the Commissioner of Income-tax (Appeals) and allowed the addition of interest. The Tribunal opined that the Commissioner was erroneous in deleting the addition. The assessee, being aggrieved by this decision, filed an appeal challenging the Tribunal's ruling. The High Court examined the contentions presented by both parties. The counsel for the assessee argued that the Commissioner's decision was based on a remand report and should not have been overturned without proper reasoning. On the other hand, the Revenue's counsel supported the Tribunal's decision, emphasizing that the assessee followed the mercantile method of accounting.

The High Court scrutinized the order of the Commissioner of Income-tax (Appeals), which highlighted that the debtors had not paid any interest to the assessee during the block period and emphasized that interest cannot be assessed on accrual basis for an individual. The Court noted that the Tribunal reversed this finding without providing adequate reasons or improving the reasoning on which the Commissioner's order was based. Consequently, the High Court ruled in favor of the assessee, setting aside the Tribunal's order and allowing the appeal. The judgment concluded by stating that any pending miscellaneous applications would stand closed, and there would be no order as to costs.