2018 (9) TMI 1824 - AT - Income Tax

Tribunal upholds deletion of interest addition on outstanding debt, aligning with mercantile accounting principles.

The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to delete the addition of interest accrued on outstanding debt as income for ... Accrual of income - income recognition - Addition on account of interest accrued on outstanding debt - assessee acquired the right of suit as per assignment deed and was entitled to recover the debt along with interest and cost of suit as per the deed of assignment of right - HELD THAT:- As decided in assessee's own case[2016 (12) TMI 1771 - ITAT MUMBAI] and [2017 (8) TMI 1530 - ITAT MUMBAI] assessee acquiring the debts from the Bank of Baroda with the borrowed funds, the loan creditors have not paid interest income to either bank or to the assessee, assessee has not recognised the income for all the assessment years under consideration etc. The legal issue i.e. to be decided on the right to recover the interest income by the assessee during the pendency of suit in Bombay City Civil Court - Decided against revenue Issues:Appeal against order allowing appeal by assessee on addition of interest income - Whether interest accrued on outstanding debt should be added as income - Whether assessee following mercantile system of accounting should offer interest income on accrual basis.Analysis:The appeal was filed by the revenue against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2012-13, where the Ld. CIT(A) allowed the appeal by the assessee against the assessment order passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961. The assessee, engaged in investment business, declared a loss in its return. However, the AO added interest accrued on outstanding debt as income from other sources. The Ld. CIT(A) deleted this addition after the assessee challenged the assessment order, citing a decision in the assessee's favor for the previous year.The revenue appealed before the Tribunal on the grounds that the Ld. CIT(A) erred in deleting the addition of interest accrued on outstanding debt without considering that the assessee acquired the right to recover the debt along with interest. The revenue contended that as the assessee followed the mercantile system of accounting, interest income on debt should be offered on an accrual basis. The Ld. counsel for the assessee argued that the issue was already decided in favor of the assessee by the Tribunal in previous years and that the Ld. CIT(A) rightly followed the decision.The Tribunal, after hearing both parties, noted that the coordinate Bench had previously decided in favor of the assessee in similar cases. Referring to the legal provisions and past judgments, the Tribunal found no dispute regarding the assessee acquiring debts from a bank and not recognizing income for the assessment years under consideration. The Tribunal upheld the decision of the Ld. CIT(A) based on legal interpretations and precedents, dismissing the revenue's appeal. Since the facts remained unchanged from previous cases, the Tribunal followed the decision of the coordinate Bench and dismissed the revenue's appeal for the assessment year 2012-2013.