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TMI Blog2025 (5) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in circumstances of the case and in Law, the Ld.CIT(A) apparently did not consider the fact that the assessee's debtor M/s. Dharti Dredging & Infrastructure Ltd. (DDIL) was classified by State Bank of India as NPA on 30.06.2018, but almost five months after this Le. on 08.11.2018 DDIL paid TDS of Rs. 36,00,000/- on interest of Rs. 3,60,00,000/-, which implies that mere classification of DDIL as NPA by its bank cannot be said to be the basis of its incapability to pay interest to the assessee, since had it been so, DDIL would have had no reason to pay only the said TDS and not paying the interest of Rs. 3,60,00,000/-to the assessee, that too after being classified as NPA." 3. Whereas assessee has taken following grounds:- "1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) 49, Mumbai erred in law and in facts in not allowing credit of Rs. 36,00,000/- being tax deducted by M/s. Dharti Dredging And Infrastructure Ltd,. when Dharti Dredging had to the actually paid Rs. 36,00,000/- to the account of the Revenue." 4. The brief facts qua the issue involved are that assessee is a partnership firm carrying out busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessee came to know that on 08/11/2018 Dharti had deposited TDS of Rs. 36 lakhs on the PAN of the assessee showing interest income of Rs. 3,60,00,000/-. However, the ld. AO did not accept assessee's explanation and added Rs. 3,60,00,000/- as interest income under the head 'other sources'. Further, ld. AO also did not give credit for tax deducted at source of Rs. 36 lakhs on the said interest. 6. The ld. CIT(A) noted certain important facts that Dharti had become NPA and petition was filed by its bankers u/s. 7 of IBC Act 2016 and the National Company Law Tribunal has passed the order dated 05/04/2022 placing the said company under insolvency proceedings. Thus, there was no chance of recovery of the amount of Rs. 3.6 Crores. Further, the assessee had not received any amount either interest or principal amount from Dharti till date and no interest was received or receivable which was offered to tax and no addition has been made by the AO in the subsequent years. 7. Another important fact which has been noted that in A.Y.2020-21, the assessee had written off the advance of Rs. 30 Crores in its books and had not claimed the write off of the amount of Rs. 3.6 Crores in the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is not a hypothetical accrual of income that is to be taken into consideration, but the real accrual of the income. Whether an accrual has taken place or not is to be judged on the principles of real income theory. In determining the question whether it is hypothetical income or real income, the facts of the case in totality has to be examined. 10.5. Before me, the appellant has submitted following details- a) Copy of Petition dated 19th August 2020, under section 7 of IBC, 2016 by State Bank of India against M/s. Dharti Dredging and Infrastructure Limited is enclosed as 'Annexure- A' b) Copy of Order passed by NCLT Hyderabad Bench-1 dated 05.04.2022 10.5.1. On perusal of application of financial creditor before the NCLT Bench, in the Para No. 6, following details are mentioned- "The Corporate Debtor after availing all the facilities failed and neglected to repay the amounts as per the sanction terms. The loan accounts, as a result, became irregular. Despite several requests, demands etc. by the Bank the Corporate Debtor, and its Management didn't take any steps to regularize the loan accounts. Due to the failure and the gross negligence of the Corporate D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to repay the loan. This shows that the financial condition of M/s. Dharti Dredging & Infrastructure Ltd was not sound and it was not in a position to pay the interest. It was facing financial difficulties. Even the recovery of principal amount was doubtful. In the facts of the case, there was no certainty regarding the receipt of interest. In the backdrop of these facts, it cannot be said that the interest income has been accrued to appellant as it was following mercantile system of accounting. 8. Thereafter, he has referred to various judgments of the Hon'ble Supreme Court and in the case of Godhra Electricity Co. Ltd. reported in 91 Taxman 351 and held that what can be taxed is the real income and not hypothetical income. Here in this case it is a fact that financial condition of the debtor was not sound and debtor had already defaulted with the payment of loan to SBI and under this situation there was no possibility to recover the interest in future. Even the recovery of the principal amount was doubtful. Thus, he held that interest cannot be assessed in the hands of the assessee. 9. Here in this case earlier the appeal was decided by the Tribunal vide order dated 27/09/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of State Bank of Travancore vs. Commissioner of Income Tax Kerala (1986) 158 ITR 101 wherein it was held and observed as under:- "An acceptable formula of co-relating the notion of real income in conjunction with the method of accounting for the purpose of taxation is difficult to evolve. Besides any strait-jacket formula is bound to create problems in its application to every situation. It must depend upon the facts and circumstances of each case, when and how does an income accrue and what are the consequences that follow from actual of income as well settled. The accrual must be real taking in to account the actuality of the situation, whether an accrual has taken place or not must in appropriate cases be judged on the principles of real income theory. After accrual, non charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted in determining the question whether it is hypothetical income or whether real Income has materialised or not. Various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts as brought to tax by the ITO did not represent the income which had really accrued to the assessee-company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said view of the Tribunal." 13. Thus, what is important here is one has to see the probability or improbability of realization of a debt in a realistic manner. Here in this case there was no probability of realizing any interest from the debtor company as the same was declared NPA and therefore, there was no reason that assessee should have declared any income on accrual basis when in real there was no income received nor under these circumstances income could have been accrued to the assessee. Ld. CIT (A) has rightly held the tax can be levied on real income and not hypothetically income. 14. Another important fact is that even though TDS was deducted by the debtor company even when no interest was ever paid to the assessee till date. In the subsequent assessment year assessee had not shown any interest and the same has been accepted by the ld. AO in the assessment orders and in fact in A.Y.2021-22 assessee has written off the principal amount as bad debt. Thus showing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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