TaxTMI 
TaxTMI 
2025 (5) TMI 114
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....claimed to have not received." 2. "On the facts and in circumstances of the case and in Law, the Ld.CIT(A) apparently did not consider the fact that the assessee's debtor M/s. Dharti Dredging & Infrastructure Ltd. (DDIL) was classified by State Bank of India as NPA on 30.06.2018, but almost five months after this Le. on 08.11.2018 DDIL paid TDS of Rs. 36,00,000/- on interest of Rs. 3,60,00,000/-, which implies that mere classification of DDIL as NPA by its bank cannot be said to be the basis of its incapability to pay interest to the assessee, since had it been so, DDIL would have had no reason to pay only the said TDS and not paying the interest of Rs. 3,60,00,000/-to the assessee, that too after being classified as NPA." 3. Whereas assessee has taken following grounds:- "1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) 49, Mumbai erred in law and in facts in not allowing credit of Rs. 36,00,000/- being tax deducted by M/s. Dharti Dredging And Infrastructure Ltd,. when Dharti Dredging had to the actually paid Rs. 36,00,000/- to the account of the Revenue." 4. The brief facts qua the issue ....
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....offered for tax and no such credit of Rs. 36,00,000/- was taken. It was only during the assessment proceedings that assessee came to know that on 08/11/2018 Dharti had deposited TDS of Rs. 36 lakhs on the PAN of the assessee showing interest income of Rs. 3,60,00,000/-. However, the ld. AO did not accept assessee's explanation and added Rs. 3,60,00,000/- as interest income under the head 'other sources'. Further, ld. AO also did not give credit for tax deducted at source of Rs. 36 lakhs on the said interest. 6. The ld. CIT(A) noted certain important facts that Dharti had become NPA and petition was filed by its bankers u/s. 7 of IBC Act 2016 and the National Company Law Tribunal has passed the order dated 05/04/2022 placing the said company under insolvency proceedings. Thus, there was no chance of recovery of the amount of Rs. 3.6 Crores. Further, the assessee had not received any amount either interest or principal amount from Dharti till date and no interest was received or receivable which was offered to tax and no addition has been made by the AO in the subsequent years. 7. Another important fact which has been noted that in A.Y.2020-21, the assessee had written off the ....
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....f Rs. 3,60,00,000/- as interest income under the head 'income from other sources'. 10.4 The real question here is whether the income had really accrued or not. It is not a hypothetical accrual of income that is to be taken into consideration, but the real accrual of the income. Whether an accrual has taken place or not is to be judged on the principles of real income theory. In determining the question whether it is hypothetical income or real income, the facts of the case in totality has to be examined. 10.5. Before me, the appellant has submitted following details- a) Copy of Petition dated 19th August 2020, under section 7 of IBC, 2016 by State Bank of India against M/s. Dharti Dredging and Infrastructure Limited is enclosed as 'Annexure- A' b) Copy of Order passed by NCLT Hyderabad Bench-1 dated 05.04.2022 10.5.1. On perusal of application of financial creditor before the NCLT Bench, in the Para No. 6, following details are mentioned- "The Corporate Debtor after availing all the facilities failed and neglected to repay the amounts as per the sanction terms. The loan accounts, as a result, became irregular. De....
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....rim Resolution Professional. vi. The appellant has written off the Debt in the F.Y. 2019-20. 10.7 From the above facts it can be seen that the SBL has classified the loans given to M/s. Dharti Dredging & Infrastructure Ltd in the FY 2018-19 on the facts that, the debtor had failed to repay the loan. This shows that the financial condition of M/s. Dharti Dredging & Infrastructure Ltd was not sound and it was not in a position to pay the interest. It was facing financial difficulties. Even the recovery of principal amount was doubtful. In the facts of the case, there was no certainty regarding the receipt of interest. In the backdrop of these facts, it cannot be said that the interest income has been accrued to appellant as it was following mercantile system of accounting. 8. Thereafter, he has referred to various judgments of the Hon'ble Supreme Court and in the case of Godhra Electricity Co. Ltd. reported in 91 Taxman 351 and held that what can be taxed is the real income and not hypothetical income. Here in this case it is a fact that financial condition of the debtor was not sound and debtor had already defaulted with the payment of loan to SBI and under this....
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....ere there before the assessee, there was no point to show any kind of interest income on accrual basis. It is a trite law that accrual must be real income taking into account the actuality of the situation whether accrual has taken place or not. This principle was laid down by the Hon'ble Supreme Court in the case of State Bank of Travancore vs. Commissioner of Income Tax Kerala (1986) 158 ITR 101 wherein it was held and observed as under:- "An acceptable formula of co-relating the notion of real income in conjunction with the method of accounting for the purpose of taxation is difficult to evolve. Besides any strait-jacket formula is bound to create problems in its application to every situation. It must depend upon the facts and circumstances of each case, when and how does an income accrue and what are the consequences that follow from actual of income as well settled. The accrual must be real taking in to account the actuality of the situation, whether an accrual has taken place or not must in appropriate cases be judged on the principles of real income theory. After accrual, non charging of tax on the same because of certain conduct based on the ipse dixit of a partic....
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....respect of the assessment years under consideration. The AAC was right in deleting the said addition made by the ITO and the Tribunal had rightly held that the claim at the increased rates as made by the assessee- company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the ITO did not represent the income which had really accrued to the assessee-company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said view of the Tribunal." 13. Thus, what is important here is one has to see the probability or improbability of realization of a debt in a realistic manner. Here in this case there was no probability of realizing any interest from the debtor company as the same was declared NPA and therefore, there was no reason that assessee should have declared any income on accrual basis when in real there was no income received nor under these circumstances income could have been accrued to the assessee. Ld. CIT (A) has rightly held the tax can be levied on real income and not hypothetically income. 14. Another important fact is that even though TDS was ded....