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TMI Blog2016 (1) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... borrower credited appellant's account with the entire arrear of interest in one year and claimed deduction for the same in one year which is contrary to law. The AO shall also inform the Assessing Officer of the borrower about default committed by the borrower of non deduction of Tax and its consequent effect u/s. 40(a)(ia) of the Act. These directions are issued to ensure that no leakage of revenue occurs as a consequence of the relief allowed to the appellant. - Decided against revenue Unexplained investment u/s. 69 - Addition on difference in hire purchase loan balance as per confirmation obtained from M/s Guru Mehar Construction u/s 133(6) vis a vis the balance as per the books of the assessee - CIT(A) deleted the addition - Held that:- We find lot of force in the argument of the Learned AR that even assuming that the difference in opening balance of loan figure is to be brought to tax, it cannot be added as income in the Asst Year 2009-10 and it should be considered only in the year in which the difference, if any, arose. We find from the details submitted by the said party i.e Guru Mehar Construction, that he had not submitted the transaction details prior to Asst Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 11.29 crores and as on 31.3.2008 was ₹ 7.02 crores. The assessee's investment in shares during the year went up only by ₹ 1.5 lacs. These facts therefore supports the assessee's case that more than 99% of investment was brought forward from earlier years. He also found that no disallowance u/s 14A of the Act was made for earlier assessment years. He found that the Learned AO had directly embarked on applying Rule 8D(2) of the Rules without recording any satisfaction with cogent reasons in terms of Rule 8D(1) of the Rules as to why the submission of the assessee that no expenditure was incurred for earning dividend income is incorrect. He further held that the Learned AO had not brought any nexus between use of borrowed funds with acquisition of investments. Accordingly, he held that no disallowance need to be made in terms of Rule 8D(2)(ii) of the Rules. However, in respect of disallowance contemplated under Rule 8D(2)(iii) for management expenses, he directed the Learned AO to disallow a sum of ₹ 25,000/- to meet the ends of justice. The assessee had not preferred further appeal before us against this order. The revenue is in appeal before us on the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments in accordance with section 45IA and 45Q of Reserve Bank of India Act. The said prudential norms of RBI mandate the assessee to recognize interest income on NPA accounts only on receipt basis irrespective of the method of accounting employed by the assessee. Since the assessee could not realize the interest from the said party i.e Guru Mehar Construction, it chose not to recognize interest income on accrual basis in consonance with prudential norms prescribed by RBI for the Asst Years 2008-09 and 2009-10. The Learned AO obtained information from M/s Guru Mehar Construction u/s 133(6) of the Act who had provided for interest payable to assessee to the extent of ₹ 1,23,56,247/- and based on this data, the Learned AO proceeded to make an addition for the same amount in the hands of the assessee as interest income from Guru Mehar Construction ignoring completely the submissions of the assessee as stated supra. On first appeal, the Learned CITA by relying on the decision of the Hon'ble Delhi High Court in the case of CIT vs Vasisth Chay Vyapar Ltd reported in 330 ITR 440 (Delhi) held that the prudential norms prescribed by RBI with regard to income recognition are to be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cognized accounting principles. The accounting principles, which the assessee was indubitably bound to follow, were AS-9. [Para 16] Therefore, it could not be said that income in the form of interest, though not received, had still accrued to the assessee under the provisions of the Income-tax Act and was, therefore, exigible to tax. It was so for the reasons: (1) The assessee had not received any interest on the said ICDs placed with 'S' since the assessment year 1996-97 as it had become NPA in accordance with the Prudential Norms, which was entered in the books of account as well. The assessee had further successfully demonstrated that even in the succeeding assessment years, no interest was received and the position remained the same until the assessment year 2006-07. Reason was adverse financial circumstances and the financial crunch faced by 'S'. So much so, it was facing winding up petitions which were filed by many creditors. Those circumstances led to an uncertainty insofar as, recovery of interest was concerned, as a result of the aforesaid precarious financial position of 'S'. What to talk of interest, even the principal amount itself h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting, the AO could not assess the alleged accrued interest of ₹ 1,23,56,247/- as income of the appellant chargeable in AY 2009-10. 5.2.7 The AO also justified the addition of the alleged interest on the ground that in its confirmation, Guru Mehar Construction had admitted that the appellant's accounts in its books for FY 2008-09 was credited by the sum of ₹ 1,2356,247/- in respect of accrued interest and over due interest. In AO's opinion the appellant was liable to be assessed on such interest because in the books of the borrower it had accounted the interest expenditure and therefore the appellant could not escape the liability to pay tax on accrued interest by taking shelter of the theory of real income. In my considered opinion however merely on the basis of entries passed in the books of the borrower, tax liability of the lender could not be artificially determined. The confirmation issued by the borrower proved that except crediting interest to the appellant's account, it did not ever comply with legal requires of the I.T Act. The borrower in its confirmation admitted that interest of ₹ 1,23,56,247/- was credited to the lender's accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in the order of the Learned CITA on this ground. Hence the ground no.2 raised by the revenue is dismissed. 4. The last issue to be decided in this appeal is as to whether in the facts and in the circumstances of the case the Learned AO is justified in adding the difference in hire purchase loan balance as on 1.4.2008 (opening balance) as per confirmation obtained from M/s Guru Mehar Construction u/s 133(6) of the Act vis a vis the balance as per the books of the assessee. 4.1. The brief facts of this issue is that the Learned AO obtained information u/s 133(6) of the Act from Guru Mehar Construction wherein it was confirmed by the said party that the balance of hire purchase loan payable to assessee as on 1.4.2008 at ₹ 1,38,63,435/- . The Learned AO compared this balance with that appearing in the books of the assessee and found a difference of ₹ 8,21,143/- which he brought to tax as unexplained income of the assessee. On first appeal, the Learned CITA deleted the addition. Aggrieved, the revenue is in appeal before us on the following ground:- 3. That on the facts and circumstances of the case and in law, the ld.CIT(A) erred in deleting the addition of AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only be considered as appellant's investment . However, in order to invoke Sec 69, it was necessary for the AO to prove that the alleged unexplained investment was made or acquired during the financial year relevant to AY 2009-10. By AO's own admission the difference arose in the balance outstanding as at the beginning of the FY 2008-09. This balance was brought forward from 31.03.2008 meaning thereby the difference between the appellant's books and the books of Guru Mehar Construction persisted in the earlier year. The accounting difference as per appellant's books and as per borrower's books did not emanate out of appellant's transactions for the FY 2008-09. I also find force in the A/Rs submission that no information was gathered by the AO from Guru Mehar Construction with regard to its transactions with appellant in the year prior to FY 2008-09 even though the appellant had transactions with the said party earlier. The accounting difference as at the opening of the previous year was the culmination of the transactions conducted prior to 01.04.2008 and therefore addition if any could have been made only in the relevant years when the transactions givin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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