Income can be Said to have Accrued Only when there is Certainty of Receipt: ITAT

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the income could be said to have accrued only if there was a certainty of receipt.

The assessee, Essar Steel Metal Trading Limited was engaged in the business of trading in Steels and holding investments. The assessee had given inter corporate deposits to 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 that Essar Steel India Ltd had deducted Tax Deducted at Source (TDS) on the interest payable to the assessee. Further, it was noticed that the assessee and Essar Steel India Ltd Essar and Steel Metal Trading Limitedbelonged to the same group.

Accordingly, the AO took the view that the interest income receivable by the assessee was assessable in the hands of the assessee. He computed the interest income on the basis of TDS amount and accordingly assessed the same in the hands of the assessee and not allowed TDS credit against the tax due from the assessee.

Vijay Mehta, on behalf of the assessee submitted that under mercantile system of accounting, an income could be said to have accrued and it could be recognized only when there was certainty of its receipt. In the instant case, there was no certainty of receipt of interest income and hence the same could not be construed as accrued to the assessee.

Richa Gulati, on behalf of the revenue submitted that Essar Steel India Limited belonged to the assessee group only and it could not be said that there was no certainty of receipt of interest income.

The Division Bench of B.R. Baskaran (Accountant Member) and Kavitha Rajagopal (Judicial Member) allowed this ground of appeal and held that, if there was uncertainty over the receipt of the same, it could not be said that the interest income had accrued.

“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,” the Bench further observed.

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