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Facts
The assessee filed her return of income for AY 2012-13 declaring total income of Rs.10,54,930/-. Information was received regarding transactions in the assessee's bank account, indicating an income of Rs.11,04,927/- from other sources. The AO issued notice u/s.148 and made an addition of Rs.6,76,230/- in the assessment order.
Held
The Tribunal held that the addition made by the AO was based on Form 26AS and TDS deducted, without sufficient corroborative evidence of actual receipt of interest by the assessee. The assessee's claim that the interest was waived was supported by an oral agreement, and the burden was on the revenue to prove receipt.
Key Issues
Whether the addition of Rs.6,76,230/- as interest income is sustainable when the assessee claims it was waived and the revenue lacks corroborative evidence beyond Form 26AS and TDS details.
Sections Cited
148, 143(2), 143(1)
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SMT. BEENA PILLAI
Per: Smt. Beena Pillai, J.M.: The present appeal filed by the assessee arises out of order dated 19/02/2025 passed by Ld.CIT(A)-2, Ahmedabad for assessment year 2012-13 on following grounds of appeal :
1. Firstly, I would like to apologize for the delayed of 14 days in filling of appeal for the AY 2012-13 due to non-availability of our chartered accountants who was out station for marriage ceremony of his cousin sister.
A.Y. 2012-13 Kalaben Uttamchand Jain 2. The learned CIT (A) erred in confirming the addition of 6,76,230/- made by the Assessing Officer (i.e. interest amount which was never received) but TDS deducted by the borrower.
The CIT (A) failed to appreciate that the interest was not received and in fact borrowed was defaulted with banking and financial institutes and where about of borrower is not known by the landers and Assessing Officer.
4. The learned CIT (A) erred in establishing that the appellant has received the income which was escape to tax not only in that previous year but also next financial years. Income was never received by appellant cannot be taxed.
In absence of any corroborative evidence, addition cannot be made solely on the basis of assumptions that amount was received 6. Having regard to the confirmation, statements and accounts of the loan creditor filed during assessment, the additions made desires to be deleted.
On the facts and in the circumstances of the case and in law, the AO erred in not considering the submissions of the Appellant and ignoring certain submissions in entirety, thereby violating the principles of natural justice.
The AO further erred in not providing an opportunity of cross- examining the said third parties was never provided to the Appellant. and addition is made in respect of Unsecured Loans.
The learned CIT (A) erred in holding that appellant has even not considered the TDS deducted by the borrowers.
The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal.” Brief facts of the case are as under:
2. The assessee is and individual and filed her return of income for year under consideration on 30/07/2012, declaring total income at Rs.10,54,930/-. An information was received from DDIT(INV) unit 1 Mumbai regarding transaction in the bank account of the assessee held in IndusInd Bank. It was noted that A.Y. 2012-13 Kalaben Uttamchand Jain the assessee has shown income of Rs.11,04,927/- as income from other sources but offered to tax less income that did not commensurate with huge value of transaction taken place in the account. 2.1 The Ld.AO further noted that as per 26AS details, assessee received interest of Rs.9,03,730/- against which TDS of Rs.22,750/- was deducted. But as per the return of income the assessee declared interest income of Rs.2,27,500/- against which TDS claimed was Rs.22,750/-. 2.2 Accordingly the Ld.AO issued notice u/s.148 of the Act on 27/03/2019. In response to said notice, the assessee filed here return of income declaring total income as per original return of file. The assessee was there after issued statutory notice u/s.143(2) and 143(1) in response to which, the assessee furnished requisite details as called for. After considering the details furnished by the assessee, the Ld.AO passed assessment order on 28/12/2019 assessing total income of Rs.17,31,160/- by making addition of Rs.6,76,230/- in the hands of the assessee being the difference in the interest income as per 26AS and ROI filed.
Aggrieved by the order of the Ld.AO assessee preferred appeal before the Ld.CIT(A).
