Interest income can be justified as accrued only when there is certainty of its receipts

Essar Steel Metal Trading Limited Vs DCIT (ITAT Mumabi)

ITAT Mumbai held that income can be said to have accrued only when there is certainty of receipts. Accordingly, impugned interest income cannot be said to be accrued as recovery of principal amount is also doubtful.

Facts- The assessee is engaged in the business of trading in Steels and holding investments. The assessee had given inter corporate deposits to M/s Essar Steel India Ltd. The assessee did not offer any interest income on the above said deposits in the return of income filed for the year under consideration. The AO noticed from Form No.26AS that M/s Essar Steel India Ltd has deducted TDS of Rs.32,85,608/- on the interest payable to the assessee. Further, it was noticed that the assessee and M/s Essar Steel India Ltd belonged to the same group. Accordingly, the AO took the view that the interest income receivable by the assessee is assessable in the hands of the assessee. He computed the interest income at Rs.3,28,56,079/- on the basis of TDS amount and accordingly assessed the same in the hands of the assessee. However, he did not allow TDS credit of Rs.32,85,608/- against the tax due from the assessee. The Ld CIT(A) also confirmed the same and hence the assessee has filed this appeal.

Conclusion- We notice that the assessee’s case here is that the recovery of principal amount itself is in doubt, in view of the fact that M/s Essar Steel India Limited has gone under insolvency proceeding and further the value of assets was less than the claim of unsecured creditors and hence there was no certainty that the principal amount of unsecured creditors would be settled. In our view, the contentions of the assessee are in accordance with the decision rendered in the above said cases, as per which an income can be said to have accrued only when there is certainty of receipt. Accordingly, we are of the view that the tax authorities are not justified in holding that the impugned interest income has accrued to the assessee.

We have noticed earlier that the TDS on the above said interest has been deducted and remitted to the credit of the Government, meaning thereby, to the extent of TDS amount, it can be said that the assessee has received interest. Accordingly, we hold that the interest income to the extent of TDS is liable to be taxed in the hands of the assessee. Accordingly, we hold that the TDS amount of Rs. 32,85,608/- is liable to be assessed in the hands of the assessee. Accordingly, we sustain the impugned addition to the extent of Rs.32,85,608/-. Since the above said amount is assessed to tax, we also direct the AO to allow TDS credit of Rs.32,85,608/- to the assessee.

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