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TMI Blog2024 (12) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... s in Form 26AS of the deductee, provisions of section 198 gets attracted. Accordingly, in the present set of facts, TDS done by Dharti and deposited duly reflected in Form 26AS of the assessee for the year under consideration, is deemed to be income received by the assessee under the said section. This section deals with treating the TDS as income whenever an amount deducted becomes incapable of being adjusted or counted towards tax payable. As relying on case of Y. Rathiesh [ 2014 (9) TMI 2 - ANDHRA PRADESH HIGH COURT ] in the present case, the amount of TDS reflected in Form 26AS of the assessee for the year under consideration in respect of TDS done by Dharti is to be treated as an item of income under the head income from other sources and provisions of section 198 be applied accordingly. It is important to note that once TDS is deducted, assessee cannot be permitted to use the certificate to cover other amounts while refusing to show the amount of interest in his return by resorting to difference in method of accounting system. The effect of the assessment made by the ld. AO is only that the assessee ought to desist from having the best of both the systems and discarding the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS thereon amounting to Rs.36 lakhs. 4. The Assessee had advanced Rs.30 Crore to M/s. DHARTI DREDGING & INFRASTRUCTURE LTD (Dharti) as under: Date Particulars Amt.in Rs. 10.10.2016 Amount paid 32,00,000/- Amount paid 4,18,00,000/- Amount paid 25,50,00,000/- 09.01.2017 Amount paid 200,00,000/- Total Rs. 32,00,00,000 Less: 19.01.2017 Amount received 2,00,00,000/- Total Rs. 30,00,00,000/- 4.1. Dharti paid interest for the year ended 31st March 2017 of Rs.1,71,28,767/- on which TDS of Rs.17,12,877/- was deducted. The same was offered to tax as business income by the assessee. During financial year 2017-18 Dharti became a Non Performing Asset (an NPA) thus, assessee did not receive any interest from it for the year ended 31st March 2018, relevant to Assessment Year 2018-19. 4.2. For Assessment Year 2018-19 return was filed on 31st Oct. 2018 as per Form 26AS available on that date, Dharti had not deducted any tax at source for interest for the period 01.04.2017 to 31.03.2018. Since Dharti had become NPA and was facing financial difficulties, assessee did not account for the interest receivable as interest did not commercially accrue as there was no chance of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot taxable in its hands in view of the fact that there is no possibility of receiving the same. According to the assessee, since Dharti had become an NPA and was facing financial difficulties, it did not account for the interest receivable. While doing so, the assessee had considered the fact that the income did not commercially accrue, as there was no chance of receiving the same. 5.1. Ld. CIT(A) by laying hands on several judicial precedents held that what is to be taxed should be the real income and not hypothetical income. According to him, it has to be seen whether the income had really accrued or not. In the assessee's case, it is a fact that the financial condition of the debtor was not sound and the debtor had already defaulted the interest payment. In this situation, there was no possibility to recover the interest in future. Even the recovery of principal amount was doubtful. According to him, just because the assessee had not filed the evidence before the ld. Assessing Officer to demonstrate the efforts taken for recovery, the same will not alter the facts. Further, the assessee has written off the debts in its books of accounts in the A.Y. 2020-21. This itself shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, under sub-section (1A) of section 192 for the purpose of computing the income of an assessee, shall not be deemed to be income received: Provided further that the sum deducted in accordance with the provisions of section 194N for the purpose of computing the income of an assessee, shall not be deemed to be income received." 6.2. Accordingly, in the present set of facts, TDS of Rs.36,00,000/- done by Dharti and deposited duly reflected in Form 26AS of the assessee for the year under consideration, is deemed to be income received by the assessee under the said section. This section deals with treating the TDS as income whenever an amount deducted becomes incapable of being adjusted or counted towards tax payable. 6.3. Similar issue had arisen before the Hon'ble High Court of Andhra Pradesh, in the case of Y. Rathiesh vs. Commissioner of Income-tax-I (2014) 51 taxmann.com 59 (AP). Facts of this case are similar to the present set of facts wherein loan was given by the assessee to the company who just showed the accumulated interest in its books of accounts without making payment. However, the said company deducted TDS at source on the amount of interest payable and issued certi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given case, he can adopt both the systems for different components in one and the same returns. The broad distinction between these two systems is well known. Under the cash system, the assessee would be under an obligation to pay tax only on such of the amount which has been actually received by him. In contrast, under the mercantile system, mere entitlement to receive would bring about the obligation to pay tax. The assessees choose one of them or both of them for different parts, after taking note of the advantages and disadvantages in adopting these methods. 8. We are concerned with the income of the assessee in the form of interest, on the loans which he has advanced to the two companies referred to above. As a matter of fact, he is the Managing Director of the 1st company. His case is that the 2nd company was paying interest regularly and in relation to the transaction of that company, he adopted mercantile system. There is no dispute about payment of tax on that. For the transaction with the 1st company, he has chosen to adopt the cash system. He stated that though the amount payable to him as interest was being shown in the account books of the company, the actual payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, if he intends to pay the tax on the interest as and when he receives it, the amount covered by the TDS certificate can be treated as just income outstanding, till the actual date of receipt. 11. In the facts of the present case, Section 198 gets attracted. Whenever an amount deducted as tax at source becomes incapable of being adjusted or counted towards tax payable, it acquires the character of income. In such an event, it partakes the character of any other income and is liable to be dealt with accordingly, in the order of assessment. Since the appellant has adopted the cash system and he did not receive the interest regarding which the TDS was affected, the TDS amount deserves to be treated as income. However, the attempt made by him to treat that amount as tax for the corresponding amount, cannot be permitted." 7. Considering the facts on record, provisions of section 198 and the judicial precedents discussed above, we direct the ld. Assessing Officer to recompute the assessed total income in terms of our above observations and findings. Accordingly, grounds taken by the Revenue is partly allowed. 8. In the result, appeal of the Revenue is partly allowed. Order pronou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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