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Facts
The assessee, a partnership firm engaged in money lending, filed its return of income under the presumptive regime. The AO made an addition of Rs. 17 lakhs as interest income, stating it was received from M/s. Kanti Chiran Corporation Pvt Ltd and offered to tax for AY 2022-23. The CIT(A) upheld the AO's action.
Held
The Tribunal observed that it was unclear whether the assessee consistently followed the cash system of accounting. The issue of accrual of income depended on the terms of the agreement with the borrower, which were not examined by the CIT(A). Therefore, the matter was remanded to the AO for verification of factual aspects.
Key Issues
Whether the interest income of Rs. 17 lakhs was earned in the relevant assessment year, and if the assessee consistently followed the cash system of accounting.
Sections Cited
44AD, 143(3), 144B, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: HON’BLE SHRI INTURI RAMA RAO & SHRI SS VISWANETHRA RAVI
Assessment Years: 2023-24 Active Brothers, Income Tax Officer, No.5082, 5th Block, 8th Floor, Non-Corp Ward-9(1), TVH Lumbini Square, Chennai 127 Bricklin Road, Purasaiwalkam, Chennai-600 007. [PAN: ABXFA4160F] Appellant Respondent Assessee by : Mr.D.Anand, Advocate Revenue by : Ms.R.Anitha, Addl.CIT Date of Hearing : 13.01.2026 Date of Pronouncement : 19.01.2026 O R D E R PER INTURI RAMA RAO, A.M :
This appeal filed by the assessee partnership firm is directed against the order of the NFAC, (herein after called CIT(A)’ in short], Delhi, dated 09.09.2025 for AY-2023.24.
2.0 Briefly, the facts of the case are that the appellant is partnership firm, carrying on business of money lending. The return of income for the Assessment Years 2023-23 was filed on 30.07.2023 disclosing an income of Rs.15,99,870/- under the presumptive regime of tax u/s 44AD of the Act.
Against the said return of income, the assessment was completed by the NFAC vide order dated 20.03.2025 passed u/s 143(3) r.w.s. 144B of the Act at a total income of Rs.1,16,98,400/-. While doing so, the assessing authority made addition of Rs.17 lakhs in respect of the interest income stated to have been received from M/s.Kanti Chiran Corporation Private Limited rejecting the contention of the appellant that the interest was received and offered to tax in the AY-2022-23. After making addition of Rs.17 lakhs, the gross receipts had exceeded the threshold limit of Rs.2 crores and therefore, the benefit of presumptive tax was not accorded to the appellant and brought to tax entire sum of Rs.2,16,98,400/-.
3.0 Being aggrieved, the appellant preferred an appeal before the CIT(A) who vide order confirmed the action of the AO. Being aggrieved, the appellant is in appeal before us in the present appeal.
4.0 It is contended that the appellant has been following cash system of accounting and interest of income of Rs. 17 lakhs received at the time of disbursal of the loan was accounted in the books of account and offered to tax for the AY-2022-23. The AO ought not to have made the above addition, merely based on the information found in the books of account maintained by the M/s.Kanti Chiran Corporation Pvt Ltd i.e. the borrower. He further submits that the appellant only received the repayment of the principal loan amount. On the other hand, Sr.DR vehemently opposed the Page - 2 - of 4 above submissions and submits that the borrower M/s.Kanti Chiran Corporation Pvt Ltd, in response to notices issued u/s. 133(6) of the Act had confirmed having paid the interest of Rs. 17 lakhs during previous year relevant to the assessment year under consideration. She further submits that there is no material on record to show that the appellant has been following cash system of accounting.
5.0 We heard the rival submissions and perused the material on record. The solitary issue that arises for our consideration is whether or not the interest of Rs.17 lakhs was earned by the appellant from M/s.Kanti Chiran Corporation Pvt Ltd during the previous year relevant to the assessment year under consideration. It is the contention of the appellant that the interest income was received in advance at the time of disbursal of loan amount and the same was accounted for during the previous year relevant to the assessment year 2022-23 on receipt basis. Therefore, the question of taxing the same in the subsequent year on the accrual basis does not arise. On perusal of the assessment order as well as the NFAC order, it is not clear whether, the assesse was following consistently the cash system of accounting. Furthermore, the issue of accrual of income is to be decided having the regard to the terms of agreement, the appellant had with the borrower. Neither the CIT(A) had referred to the terms of agreement nor examined the system of accounting followed by the appellant. Therefore,
Page - 3 - of 4 we are of the considered opinion that the matter requires to be remanded to the file of AO for the purpose of verification of above factual aspects and decide the issue of taxability of interest income of Rs.17 lakhs in accordance with law and we order accordingly.
In the result, the appeal of the assessee stands partly allowed for statistical purpose. Order pronounced on 19th , January-2026 at Chennai.