2019 (10) TMI 146 - AT - Income Tax

Disallowance on account of Guarantee Fee on Bonds - Interest on FDR made out of un-utilised funds provided by COP CCS (Govt Organization) - HELD THAT - It is well settled Law that addition shall have to be made in assessment year to which it pertain. May be assessee has wrongly offered the impugned amount for taxation in subsequent A.Y. 2013-2014 would not absolve the assessee from its liability to pay tax in assessment year under appeal. Assessee earned interest of the impugned amount against the FDRs which were made out of the funds which remain un-utilised. Therefore, the principal amount remain with the assessee which is to be utilised by the assessee of its own. If interest is earned on the same and certified by the Statutory Auditor that it is income of the assessee, it has to be shown as income in assessment year under appeal only. Merely because assessee has shown the impugned amount as taxable in A.Y. 2013-2014 would be of no consequence. No justification to interfere with the Orders of the authorities below. Assessee was directed to produce the policy of the Government of India through which the amount have been given to assessee and the conditions stipulated therein to refund back the amount along with interest so as to clarify the position taken by the assessee before the authorities below. However, Learned Counsel for the Assessee has shown his inability to produce any such policy or circular for consideration of the Bench. In these circumstances, it is clear that interest earned on FDRs was income of the assessee from other sources as is held by the authorities below, which was ultimately agreed by the assessee to be surrendered for taxation though in subsequent year. No interference is called for in the matter. We, accordingly, dismiss the appeal of assessee.

Summary

Issues:
Disallowance of Guarantee Fee on Bonds

Analysis:
The appeal was against the disallowance of a guarantee fee on bonds amounting to ?1,94,68,000 for the assessment year 2007-2008. The Assessing Officer (AO) contended that the interest earned on fixed deposits made from unutilized funds provided by the Commissioner of Payment (COP) and Controller of Cloth Subsidy Funds was taxable under Section 56(1) of the Income Tax Act, 1961. The AO referred to legal precedents to support the addition of the amount as income. The AO made the addition based on the audit party's observations and the statutory auditor's report. The assessee argued that the interest income did not belong to them but to the Ministry of Textile, as the funds were provided by the government and were to be returned if not utilized. The assessee cited past acceptance of this policy by the Income Tax Department in previous assessment years.

The assessee further contended that the interest amount had been offered for taxation in a subsequent assessment year, but the tribunal held that the addition had to be made in the relevant assessment year. The tribunal emphasized that if the interest was earned on unutilized funds and certified as income by the statutory auditor, it had to be shown as income in the year under appeal. The tribunal noted that the assessee failed to produce the government policy regarding the funds provided, leading to the conclusion that the interest earned on fixed deposits was indeed the assessee's income. The tribunal dismissed the appeal, stating that no interference was warranted in the matter.

In conclusion, the tribunal upheld the disallowance of the guarantee fee on bonds, considering the interest earned on fixed deposits from unutilized funds as income of the assessee, which was to be shown in the relevant assessment year. The tribunal emphasized the importance of following legal procedures and producing necessary documentation to support claims during the appeal process.