SINGANAMALA RAMESH BABU ,CHENNAI vs. ASSISTANT COMMISSIONER OF INCOME TAX ,CENTRAL CIRCLE, TIRUPATI

Brief facts of the case are that the assessee is a film financier and distributor. He has filed his return of income for the assessment year 2016- 17 on 16/10/2016 declaring a loss of Rs. 76,98,294/-. During the course of assessment proceedings, the assessee furnished various details called for and the learned Assessing Officer made the two additions, namely, estimated disallowance of Rs. 2,07,582/- in respect of certain expenses claimed; and Interest receivable of Rs. 1,06,27,794/- shown under the head ‘current assets’.

Assessee preferred appeal before the Ld. CIT(A) and pleaded that the interest accrued on debts was recognised and offered as income for over several years, it was offered to tax and since it was not realised, the same was shown in the balance sheet under the head ‘interest receivable’ and, therefore, the same cannot be brought to tax another time. 4. Ld. CIT(A) on a perusal of the material before him, as a matter of fact, found that the amount of Rs. 1,06,27,794/- standing in the balance sheet under the head ‘interest receivable’ is nothing but the interest that was already offered to tax in the resepctive earlier years and yet to be realised by the assessee. Ld. CIT(A) accordingly held that bringing the same amount to tax in the current year would amount to double taxation and, therefore, the same has to be deleted. 5. Ld. CIT(A), however, found that insofar as the current year is concerned, the financials of the assessee show that an amount of Rs. 5,78,06,420/- towards total sundry debtors outstanding and out of this amount, a sum of Rs. 4.35 crores was the advance given for film distribution and a business advance. Ld. CIT(A), therefore, thought it fit to treat the balance amount of Rs. 1,43,06,420/- as current year sundry debts, which, till such time as the assessee deems fit to write off, has to be reckoned for the purpose of interest for the current year. On this premise, Ld. CIT(A) directed the learned Assessing Officer to include a sum of Rs. 17,16,770/- towards interest on the sundry debts.

Assessee is aggrieved by this action of the Ld. CIT(A) and preferred this appeal. It is submission of the learned AR that quite for a long time the assessee is unable to realise the interest and that is the reason why in the earlier assessment years the interest receivable was written off, but not being able to bear the same for this year the assessee himself did not recognize in their books the interest receivable. When there is no actual receipt of interest, there is no point in the authorities bringing such notional interest to tax. He further in the alternative submits that out of Rs. 5,78,06,420/- outstanding sundry debtors Ld. CIT(A) himself excluded Rs. 4.35 cores as it happens to be an advance, but even out of the balance, a sum of Rs. 55 lakhs was the opening balance of one B. Padmavathi and a sum of Rs. 56 lakhs is the opening balance of one B. Suresh, which has to be excluded.

Learned DR vehemently opposed this submission of the learned AR and stated that it is always open for the assessee to write off the debt or the unrealizable interest, but so long as they do not propose to do so, while following the mercantile method as is evident from Form 3CD, the assessee cannot say that they need not recognize the accrued interest. 8. We have gone through the record in the light of the submissions made on either side. Insofar as the originally added amount of Rs. 1,06,27,794/- is concerned, it stands as interest receivable in the assets side of balance sheet and there is no dispute that this much of interest amount relates to the earlier years. Since it was already recognised and offered to tax in the earlier assessment years, Ld. CIT(A) rightly deleted the same. It is not the case of adding the sundry debtors as unexplained but it is the case of accrual of interest. Therefore, the contention that the debts in respect of B. Padmavathi and B. Suresh are coming from earlier years and shown as opening balances in their ledger accounts, is irrelevant. 9. Now coming to the current year interest, there is no dispute that as on 31/03/2016, the outstanding sundry debtors were to the tune of Rs. 5,78,06,420/-, out of which undisputedly a sum of Rs. 4.35 crores represent business advance and does not carry any interest what-so-ever. The balance amount represents the sundry debtors and such debt is not at all written off. When once such sundry debtors outstanding, the interest on such amount is required to be declared in the profit and loss account inasmuch as the assessee is following the mercantile system. As rightly pointed out by the Ld. CIT(A) under section 36(2)(i) of the Act debts in money lending business are allowed as bad even when the debt was not offered to tax as income in the earlier years and the interest on money lent is offered to tax on accrual basis.

It is always open for the assessee to write off the interest accrued but not realised. But it is not open for the assessee to say that since he did not receive interest in the earlier assessment years and had to show the same, in the assets side of the balance sheet as interest receivable, for this year, they do not declare the same in the profit and loss account. We do not find anything illegality or irregularity in the findings of the Ld. CIT(A) on this aspect and accordingly the appeal is devoid of merits. Grounds are accordingly dismissed.

In the result, the appeal of assessee is dismissed.