DCIT Vs Rare Enterprises (ITAT Mumbai)
ITAT Mumbai held that interest on advance given to entity how became Non Performing Asset (NPA) cannot be brought to tax since the income is really not accrued to the assessee. Accordingly, addition is rightly deleted by CIT(A).
Facts- The Assessee had advanced Rs.30 Crore to M/s. DHARTI DREDGING & INFRASTRUCTURE LTD. 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. Dharti on 08.11.2018 however, paid TDS of Rs.36,00,000/- on interest accrual of Rs.3,60,00,000/- for the year ended 31.03.2018. Assessee was unaware of this development as Dharti did not send the TDS Certificate for the TDS done of Rs.36,00,000/-.
During the course of assessment proceedings, AO did not accept assessee’s explanation and added Rs.3,60,00,000/- as interest income under the head “Other Sources”. Further, AO did not give credit for tax deducted at source of Rs.36 lakhs on the said interest without mentioning any reason. CIT(A) deleted the addition. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that interest on the advances given to Dharti had not really accrued to assessee in the assessment year under consideration. No real income has resulted. He thus, concluded that hypothetical/notional income cannot be taxed merely on the basis that assessee follows mercantile system of accounting. In A.Y. 2019-20, no interest receivable from Dharti was offered to tax and no addition was also made by the ld. Assessing Officer. Accordingly, the addition made by the ld. Assessing Officer on account of interest income of Rs.3,60,00,000 was deleted.
