2017 (12) TMI 1416 - AT - Income Tax

Addition on account of interest due to assessee - accrual of income - assessee did not include the same in its income on the ground that the amount of loan given to M/s ISG Traders Ltd. was Non-performing asset (NPA) - Held that - The principle laid down by the Hon ble Delhi High Court in the case of Vasisth chay Vyapar (2010 (11) TMI 88 - Delhi High Court) are identical to the facts of the present case. In the case before us the amount of interest was overdue but the same was not realized by the assessee since the year it was advanced to the party. Therefore we hold that the income of interest indeed has accrued to the assessee but has not been realized. Thus applying the rule of real theory income we hold that the addition for the amount of interest income cannot be sustained in the hands of assessee. Thus ground raised by assessee is allowed.

Summary

Issues involved:
1. Recourse to reassessment proceedings u/s. 147
2. Addition for interest on loan

Analysis:

Issue 1: Recourse to reassessment proceedings u/s. 147
The appeal was against the Commissioner of Income Tax (Appeals)'s order upholding the Assessing Officer's decision under section 147 of the Income Tax Act, 1961. The appellant contended that the AO failed to examine the validity of the recorded reasons for alleged income escapement. The CIT(A) upheld the addition of interest on the loan to ISG Traders Ltd. The appellant argued that the interest was not recognized in their books as it was not received from ISG Traders Ltd. The CIT(A) disagreed, citing a previous ITAT judgment. The ITAT found that the interest income was overdue, as evidenced by the TDS certificate, and allowed the appeal, stating that the interest had accrued but not been realized, following the rule of real income theory.

Issue 2: Addition for interest on loan
The appellant, a Non-Banking Financial Company, advanced a loan to ISG Traders Ltd. and earned interest income, which was not recognized in their books as it was not received. The AO added the interest income as undisclosed income, which the CIT(A) confirmed. The ITAT distinguished this case from a previous judgment where the interest was found not to be overdue. The ITAT relied on the TDS certificate to establish that the interest was overdue, following the rule of real income theory. The ITAT allowed the appeal, stating that the interest had accrued but not been realized, hence the addition could not be sustained.

In conclusion, both appeals by the assessee were allowed, with the ITAT ruling in favor of the assessee on both issues.