2021 (7) TMI 438 - AT - Income Tax

Accrual of interest - interest on NCDs - HELD THAT - It remains an admitted fact that for the assessment years 2015-16 and 2016-17 there was no objection from the AO in respect of non-inclusion of this particular interest on NCDs and the return was processed under section 143(1) of the Act. For the assessment year 2017-18, however, there was a scrutiny of the return of income and the assessing officer accepted the non-inclusion of the interest on NCDs and did not make any adverse comment the consequent addition. It is also an admitted fact that for the assessment year 2014-15 though the learned Assessing Officer made a similar addition as made in this year, in appeal, Ld. CIT(A) deleted the same. It is submitted by the Ld. AR that no appeal was preferred by the Revenue against the relief granted by the Ld. CIT(A) for the assessment year 2014-15 and it has become final. Though the AO had taken a similar objection for the assessment year 2014-15, it was returned down by the Ld. CIT(A) in appeal and the Revenue accepted the same. Such an acceptance of Revenue is not only for the assessment year 2014-15 but it continued for the subsequent years 2015-16 and 2016-17 and more particularly for the assessment year 2017-18 in which year though the learned Assessing Officer record the return for scrutiny under section 143(3) of the Act, did not take any objection in this regard. Above all, the submission of the assessee is that in the assessment year 2018-19 the assessee offered the entire interest income of ₹ 75, 75, 000/-to tax. The rule of consistency demands that the Revenue cannot approbate and reprobate in respect of the very same issue from year to year and finally remains silent when the entire interest amount was offered to tax in the assessment year 2018-19. We, therefore, find substance in the submissions made on behalf of the assessee and hold that the impugned addition cannot be sustained. We consequently direct the learned Assessing Officer to delete the impugned addition. Appeal of the assessee is allowed.

Summary

Issues:
1. Treatment of interest income on NCDs for the assessment year 2013-14.
2. Consistency in the Revenue's approach towards interest income over multiple assessment years.

Analysis:
1. The case involved a dispute regarding the treatment of interest income on Non-Convertible Debentures (NCDs) for the assessment year 2013-14. The assessee had subscribed to NCDs issued by Muthoot Finance Ltd. and opted to receive interest on maturity. The assessee excluded the interest income while filing the return based on Accounting Standards, but the Assessing Officer added it back to the income. The CIT(A) upheld this addition, stating that the assessee had already shown the interest in the Profit & Loss Account, so it cannot be excluded from the total income.

2. The assessee contended that for subsequent years, the Revenue accepted the treatment of interest income without any addition. In the assessment year 2018-19, the entire interest income was offered for taxation, which was accepted by the Revenue. The Revenue argued that the assessee followed the Mercantile system of accounting, justifying the addition of accrued interest. However, the Tribunal noted that for the assessment years 2015-16, 2016-17, and 2017-18, the Assessing Officer did not object to the non-inclusion of interest income on NCDs during processing or scrutiny. Additionally, in the assessment year 2014-15, the CIT(A) had deleted a similar addition made by the Assessing Officer, and the Revenue did not appeal against it.

3. The Tribunal emphasized the principle of consistency, stating that the Revenue cannot take a different stance on the same issue year after year. Considering the Revenue's acceptance of the treatment in subsequent years and the assessee's inclusion of the entire interest income in 2018-19, the Tribunal concluded that the impugned addition for the assessment year 2013-14 could not be sustained. Therefore, the Tribunal directed the Assessing Officer to delete the addition, allowing the appeal of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, highlighting the importance of consistency in the Revenue's approach and directing the deletion of the disputed addition to the income for the assessment year 2013-14.