TaxTMI 
TaxTMI 
2016 (7) TMI 450
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....n the circumstances of the case and in law the learned CIT(A) erred in confirming the order of the learned AO bringing to tax interest of Rs. 15,73,952, on a hypothetical basis, in respect of deposit of Rs. 435 lacs with Mahindra Construction Company Ltd. (MCCL), notwithstanding the fact that the principal amount of the said deposit was written off in the books as not recoverable. The addition made by the learned AO be deleted. 2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the order of the learned AO not allowing deduction for interest of Rs. 1,35,35,072 in respect of the aforesaid deposit which interest was brought to tax in AY 2002-03, 2003-04 , AND 2004-05. The learned CJT(A) ought to have allowed the claim of the appellant in the year under appeal since the principal amount of the said deposit was written off in the books as not recoverable. The appellant be allowed deduction for Rs. 1,35,35,072 as claimed by it 3. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the order of the learned AO not allowing deduction for the principal amount of the aforesaid....
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....ds assessee did not account for any interest income on the ground that the deposit/advance itself had become doubtful of recovery and, therefore, there was no accrual of interest income. The material on record reveals that in assessment year 2002-03 and upto assessment year 2004-05, the aforesaid stand of the assessee was not accepted by the incometax authorities and instead for each of the three years, it was held that interest income duly accrued on such deposits and the same was brought to tax. It appears that the issue for assessment years 2002-03 to 2004-05 reached the Tribunal, which vide a common order in ITA NO.1259 to1261/Mum/2010 dated 27/04/2011, restored the issue of assessment of notional interest income back to the file of Assessing Officer for re-examination. In particular, the Tribunal directed the Assessing Officer to examine the evidences regarding poor financial health of MCCL and, thereafter decide the matter afresh. 5. Before us, Ld. Representative for the assessee has furnished copies of the orders passed by the Assessing Officer in pursuance to the directions of the Tribunal for assessment years 2002-03 to 2004-05, wherein assessee's plea that no addition ....
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.... on account of the condition placed in section 36(2) of the Act. It was also pointed out that the deposit was more in the nature of investments, therefore, its non-recovery, at best, can be treated as a capital loss. 9. We have carefully considered the rival stands. Factually speaking, it is not in dispute that assessee had made deposits/advances with MCCL in the previous year 2000-01, corresponding to assessment year 2001-02 amounting to Rs. 4,35,00,000/-. The interest accruing on such deposits for assessment year 2001-02 amounted to Rs. 15,73,952/-, which was duly offered to tax in the said assessment year. Subsequently, assessee has not accounted for any interest income on the ground that the aggregate of the principal amount as well as interest accrued to assessment year 2001-02 was doubtful of recovery. Upto assessment year 2004-05, the Assessing Officer has accepted that the financial position of MCCL was poor and, therefore, no interest income can be said have accrued for the purposes of taxation. In the current year, the assessee company claims that the principal amount of deposits/advances be considered as bad debt, which has been rejected by the income-tax authorities.....
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....9 claimed an amount of Rs. 49.82 lakhs as doubtful debts from M/s. GSB Capital Market Ltd. This consisted of the aggregate of principal and interest payable by M/s. GSB Capital Market Ltd. It was in the subject Assessment Year that a settlement was arrived at between the parties and the Respondent-Assessee received Rs. 15 lakhs from M/s. GSB Capital Market Ltd. and the balance amount of Rs. 34.82 lakhs being nonrecoverable was being claimed as bad debts by writing off the same in its books of account. It would thus be noticed the amount of Rs. 34.82 lakhs which constitutes partly the principal amount of the inter-corporate deposits and partly the interest which is unpaid on the principal debt. The Assessing Officer's contention that amount of Rs. 34.82 lakhs was not offered to tax earlier and, therefore, deduction under Section 36(2)(i) of the Act is not available, is no longer res+-integra. This very issue camp up for consideration before this court in Shreyas S. Morakhia (supra) wherein the assessee was a stock broker and engaged in the business of sale and purchase of shares. The brokerage payable by the client was offered for tax. Subsequently, it was found that the principal a....