ACIT CIRCLE 1, THANE, THANE vs. AMRITA PRABHAKAR DEODHAR, MUMBAI

INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: A BEFORE HON’BLE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND HON’BLE SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA 9512/MUM/2025 िनधा�रण वष�/Assmt. Year: 2016-17) AMRITA PRABHAKAR ACIT CIRCLE 1, THANE DEODHAR ROOM NO. 22, 6TH FLOOR, 424, DEODHAR CENTRE, ASHAR IT PARK, ROAD NO. MAROL MAHARSHI ROAD, 16Z, WAGLE INDUSTRIAL Vs. ANDHERI (E), MUMBAI ESTATE, THANE (W), THANE- MUMBAI-400059, 400604, MAHARASHTRA MAHARASHTRA (��थ� Respondent) (अपीलाथ� Appellant) Permanent Account Number of ADFPD6231Q Assessee: िनधा�रती �ारा/Assessee represented by: Shri Rajesh Purohit, CA राज� व �ारा/Revenue represented by: Shri Surendra Mohan Sr. DR

सुनवाई की तारीख / Date of conclusion of hearing: 24-Mar-2026 घोषणा की तारीख / Date of pronouncement: 08.06.2026 आदेश / ORDER PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal is filed by the Department against the order of ld. CIT(A)/NFAC vide DIN: ITBA/NFAC/S/250/2025-26/1081420667(1) dated 03.10.2025 passed against the assessment order by ACIT, Circle 1, Thane u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act) dated 16.12.2018 for the Assessment Year 2016-17.

1) On the facts and circumstances of the case and also in law the Ld. Commissioner of Income-tax (Appeals) has erred in deleting the addition made by the Assessing Officer on account of the interest income of Rs. 2,14,64,956/- earned on the advances made by the assessee to its close associate company, wherefrom the lender has deducted TDS and income has accrued in the hands of the assessee 2) On the facts and circumstances of the case and also in law the Ld. Commissioner of Income-tax (Appeals) has erred in holding that the change in accounting method consistently followed by the assessee from mercantile system to cash system was right and justifiable 3) On the facts and circumstances of the case and also in law the Ld. Commissioner of Income-tax (Appeals) has erred in not appreciating the facts of the case that Ld. CIT(A) has accepted the change in method of accounting ignoring the facts of the case that the interest income was not offered for taxation in spite of claim of interest expenditure by the lending company, WHARE assessee is a director 4) On the facts and circumstances of the case and also in law the Ld. Commissioner of Income-tax (Appeals) has erred in reversing the rejection of change in method of accounting without considering and verifying the facts OR without documentary evidence to see whether the assessee has ever offered the said interest income in subsequent years, which as per the record was not offered by the assessee

3.1. During the course of assessment proceedings, ld. AO found that the total gross receipts as per 26AS was Rs. 2,97,65,282 and TDS in respect of the same was Rs.29,69,985/-, whereas assessee had claimed TDS of Rs. 8,23,488/- and had offered the corresponding income of Rs. 83,00,326/- for taxation in the return filed by her. In this regard, assessee submitted that she had not received any amount from Aplab Limited and Bhavana Lighting Private Limited, whereas the amount due to them was as per the 26AS i.e. Rs. 2,09,34,819/- from Aplab Limited and Rs. 5,30,137/- from Bhavana Lighting Private Limited. Assessee further submitted that she was following mercantile system till AY 2015- 16 and had offered the receipts for taxation on accrual basis even if she did not receive any amount in those years. She also submitted that the total interest receivable was too large and it was not possible for her to pay income-tax as no funds were available with her, therefore, she had adopted cash system of accounting, in order to explain the change in method of accounting followed by her.

