TMI Blog2014 (6) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... ) TMI 6 - SUPREME Court] - Merely because there was a penal clause for charging of interest on account of delay in getting the requisite approval and clearance, it does not ipso facto confers right upon the assessee to charge interest, unless the other party also recognises as a debt to be discharged in actual terms. The debit note raised by the assessee has been rejected / returned back to the assessee and based on this, the assessee has not recognised this income, has not been disputed by any material on record or by way of any enquiry from the said party specific on this score, then it cannot be held that the income, has accrued to the assessee in the real sense - the income cannot be said to be generated, actual or accrued, by mere entries in the accounts made by the parties - Such a hypothetical income cannot be said to have been accrued to the assessee merely because the other party has treated it as a liability – thus, the interest income as taken by the AO has not accrued to the assessee and it is not liable to the taxed in the hands of the assessee – Decided in favour of Assessee. - ITA No. 4487/Mum./2012 - - - Dated:- 4-6-2014 - Shri N. K. Billaiya And Shri Amit Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e necessary Petition of Appeal was signed and forwarded to the consultants on June 27, 2011. g) The consultants, thereafter, prepared the appeal sets and informed us about the requirement of the Affidavit on June 28, 2012, which was drafted on June 29, 2012, and has been filed by me accordingly. 3. In view of the aforesaid submissions and after hearing both the parties, we are of the considered opinion that the assessee had a reasonable cause for not filing the appeal within the statutory time. Accordingly, we condone the delay of 57 days in filing the appeal and proceed to dispose off the appeal on merit. The grounds raised by the assessee, read as under: 1. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in holding that an amount of Rs.1,98,33,263 was liable to be taxed as Interest Income under the head Income from Other Sources since the same had accrued and become due to the Appellant Company and in ignoring the documents substantiating the fact that there was no possibility of any interest accruing on the project security deposit as the same was waived by the parties concerned. Having regard to the facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement. c) As per the terms of the aforesaid memorandum, the Appellant Company had given an advance of Rs.7,62,30,0001- to the said party. d) In accordance with the terms and conditions of the said memorandum, the said party was liable to pay interest @ 10% p.a. on the aforesaid project advance to the Appellant Company from the date of execution of the proposed development agreement. e) Since there was an inordinate delay in the procurement of the requisite approvals and clearances which were to be obtained by the said party, the execution of the formal development agreement was delayed. f) The Appellant Company, therefore, charged interest on the project advance, and raised a debit note on M/s. Desai Gaikwad dated February 19, 2007, towards the interest chargeable on the aforesaid project advance. A copy of the debit note was furnished to the Assessing Officer during the course of the assessment proceedings. g) The said M/s. Desai Gaikwad did not accept such interest charged by the Appellant Company as per the said debit note and informed the Appellant Company accordingly vide letter dated March 6, 2007, and returned the debit note to the Appellant Company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties, which is evident from the fact that the debit note raised by the assessee has been returned / rejected by the said party. Thus, no interest income could have been possibly accrued to the assessee and, therefore, no entry to this effect was made in the books of account. 7. The learned Commissioner (Appeals) rejected the assessee s submission and held that as per the MoU, the interest @ 10% was to be paid to the assessee from the advancement of security deposit to the date of assigning of the development agreement and in case the development agreement did not materialize, then the interest @ 10% was to be paid to the assessee by the said party. There is no such clause in the MoU to waive the said interest. The other party has also shown interest liability as expenditure in its books of account. Therefore, the action of the Assessing Officer is not only correct on the facts but also in law. 8. Before us, the learned Senior Counsel, Mr. Farookh Irani, on behalf of the assessee submitted that the assessee is in the business of property development and it had entered into MoU dated 23rd August 20205, with M/s. Desai Gaikwad, who were the owner of the plot of land admeasur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had received interest of Rs. 1,81,25,729, which was on account of refund of advance of Rs. 7,62,30,000. This interest income has been offered for tax in the assessment year 2009 10. After narrating these facts, he submitted that the penal clause of charging of interest as contemplated in supplementary MoU dated 26th July 2006, by virtue of clause 9, the same had neither accrued to the assessee nor has been received by the assessee, because the said party has rejected the said debit note which has also been agreed by the assessee. Thus, such an interest has not accrued to the assessee at all. If the said party has shown this interest as liability in its books of account, then it cannot lead to an inference that the assessee has also recognised it as an income. The interest which has actually accrued to the assessee on account of cancellation of agreement that is on the refund of the deposits, the same has already been offered for tax and, therefore, interest which has been added by the Assessing Officer in this year, is wholly unjustified in law and on facts. He further submitted that the concept of real income has to be seen, whether any real income has accrued to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the said plot for developing the project. The assessee was also required to give an advance of Rs. 7,62,30,000, on which the said party was liable to pay interest @ 10% per annum at the time of execution of the proposed development agreement. Thereafter, the supplementary MoU dated 26th July 2006 was entered, wherein it was agreed that the owner has to, within 45 days, get the clear and marketable title and all the necessary approvals. In case, the owner fails to commit for such requisition, the assessee has the right to terminate the MoU and ask for refund of the said advance. It also contained a penal clause (no.9), which provides that in the event, the owner fails to comply with the said requisition, then it shall charge interest @ 10% per annum on the deposit amount of Rs. 7,62,20,000. Since there was an inordinate delay in procurement of requisite approval and clearance, the assessee company did raise the debit note for charging of interest of Rs. 98,29,381 for the period 3rd November 2005 to 31st March 2007. However, M/s. Desai Gaikwad did not accept such charging of interest and the debit note was returned back to the assessee after rejecting the charging of such intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the debit note raised by the assessee has been rejected / returned back to the assessee and based on this, the assessee has not recognised this income, has not been disputed by any material on record or by way of any enquiry from the said party specific on this score, then it cannot be held that the income, has accrued to the assessee in the real sense. The Revenue s case is that, firstly, such an interest is flowing from the clause of the agreement and, therefore, the assessee has a right on such an income and secondly, the other party has recognised the said interest as liability in its books of account. Such a contention of the Department cannot be accepted for the reason that firstly, the terms of charging of interest on non performance of the requisition stipulated in the agreement has been waived off by the act of the parties, which is evident from the evidences placed on record, then, on such a waiver, it cannot be held that there is a accrual of income in real sense because, the debt has not been recognised by the other party; secondly, mere entry in the books of account of the second party will not create a debt in favour of the assessee, unless that party agrees for suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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