Bellary Iron-Ores Pvt. Ltd Vs ITO (ITAT Bangalore)
ITAT Bangalore held that as assessee has no right to receive the interest accrued on Fixed Deposits due to prohibitory order, the same is not taxable.
Facts- The assessee is a Private Limited company engaged in the business of the extraction, processing, manufacturing, and sale of iron ore. The company also owns windmills that generate power. During the year, the company has not carried out mining activities since the mining came to be suspended by the order of Hon’ble Apex Court. The mines of the assessee are situated in the Bellary district of Karnataka, but bordering the neighbouring State of Andhra Pradesh. The CBI, Hyderabad, filed a charge sheet before the Hon’ble Court of Special Judge for CBI, Hyderabad u/s. 173 of the CRPC against B. V. Sreenivasa Reddy, Managing Director of M/s. Obulapuram Mining Company Private Limited, and others for illegal mining, encroachment of reserved forest areas, falsification of documents, conspiracy, etc.
The banks had informed the assessee about the restraint order of the Hon’ble Special Judge, CBI Court, Hyderabad, communicating that the assessee would not be entitled to draw any amount or interest from the said fixed deposits.
The assessee-company accounted interest as income on such fixed deposits up to 31-03-2013 i.e., assessment year, 201314. As the uncertainty persisted and the bank could not pay the amount either to the assessee, or even to the assessing officer who has issued Garnishee Notice u/s 226(3) of the Act, the assessee did not account for the interest income in its books of account. But the banks have made TDS u/s. 194A on the Notional Interest. The assessee has recognised the income to the extent of the TDS. However, AO disagreed with the view of the assessee and brought to tax the Notional interest on the said fixed deposits.
On appeal, the Appellate Commissioner upheld the addition.
Conclusion- Held that because of the restraint order of the Court, there was no right accruing to the assessee to receive the income and accordingly the amount could not be treated as its income for the assessment year under consideration.
In the case of the assessee, the right to receive the interest is under the suspension because of the restraint order passed by the Hon’ble Special Judge, CBI Court, Hyderabad. Neither the bank could pay the interest to the assessee nor could the assessee receive the interest, identical to the above said case where neither the company could pay the dividends nor the assessee shareholder could receive it because of the restraint order of the Court.
The lower authorities has committed an error in bringing the interest accrued on FD which is subject to prohibitory order by CBI Hyderabad into tax in these assessment years under consideration and the same has to be taxed in assessment year when it was actually received by the assessee or right to receive accrued to the assessee. In other words, the assessee has to pay the tax on the same on actual accrual of right to receive this impugned interest by the assessee in any assessment year and not in these assessment years.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These two appeals by assessee are directed against different orders of CIT(A) dated 23.3.2016 & 29.10.2018 for the assessment years 2014-15 & 2015-16 respectively. Certain issues in these appeals are common which are clubbed together, heard together and disposed of by this common order for the sake of convenience.
2. First common ground in these appeals is with regard to treating the interest income accrued on the fixed deposits which are under attachment by the orders of CBI Court though there was no right to receive the same by the assessee.
3. Facts of the case are that the assessee is a Private Limited company engaged in the business of extraction, processing, manufacturing and sale of iron-ore. The company also owns wind mills generating power. During the year, the company has not carried out mining activities since the mining came to be suspended by the order of Hon’ble Apex Court from the year, 2010 onwards, vide order in Writ Petition filed by the Samaj Parivathana Samudaya in WP No. 562 of 2009. The mines of the assessee are situated in Bellary district of Karnataka, but bordering the neighbouring State of Andhra Pradesh. The CBI, Hyderabad, filed a charge-sheet before the Hon’ble Court of Special Judge for CBI, Hyderabad under section 173 of CRPC against Shri. B. V. Sreenivasa Reddy, Managing Director of M/s. Obulapuram Mining Company Private Limited and others for illegal mining, encroachment of reserved forest area, falsification of documents, conspiracy etc. The Hon’ble CBI Court, Hyderabad has placed prohibitory orders on the following fixed deposits vide orders u/s 102 of CRPC vide letter dated, 11-10-2009 and 13-10-2009 in case No.R.C.1)M)2009:
