NALINI TUKARAM NIKAM,PUNE vs. ITO WARD 2(3), PUNE

IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCHES “SMC”, PUNE

BEFORE DR.MANISH BORAD, ACCOUNTANT MEMBER
AND SHRI VINAY BHAMORE, JUDICIAL MEMBER

आयकर अपील सं. / ITA No.2747/PUN/2024
Assessment Year : 2017-18

Nalini Tukaram Nikam,
House No.02, S.No.52/1/2/3A,
Sangamwadi, East Kirke,
Pune 411 003
Maharashtra
PAN : AEVPN9518B
Vs.
Income Tax Officer,
Ward-2(3), Pune
Appellant

Respondent

आदेश / ORDER

PER DR. MANISH BORAD, ACCOUNTANT MEMBER :

The captioned appeal at the instance of assessee pertaining to A.Y. 2017-18 is directed against the order dated
30.10.2024 framed by National Faceless Appeal Centre, Delhi
[Ld.CIT(A)] u/s.250 of the Income Tax Act, 1961 (in short ‘the Act’) emanating out of Assessment Order dated 16.12.2019
passed u/s.143(3) of the Act.

“1. The Ld. AO erred in [CIT(A) erred in confirming] making the addition of Rs. 48,08,119/- on account of interest income.

Appellant by :
Shri Sharad Shah
Respondent by :
Shri Harish Bist
Date of hearing
:
18.09.2025
Date of pronouncement
:
30.10.2025
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• Bank has created lien on the interest income accrued to Escrow Account.

• Notice of cancellation was given and therefore, the agreement was cancelled from my end.

• Confirmation letter was given by bank that income was credited to my A/c due to technical glitches.

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4. Aggrieved assessee preferred appeal before ld.CIT(A) but failed to succeed. Now the assessee is in appeal before this Tribunal.

"My primary submissions are based on:

i) Due to technical glitches the bank had credited the income to my account and bank had also given the confirmation letter in this regard.

ii) The agreement was cancelled from my end. Notice of cancellation was given.

iii) Bank has created lien so I cannot withdraw the amount.

I now make my detailed submission on the above grounds: -

Ground 1:-

A The Ld. AO failed to appreciate the following facts and taxed the interest income of Rs. 48,08,119/- in my hands in spite of sufficient evidence produced before him as regard the relevant interest credit is not my income:

• Bank has created lien on the interest income accrued to Escrow Account

• Notice of cancellation was given and therefore, the agreement was cancelled from my end.

• Confirmation letter is given by bank that income was credited to my A/c due to technical glitches.

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2. I declared Gross Interest Income of Rs. 53,93,067/- and I claimed deduction u/s 57 amounting to Rs.48,08,119/- (being not my income), from the said income declared as there is no other column and mechanism to declare the said facts in the prescribed return form.

In regard to the fact that the income does not belong to me, I submit as under:

• The owners (I and other family members) were paid first tranch at the time of execution of the agreements

• Second tranch was payable after 11 months from the date of execution of the agreements.

• In addition to the above said payments, we were also to receive certain constructed units.

• As per the agreements, the second and third installments of sale considerations were to be deposited into an Escrow
Account maintained with Union Bank of India.

• The condition of the agreement was that it will be effective only when the zone conversion (to residential zone) takes place. I reproduce the relevant conditions hereunder.

• The lands for which development agreements entered were agricultural lands and as per the Agreements, the amount deposited into Escrow Account were payable to the assessee and other owners after conversion of the land from Agricultural Zone into Residential Zone. The possession of the land was also with the owners.

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cancellation to builder. Copy of the said notice submitted during the course of assessment is attached as Annexure 1. 4. I and my family members were entitled to retain the first trench of Rs. 25 lakhs per acre which was paid by the developer directly to our individual accounts at the time of execution of the agreements.

On without prejudice basis, I also state that bank has created lien
(the same can be verified from the letter attached as Annexure 3) on the interest income accrued to Escrow Account which means I cannot even withdraw the money lying in the account. Therefore, the receipt which is uncertain cannot be taxed in the hands of assessee.
Therefore, the addition may please be deleted.

The revenue recognition is governed by Accounting Standard 9-
Revenue Recognition issued by ICAI. The relevant portion is reproduced below for easy reference:
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13. Revenue arising from the use by others of enterprise resources yielding interest, royalties and dividends should only be recognized when no significant uncertainty as to measurability or collectability exists. These revenues are recognized on the following bases:

(i) Interest on a time proportion basis taking into account the amount outstanding and the rate applicable.

Therefore, in case of Uncertainty, the revenue cannot be recognized.

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Ground 2:-

The order passed by Ld. AO is in violation of principles of natural justice and therefore, be declared void

I do not press this ground.

Ground 3:-

The order passed by the AO is without juri iction and be declared null and void.

My case was selected for Limited Scrutiny through CASS and a notice u/s 143(2) was issued on 11-08-2018 by ACIT, Circle 7. Thereafter, the case was assigned to Ward 2(3) and notice u/s 142(1) was also issued.

However, I did not receive any notice u/s 127/129 for change of incumbent which is a mandatory requirement to carry on assessment procedures. Also, the officer who ultimately completed the assessment had not issued the notice u/s 143(2). I am attaching the copy of all notices issued as Annexure 4. Therefore, the order passed by the Ld. AO is without juri iction and shall be declared null and void.
………

Ground 4:-

On without prejudice, the Ld. AO ought to have allowed TDS credit when he taxed the income

On without prejudice, I state that the Ld. AO added Rs. 48,08,119/- while passing the assessment order stating that this interest income is taxable in my hands, however, the Ld. AO did not give me any TDS credit w.r.t. the interest income.

I have already submitted that I have not claimed any TDS credit appearing in my 26AS which is attributable to the said interest income as the said interest itself is not my income. However, the Ld.
AO ignored my submission and added the amount of interest
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received to my total income, but Ld AO did not give me TDS credit of said interest income.

Therefore, if at all the addition was to be made, the credit for TDS should also have been given. Therefore, I pray your honor to consider the same.”

“May it Please the Hon'ble Tribunal,

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04. Further, the AO was directed to examine assessee's bank account. In this regard, the AO submitted that bank interest on term deposits have been credited in the bank account no 467702010503367 as reflected in the statement. There are total of 146 credit entries in the bank account with narration "Int. on Term
Dep. and the total interest credited is of Rs.45,38,575/- (excluding the TDS (10%)). If TDS as the rate of 10% is included, the amount comes to Rs.50,42,861/- (4538575/90%). Apart from it, in the bank statement, the saving bank account interest of Rs.81,709/- has also been credited. The AO's report and Bank account statement is attached as per annexure 3.”

“4. DECISION

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similar amount as deduction u/s. 57 of the IT Act. It is held by the AO that the interest of Rs. 48,08,119/- belong to assessee as bank account and FD is in the name of the assessee, Further, the bank has deducted TDS and deposited in the name of the assessee. As per the provisions of sec. 57, the expenditure incurred for earning income is allowed as deduction. In view of the discussion, a sum of Rs. 48,08,119/- was disallowed and added to the total income of the assessee.

"5. On perusal of the submission made by the assessee and the facts available on record it is noticed that the additional evidences as claimed by the assessee submitted before the Ld. CIT(A) are already available on record and the same were filed during the assessment proceedings and due cognizance of the same is taken while passing the assessment order.

In her submission before the Ld. CIT(A), the assessee had claimed that the interest income under consideration does not belongs to her. In this regard it is submitted that this income was duly offered for taxation by the assessee herself in her return of income for the financial year 2016-17 relevant to the assessment year 2017-18. Further, as no any cancellation agreement signed by the assessee, therefore, the escrow account maintained with Union Bank of India belongs to the assessee and the interest income aroused from the said account belongs to the assessee

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consideration the claim of deduction was not for the expenditure occurred to earn the interest income.

"1) The requisition of a remand report called by your honor does not seem to be necessary as rightly pointed out by the Ld. AO in his report that there is no fresh evidence filed by us.

2) We have prayed before your honor to consider the evidence already filed by us and review the conclusions made by the Ld. AO including interpretations and effect of evidence before the AO which are once again submitted to your honor for ready reference.

3) Further, the Ld. AO has put all his arguments in the conclusion part (in a slightly different way) while passing the assessment order & we are before your honor with the present appeal against the order of the AO.

4) The AO has once again highlighted the fact that I have on my own filed the ITR and declared the said Interest Income in ITR and claimed deduction u/s 57 of the IT act. However, it is to be noted that I declared Gross Interest Income of Rs.
53,93,067/- and I claimed deduction u/s 57 amounting to Rs.
48,08,119/- (being not my income), from the said income declared as there is no other column and mechanism to declare the said facts in the prescribed return form.

It is pertinent to also note that the TDS on the said portion of Rs. 48,08,119/-was also not been claimed by me as the said interest income also does not belong to me. Thus, Income declared and offered to tax under this head was Rs.
5,84,948/-. However, claiming deduction u/s 57 was mainly because only real income be taxed, and the disclosure was required only because of the schema of the ITR.
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5) I am once again enclosing my detailed submission in this regard (reply letter submitted by me earlier before your honor) and pray that the addition made by Ld. AO be deleted.

6) I also pray for your honor to consider the fact that the ld.AO has not commented anything on my ground relating to non- issuance of notice u/s 127/129 of the IT Act through which I have challenged the validity of the assessment proceedings.

I therefore pray for your honor to consider the fact that No notice u/s 127/129 of the IT Act was issued to me and therefore, the assessment may please be quashed.

7) I summarize all my contention herein below-

i) Due to technical glitches the bank had credited the income to my account and bank had also given the confirmation letter in this regard.

ii) The agreement was cancelled from my end. Notice of cancellation was given.

iii) Bank has created lien so I cannot withdraw the amount.

iv) Only real Income be taxed applying Real Income theory.

v) There is already a charge of the income before it becomes my income and therefore the same is not taxable in my hand.

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deducted by the Bank and credited to the government account under the PAN of the appellant. Under the circumstances, the appellant can only made the claim for the TDS. Further, as per the para 3 of the Escrow agreement, upon termination and / or cancellation of the Escrow agreement, the entire amount deposited by the developer with the Escrow Agent bank shall be discharged to the developer. It clearly stated that only the deposit amount but not the interest earned thereon. Though the appellant has cancelled the agreement, the principal was refundable but not the interest earned on the said amount. Therefore, as per the Income tax provisions, the appellant is liable to pay the taxes on the interest earned. It is pertinent to mention here that the bank account as well as the FD are in the name of the appellant only. In these circumstances and in view of the foregoing facts and relied on the remand report submitted by the AO, I am of the opinion that no interference is required in the assessment order. Hence, the addition of Rs. 48,08,119/- is upheld.
8. In the result, the appeal is partly allowed.”
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9. Now on going through the above finding of ld.CIT(A) as well as details filed in the paper book, we observe that the assessee along with other family members entered into three different Development Agreements with M/s. Dhardhar
Developer Pvt. Ltd. (now known as M/s. Sangamcity Township
Pvt. Ltd.) in respect of various lands situated at Sangamwadi,
Pune vide agreements dated 24.04.2007. The lands for which Development Agreement was entered were Agricultural lands and as per the Agreement amount deposited into Escrow
Account were payable to the assessee and other co-owners after conversion of the land from Agricultural zone into Residential zone. The possession of the land was also with the owners. However, since the land was not converted into residential zone upto 04.01.2016, assessee along with other co-owners issued notice of cancellation to the Builder. We further observe that the assessee and other family members were entitled to retain first tranche of 25 lakh per Acre which was paid by Developers directly to their individual accounts whereas second and third tranche deposited in the Escrow
Account had to go back to the Developer in case of cancellation. We further observe that in the submissions filed before the lower authorities assessee has stated that “I had cancelled the Agreement at my end. The Principal was refundable to the Developer and therefore it is natural that interest on such refundable amount was also belong to the Developer. I have no right on the said interest income.”
Considering this situation, the interest income is undisputedly credited in the account of the assessee by bank on the Fixed
Deposits held in the name of the assessee and due taxes deducted at source. Ld. Counsel for the assessee failed to controvert the findings of ld.CIT(A) that upon termination or Nalini Tukaram Nikam

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cancellation of the Escrow Agreement the entire amount deposited by the Developers with the Escrow Account shall be discharged to the Developer. It clearly states that only the deposit amount shall be returned and not the interest earned thereon. Under these given facts and circumstances since the interest income remained in the hands of assessee and any future transaction which is still uncertain, cannot give right to the assessee to claim deduction u/s.57(iii) of the Act which is applicable only in case the assessee has incurred any expenditure and the same is expended wholly and exclusively for the purpose of making or earning such income. This deduction claimed by the assessee u/s.57(iii) of the Act is not allowable since the assessee has not incurred any expenditure referred to in section 57(iii) of the Act and only the assessee had deducted the amount of interest income credited by the bank on the FDRs on the future anticipation of returning the amount (Principal + Interest) to the Developer. Under these circumstances, we fail to find any infirmity in the finding of ld.CIT(A) and the same needs no interference. Grounds raised by the assessee are dismissed.

Order pronounced on this 30th day of October, 2025. (VINAY BHAMORE)
ACCOUNTANT MEMBER

पुणे / Pune;
दनांक / Dated : 30th October, 2025. Satish
Nalini Tukaram Nikam

आदेश क ितिलिप अ ेिषत / Copy of the Order forwarded to :

//// Senior Private Secretary

आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.