3.2. Ld. AO further found that assessee had been following mercantile system of accounting till A.Y. 2015-16 and for A.Y. 2016-17 i.e. the year under consideration, she had changed the accounting system to cash system. Ld. AO observed that the reasons submitted by her for change in the accounting system from mercantile to cash system were in existence even in the preceding years. Therefore, the explanation submitted by her was not accepted. According to him, since assessee was a director in Aplab Limited from whom the interest income accrued to the assessee during the year, the said company had deducted and deposited tax at source on such interest expenditure and claimed deduction on account of interest expenditure. Ld. AO held that once the company had claimed deduction on account of interest expenditure, the recipient of interest should have disclosed this interest as income for the relevant year.

3.3. In view of the above facts and since assessee had consistently followed the mercantile system and offered her interest income on accrual basis in earlier years, her contention regarding cash method of accounting was rejected. Accordingly, ld. AO added the amount of Rs. 2,14,64,956/- (2,09,34,819 + 5,30,137), treating it as accrued to the assessee for the year under consideration, to her total income under the head ‘income from other sources’.

“Due to continuous operational losses and thereafter due to severe financial crunch, the company has not paid any interest on loan for the FY 2015-16, 2016-17 & 2017-18, even the same was provided in books and TDS was deducted thereon. Details of the same are as follows:

As on 31st December, 2019 Payment Financial Interest TDS Net FY 2017- Apr18 Apr19 Outstanding Year Provided Interest 18 to to Interest as on Payable Payment Mar19 Mar20 31/12/2019 FY 2015-16 19789123 197891 17810211 1201740 0 300000 16308471 2 FY 2016-17 20057161 200571 18051445 0 0 0 18051445 6 FY 2017-18 19964202 199642 17967782 0 0 0 17967782 0 FY 2018-19 0 0 0 0 FY 2019-20 0 0 0 0 Total 59810486 598104 53829438 1201740 0 300000 52327698 8

This is further to bring to your kind notice that the company has neither provided nor paid interest on loan for the FY 2018-19 & 2019- 20. The interest provided for the FY 2015-16 is still unpaid in the books of APLAB Limited amounting to Rs.16308471. TDS is paid up to FY 2015-16. for year 16-17 TDS paid is Rs.164853/- & payable is Rs.1840863/-. For year 2017-18 TDS not paid is Rs.19964201/-.”

4.1. Assessee placed reliance on several judicial precedents, details of which are captured in the first appellate order, comprising of -

4.2. Ld. CIT(A) after taking into consideration the well-reasoned explanation given by the assessee on change in the method of accounting adopted by her, duly corroborated by the factual matrix of the company to which she had advanced the loan as well as taking into account the long line of judicial precedents, held in favor of the assessee and deleted the addition made by the ld. Assessing Officer of Rs.2,14,64,956/- as income from other sources.

5.1. It is pertinent to mention here that a change in the method of accounting is acceptable under the Act, but only under specific circumstances and not for the purpose of avoiding or reducing tax liability. The key conditions governing a change in the method of accounting by an assessee are as under:

a) A valid reason for the change: The change must be bona fide and for a legitimate purpose. Courts have approved changes for "valid circumstances," such as financial distress, that cause hypothetical income to be unrealizable. The change should not be made to manipulate income or reduce tax liability.

b) Consistency in the future: Assessee must consistently apply the new method in subsequent years after the change. Frequent switching between methods is not allowed and can trigger an assessment.

c) Compliance with Income Computation and Disclosure Standards (ICDS): The change must align with the ICDS notified by the Central Government under Section 145(2) of the Act. The ICDS provides rules for specific areas like valuation of inventories and revenue recognition.

d) Proper disclosure: Any change in accounting policy that has a material effect must be disclosed in the financial statements.

6.1. In the conspectus of above narration of factual matrix coupled with long line of judicial precedents and well analyzed reasoning given by ld. CIT(A), we do not find any reason to interfere with the same.

Accordingly, grounds raised by the Revenue in this regard are dismissed.

Order is pronounced in the open court on 08 June, 2026.

Sd/- Sd/- (Anikesh Banerjee) (Girish Agrawal) Judicial Member Accountant Member Dated: 08 June, 2026 MP, Sr.P.S Copy to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT

BY ORDER,

(Dy./Asst.Registrar) ITAT, Mumbai