The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) has held that no tax is leviable on interest accrued on FD subjected to Central Bureau of Investigation’s (CBI) prohibitory order.
The assessee, Bellary Iron-Ores Pvt. Ltd was a Private Limited company engaged in the business of extraction, processing, manufacturing and sale of iron-ore. The company also owns windmills generating power.
During the year, the company had not carried out mining activities since the mining came to be suspended by the order of Apex Court from the year 2010 onwards, vide order in Writ Petition filed by the Samaj Parivathana Samudaya. 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 Court of Special Judge for CBI, Hyderabad under Section 173 of CRPC against B. V. Sreenivasa Reddy, Managing Director of Obulapuram Mining Company Private Limited and others for illegal mining, encroachment of reserved forest area, falsification of documents, conspiracy etc.
In pursuance of the same, the banks had informed the assessee about the restraint order of the 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 noticed the bank had made TDS and that it was only done so once the interest had started to accrue before it was made or credited to the account of the deductee in question. As a result, there can be no deferral of the total amount of interest on which TDS is made because it has accrued to the assessee in the relevant assessment year.
Shivprasad Reddy, on behalf of the assessee submitted that the interest income should not be recognised under the AS-9 if there is a high degree of doubt about its receipt. The fixed deposits are the source of interest revenue, and the fixed deposits are subject to attachment.
D.K. Mishra, on behalf of the revenue contended that there was no doubt that the interest income accrued in the case of the assessee.As per the provisions of Section 5 of the Act, interest accrued was the income of the assessee in the year in which it was accrued. Further, the deposits in the bank accounts of the assessee were placed under a prohibitory order. But it had not affected accruing interest. It was also clear from the submissions of the assessee that the 5-year period of the prohibitory order had also been completed.
The Two-member Bench of Chandra Poojari,(Accountant Member) and Madhumita Roy, (Judicial Member) observed that the the lower authorities had committed an error in bringing the interest accrued on FD, which was subject to a prohibitory order by CBI Hyderabad, into tax in these assessment years under consideration and the same had to be taxed in the assessment year when it was actually received by the assessee or the right to receive accrued to the assessee.
The Bench partly allowed this ground of appeal filed by the assessee holding 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 other words, the assessee had 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.
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