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2021 (2) TMI 316 - AT - Income TaxRevision u/s 263 - accrual of income - Decree recognized interest on the decretal amount - Addition of accrued interest on decree amount for the reason that the assessee was following mercantile system of accounting - HELD THAT - Assessing Officer has made specific inquiry on the issue of recovery of decretal amount vide letter dated 03-02-2014 and the assessee has submitted the detail of not showing such interest income vide letter dated 12.02.2014 during the course of assessment proceedings. Such details are reproduced and discussed supra in this order. It is demonstrated from above discussion that in the case of the assessee, the Assessing Officer has made specific inquiry and there was material on record before framing assessment order. CIT was not justified in holding that the Assessing Officer has not made specific enquiries with regard to interest income. In the light of the facts and findings as elaborated supra in this order we consider that order passed under section 263 of the Act is not sustainable in law, therefore, order passed u/s. 263 is quashed. Accordingly, the appeal of the assessee is allowed - Decided in favour of assessee.
Issues Involved:
1. Legality of invoking provisions of section 263 of the Income Tax Act, 1961. 2. Confirmation of addition of ?54,45,757/- in respect of accrued interest on decree amount. Issue-wise Detailed Analysis: 1. Legality of Invoking Provisions of Section 263 of the Income Tax Act, 1961: The primary issue in ITA No. 775/Ahd/2016 was whether the Principal Commissioner of Income Tax (Pr. CIT) Central Ahmedabad erred in invoking the provisions of section 263 of the Income Tax Act, 1961. The original assessment was carried out after thorough scrutiny, accepting the return of income of ?8,83,700/-. Upon verification, the Pr. CIT noticed that the assessee did not show interest income on a decretal amount of ?4,53,64,640/- as per a City Civil Court order. The Pr. CIT issued a notice under section 263, stating that the Assessing Officer (AO) had not verified this issue adequately. The assessee responded that no interest was recognized as nothing was received from Mukut Pipes Ltd., and relied on various case laws to support their position. The Pr. CIT, however, disagreed, stating that the AO had not conducted a proper inquiry and overlooked the auditor's report indicating the amount as recoverable. The Pr. CIT, citing the Malabar Industrial Co. Ltd. vs. CIT decision, held the AO's order as erroneous and prejudicial to the revenue, directing a fresh assessment. 2. Confirmation of Addition of ?54,45,757/- in Respect of Accrued Interest on Decree Amount: In ITA No. 1000/Ahd/2018, the issue was whether the CIT(A) erred in confirming the addition of ?54,45,757/- made by the AO as accrued interest on the decree amount. The AO had questioned the assessee for not showing this interest income, to which the assessee replied that no interest was recognized due to uncertainty of receipt. The AO, however, added the accrued interest to the total income, which was upheld by the CIT(A). During the appellate proceedings, the assessee submitted detailed documents and argued that the AO had made specific inquiries about the amount due from Mukut Pipes Ltd. and the decree order. The assessee also cited several judicial pronouncements supporting the non-recognition of income due to uncertainty of realization. Tribunal's Findings: The Tribunal reviewed the material on record and noted that the AO had indeed made specific inquiries during the assessment proceedings and the assessee had provided detailed explanations. The Tribunal found that the AO's inquiries and the assessee's responses were part of the case record. The Tribunal held that the Pr. CIT was not justified in invoking section 263, as the AO had conducted a proper inquiry and there was material on record to support the assessment order. The Tribunal distinguished the facts from the Malabar Industrial Co. Ltd. case, where the AO had accepted entries without inquiry. In this case, the AO had made specific inquiries and the assessee had provided detailed responses. Therefore, the Tribunal quashed the order passed under section 263, making it unnecessary to adjudicate the appeal on merit regarding the accrued interest addition. Conclusion: The Tribunal allowed the appeal filed by the assessee, quashing the order passed under section 263 of the Income Tax Act, 1961. The Tribunal held that the AO had made specific inquiries, and the Pr. CIT was not justified in invoking section 263. Consequently, the addition of ?54,45,757/- as accrued interest was not adjudicated on merit due to the quashing of the section 263 proceedings.
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