2024 (11) TMI 26 - AT - Income Tax

Addition of interest income - Penalty u/s 271(1) - No ROI was filed - CIT(A) deleted these additions based on the assessee's contention that the interest income never crystallized in its hands due to legal dispute over the ownership of the funds in a Fixed Deposit (FD) with the State Bank of India HELD THAT - In a situation where the ownership per se of the FD is in question, the decision of the Ld. First Appellate Authority in deleting the addition made by the Ld. AO becomes questionable. It is not the case of the assessee that it is not exigible for taxation qua interest earned from the said FD. Its basic case is that because by way of a Court Order, the ownership of the impugned FD has been taken away from it, no tax is payable by it. We also find force in the argument of the assessee, supported by relied upon case laws that it cannot be taxed in respect of an asset over which it does not has any conclusive ownership. The fact of the matter however remains that the issue of final ownership is yet to be decided by the court. The assessee therefore cannot say that it is permanently excluded for taxation qua interest earned from the said FD. To allay the apprehension of revenue, the assessee has filed during present proceedings an affidavit, principally to the effect that in the event of ownership of the said FD vested back to him, it shall be liable for payment of due taxes on the interest income for the relevant period. Accordingly, we set aside the order of the Lower Authorities and direct the assessing officer to consider and re adjudicate afresh, the issue of taxation of interest income over the impugned FD, only once the Hon ble High Court decides upon its ownership. Accordingly, the grounds of appeal raised by the revenue are allowed for statistical purposes only. Penalty u/s 271(1)(c) - Where the quantum additions stand set aside there wouldn t be any tax on concealed income for levy of penalty. Therefore in the light of above directions to the Ld AO we also set aside the orders of lower authorities. The Ld AO may decide the issue of imposition of penalty if any as per law upon his decision on taxation of impugned interest income from FD s.

Summary

Issues Involved:
1. Deletion of interest income addition for Assessment Years (AY) 2013-14 and 2014-15.
2. Imposition of penalty under Section 271(1)(c) for AY 2013-14 and 2014-15.
3. Condonation of delay in filing appeals.

Issue-wise Detailed Analysis:

1. Deletion of Interest Income Addition for AY 2013-14 and 2014-15:

The Revenue challenged the decision of the CIT(A) in deleting the additions made by the Assessing Officer (AO) regarding interest income for AY 2013-14 and 2014-15. The AO had added interest income of Rs. 2,46,16,767/- and Rs. 2,50,55,139/- respectively, as income from other sources, since the assessee had not filed a Return of Income (ROI) for the years under consideration. The CIT(A) deleted these additions based on the assessee's contention that the interest income never crystallized in its hands due to an ongoing legal dispute over the ownership of the funds in a Fixed Deposit (FD) with the State Bank of India, Erode Branch. The funds were subject to an attachment order by the Delhi High Court, and the interest accrued was transferred to Canara Bank as per the court's direction. The Tribunal acknowledged that the ownership of the FD was still sub judice and directed the AO to reassess the taxation of the interest income only after the High Court's final decision on the ownership. Hence, the appeals for these years were allowed for statistical purposes.

2. Imposition of Penalty under Section 271(1)(c) for AY 2013-14 and 2014-15:

The Revenue also appealed against the CIT(A)'s decision to quash penalties imposed under Section 271(1)(c) for AY 2013-14 and 2014-15. The penalties were related to the alleged concealment of income due to the non-disclosure of interest income. However, since the quantum additions were set aside pending the High Court's decision on the ownership of the FD, the Tribunal held that there could be no tax on concealed income for the levy of penalty. The Tribunal directed the AO to reconsider the imposition of penalties based on the outcome of the ownership issue. Consequently, these appeals were also allowed for statistical purposes.

3. Condonation of Delay in Filing Appeals:

The Revenue filed a request for condonation of delay in filing the appeals, citing reasons such as pre-occupation with time-barring work and unforeseen technical glitches. The assessee did not oppose this request. The Tribunal found the justification satisfactory and condoned the delay, allowing the appeals to proceed.

Conclusion:

The Tribunal allowed all appeals for statistical purposes, directing the AO to reassess the interest income and related penalties once the High Court decides on the ownership of the FD. This decision underscores the principle that tax liability on income should be determined based on clear ownership and control over the income-generating asset.