3. Before the Ld.CIT(A) assessee challenged the reopening of assessment which was dismissed. On merits the Ld. CIT(A) upheld the addition of Rs. 6,76,230/- by observing as under : “7.4 Vide ground no-2 and 3, the appellant has contested that the Learned Assessing Officer failed to appreciate that the amount which is never due or accrued cannot be taxed andhence A.O erred in adding A.Y. 2012-13 Kalaben Uttamchand Jain Rs.6,76,230/- merely on the basis of TDS being deducted and reflected in 26AS of the Appellant. I have gone through the assessment framed in this case, submission given by the appellant and decision relied upon by the parties. The appellant has submitted that that the interest amount was waived by mutual agreement and thus did not accrue in the relevant financial year. The appellant has cited the Guidance Note on Accrual Basis of Accounting issued by the Institute of Chartered Accountants of India (ICAI), which states that income should be recognized only when there is certainty of receipt. The appellant contends that since there was no certainty of receiving the additional interest, it should not be taxed as accrued income. However, the AO has applied the mercantile system of accounting, which the appellant has consistently followed. Under the mercantile system, income is recognized when it accrues, regardless of whether it is actually received. 7.5 Upon careful consideration of the entire material and submission, I find the action of the A.O has merit. In this case, the appellant has failed to produce any formal agreement or documentation to prove that the interest was waived. The claim of an oral agreement between the appellant and Mr. Nenshi Shah is unsupported by any written evidence, making it untenable in law. Moreover, Form 26AS reflects the full interest credited, indicating that the lender himself recognized the income and deducted TDS accordingly. The Hon'ble Supreme Court in CIT v. Shoorji Vallabhdas& Co. [(1962) 46 ITR 144 (SC)] has held that mere postponement or non-receipt of an income does not negate its taxability under the accrual system unless the right to receive it is legally surrendered. Since the appellant has failed to furnish credible evidence that the interest was waived and since the mercantile system requires accrual-based taxation, the addition made by the A.O amounting to Rs.6,76,230/-is upheld. Hence, the ground no-2 and 3 of the appellant is dismissed” Aggrieved by the order of the Ld.CIT(A) the assessee is in appeal before this Tribunal.
The Ld.AR submitted that, inadvertently the Ground no.1 is raised seeking condonation of delay for 14 days. He submitted that, it is typographic mistake and the present appeal was filed before this Tribunal within the period of limitation.
A.Y. 2012-13 Kalaben Uttamchand Jain Accordingly Ground no.1 raised by the assessee becomes infructuous.
5. Ground no. 2 and 9 are in respect of the addition of Rs. 6,76,230/- being the interest alleged to have been received by the assessee. 5.1 The Ld.AR submitted that, the assessee gave loan to on Shri Nenshi L. Shah amounting to Rs.75,00,000/- at the rate of 12% p.a. during financial year relevant to assessment year 2011-12. He placed reliance on the ledger account of Nenshi Shah in the books of assessee placed at page 34 – 35 of the paper book. 5.2 The Ld.AR submitted that, on 01/04/2011 Nenshi L. Shah paid interest of Rs.2,27,500/- and subsequently, during assessment year 2013-14 the entire loan amount was repaid. Relevant ledger account is placed at page 36-37 of the paper book along with confirmation from Nenshi L. Shah regarding the interest paid during the year under consideration at Rs. 2,27,500/-, placed at page 38 – 39 of the paper book. 5.3 The Ld.AR submitted that, it was orally agreed between assessee and Nenshi Shah that interest would be paid by the Nenshi L. Shah only up to 30/01/2011 and thereafter he will clear the entire principle amount by March, 2013. The Ld.AR submitted that, merely because Nenshi Shah deposited TDS of Rs. 67,623/- would not lead conclusion that assessee has received the interest of Rs.6,76,230/- from him. 5.4 The Ld.AR submitted that though the TDS was deducted on the interest amount alleged to have been paid to the assessee, the same was not claimed in its return of income. It is submitted that, the assessee follows mercantile system of accounting and A.Y. 2012-13 Kalaben Uttamchand Jain therefore relying on bank statement placed at page 48 to 58 submitted that she never received such interest over and above what was declared in return of income. The Ld.AR submitted that the assessee only received interest for the year under consideration amounting to Rs.2,04,750/-.
5.5 On the contrary, the Ld.DR placed reliance on following observation of Ld.CIT(A) in appeal 7.4 and 7.5 reproduced herein above. I have perused the submissions advance by both sides in the light of record placed before me.
There is no evidences with the revenue except form 26AS that the assessee received sum of Rs. 6,76,000/- by way of interest from Nenshi Shah. The assessing officer has not been able to bring any corroborative evidences of having any cash seized for any investment made by the assessee to that extent in the assessment order. 6.1 The revenue is seeking support by stating that it was an oral agreement based on which no interest accrued to the assessee over and above 2,75,500/-. In my opinion, oral agreement cannot be disregarded unless there is evidence contrary. The assessee filed bank statements, and there is no deposit of the said amount alleged to have been received by the assessee during the year under consideration. It is further an admitted fact that, the assessee did not claim the TDS of Rs.67,623/- in her ROI. Further the assessee cannot be asked to prove the negative, and the burden is on the revenue to establish the receipt to the alleged interest of Rs.6,76,230/-. As there is nothing on record to establish that the assessee received A.Y. 2012-13 Kalaben Uttamchand Jain Rs.6,76,230/-. I do not find any reason to uphold the addition made by the authorities below and the same stands deleted. Accordingly the grounds raised by the assessee stands allowed. In the result the appeal filed by the assessee stands allowed. Order pronounced in the open court on 29/08/2025