Arrears of Interest already offered to Tax cannot be treated as Cash Credit: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai bench has held that the arrears of interest already offered to tax cannot be treated as cash credit under the provisions of Income Tax Act, 1961.

The assessee, Sanwalchand Udaychand Bafna HUF had advanced a loan of Rs. 10 lakhs to M/s. Balaji Builders in the year relevant to A.Y. 2007-08. On this loan amount, it received interest in the years relevant to A.Ys. 2007-08 and 2008-09 which was duly offered for taxation. However, from A.Y. 2009-10 onwards, M/s. Balaji Builders stopped making the payments of interest. However, the assessee continued to offer the interest income on accrual basis on the said loan even in the subsequent years. It was contended that during the relevant year, M/s. Balaji Builders paid interest of Rs. 3,36,195/- in cash which was duly offered by it for taxation.

The Assessing Officer made addition as unexplained credit for a sum of Rs. 3,36,195/- received from M/s. Balaji Builders.

The assessee contended that by making the said addition of Rs. 3,36,195/-, the AO has effectively made a double addition considering that the same was already offered as its income for the relevant year.

Shri Shamim Yahya (AM) observed that from the order of learned CIT(A) it is evident that it is assessee’s contention that the amount received is actually arrears of interest.

“Hence, the sum cannot be considered as cash credit. The learned CIT(A) despite noting these facts has mechanically confirmed Assessing Officer’s order without any verification. However, I note that these facts need to be examined by Assessing Officer. Hence all the facts need to be examined at the level of Assessing Officer. Hence, I remit the issue to the file of the Assessing Officer to consider the issue afresh and decide the issue as per law,” the Tribunal said.

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