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2016 (1) TMI 446 - ITAT MUMBAI

2016 (1) TMI 446 - ITAT MUMBAI - TMI - Addition on account of non recognition of interest income on the funds deployed in optionally convertible debenture - Income Recognition - CIT(A) deleted the addition - Held that:- Acts on record show that M/s. Ordyn Technologies Pvt. ltd., went into heavy financial crisis by which it was not in a position to pay the principle amount of debentures least to talk about interest on the said debentures. The assessee purchased the OCDs heavily banking upon the f .....

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n debentures from the said company.

Assuming for a moment that the assessee has purchased debentures cum interest and therefore the assessee must account for the interest, but at the same time there being no possibility of receiving interest, the same is allowable as a write off in the books. Therefore, we do not find any logic in making the addition of interest accrued and then allowing the same as a deduction as a bad debt. Considering the facts of the case from all possible angle, .....

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). The CIT(A) is directed to decide the taxability or other wise of the interest on loan given to Shri Satish Lade after giving reasonable and fair opportunity of being heard to the assessee. - Decided partly in favour of revenue for statistical purpose. - I.T.A. No.219/Mum/2013 - Dated:- 21-10-2015 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER For The Appellant : Shri Vachaspati Tripathi For The Respondent : Shri Dr. K. Shivaram ORDER PER N.K. BILLAIYA, AM: This .....

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ithout appreciating the fact that M/s. Ordyn Technologies Pvt. Ltd. has debited the interest payable in its books of accounts and further as per clause 16.13 of the agreement, M/s. Ordyn Technologies was also liable to issue additional equity shares to compensate for any non-payment of interest on OCD until the conversion of OCD. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in placing reliance in the case of Kerala State Industrial Product .....

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685/-. The return was selected for scrutiny assessment. 3.1. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has invested in debentures and inter-corporate deposits from which no income was recognized during the year. The AO further observed the note to the annual account which read as under: Income Recognition- The company recognizes its income on accrual basis, however interest amounting to ₹ 2,81,39,521/- has not been recognized .....

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unt and interest income has not been recognized, therefore, the net result is loss. 3.3. The assessee was asked to explain and justify its stand. In its letter dated 7.10.2011 the assessee explained that it got an opportunity for deploying funds at ₹ 22,40,21,918/- in optionally convertible debentures OCD) of M/s. Ordyn Technologies Pvt. ltd., which was to yield 16% interest per annum. The said fund was to be financed by IIISL @ 15.75% per annum. It was brought to the notice of the AO that .....

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of the firm belief that no sane investor would acquire an asset which has already gone bad and there is no reason to believe the reasons given by the assessee for nonrecognition of interest income on the OCD till 31.3.2009. The AO added the interest on the OCD at ₹ 2,40,21,918/-. 3.4. The AO further found that the assessee had given loan to Shri Satish Lade amounting to ₹ 1 crore @ 9% per annum. Vide letter dated 18.11.2011, the assessee explained that on loan given to Shri Satish L .....

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tted that in so far as interest on debentures is concerned, since the company M/s. Ordyn Technologies Pvt. ltd., has suffered great financial crisis, there was no certainty in receiving the interest therefore the same has not been recognized in the books and it has been clearly explained by way of note to the accounts. 4.1. After considering the facts and the submissions, in the light of the documentary evidences placed before the First Appellate Authority, the FAA was of the opinion that the pr .....

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ts receipt, but the substance of the matter is the income. If income does not result at all, there cannot be tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialize. 4.2. The Ld. CIT(A) was convinced that the AO was not correct in his action in taxing the interest income of ₹ 2,81,39,521/- as the said income was not received by the assessee company and directed the AO to delete the impugned addition. 5. Aggrieved by this, the Revenue is be .....

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s been stated before the lower authorities. 8. We have given a thoughtful consideration to the orders of the authorities below. The undisputed fact is that the OCD of M/s. Ordyn Technologies Pvt. ltd., worth ₹ 20 crores were purchased by the assessee for a total consideration of ₹ 22,40,21,918/-. It is also an undisputed fact that the consideration was financed by IIISL. Obviously, the face value of the debentures was ₹ 20 crores and by paying ₹ 22,40,21,918/-, the assess .....

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