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Before: Shri Chandra Poojari & Shri Duvvuru RL Reddy
आयकर अपील"य अ"धकरण, “बी” "यायपीठ, चे"नई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI "ी चं" पूजार", लेखा सद"य एवं "ी धु"वु" आर.एल रे"डी, "या"यक सद"य के सम" Before Shri Chandra Poojari, Accountant Member & Shri Duvvuru RL Reddy, Judicial Member आयकर अपील सं./I.T.A.No.1034/Mds/2016 "नधा"रण वष"/Assessment Year:2010-11 Shri Sirish Kumar Bafna, The Assistant Commissioner of No. 6, Mulla lane, Sowcarpet, Vs. Income Tax, Chennai 600 079. Business Circle XII, [PAN: AAEPB1644B] Chennai 600 006. (अपीलाथ" /Appellant) (""यथ"/Respondent) अपीलाथ" क" ओर से / Appellant by : Shri S. Sridhar, Advocate ""यथ" क" ओर से/Respondent by : Shri Murali Mohan, Addl. CIT सुनवाई क" तार"ख/ Date of hearing : 29.05.2017 घोषणा क" तार"ख /Date of Pronouncement : 28.07.2017 आदेश /O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 5, Chennai dated 22.02.2016 relevant to the assessment year 2010-11. The only effective ground raised in the appeal of the assessee is that the ld. CIT(A) has erred in confirming the addition being the difference arrived at in interest received as per Form No. 26AS and interest disclosed in the return in the computation of taxable total income.
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Brief facts of the case are that the assessee has filed its return of income on 30.08.2010 declaring total income of ₹.64,30,830/-. The return filed by the assessee was processed under section 143(1) of the of the Income Tax Act [“Act” in short]. Subsequently, the case of the assessee was selected for scrutiny and notice under section 143(2) of the Act as well as notice under section 142(1) of the Act were issued and served on the assessee. In response thereto, the AR of the assessee filed books of account and furnished all details.
2.1 The assessee has been deriving income from salary, house property, share of profit from other firm in the capacity as partner and income from other sources. As per AIR information, the assessee has purchased bonds and debentures of more than ₹.50,000/-. When asked, the AR of the assessee has produced bonds and debentures. The Assessing Officer has noticed that the assessee has invested in Kisan Vikas Patra, IRFC tax free deposits, post office deposits, NABARD deposits, fixed deposits in Dena Bank, SBI, RBI deposit, National Housing Bank – Suvidha deposits. On perusal of the profit and loss account and the credit available in AS26, it was noticed that the assessee has offered following interest income: S.No. Deposits with Interest Interest admitted Balance received in P&L A/c. 1. State Bank of India 5,72,556 2,54,138 3,18,418 2. Dena Bank 2,10,120 21,967 1,88,213 3. National Housing Bank 4,14,416 93,207 3,21,209 4. Total 11,97,092 3,69,252 8,27,840
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When the AR of the assessee was asked to explain as to why the balance interest income of ₹.8,27,840/- was not offered for tax, he has explained that the assessee has been regularly following cash system of accounting and therefore, the interest income accrued, but not paid to the assessee was not declared on year to year basis but only on maturity of the deposit. He also submitted that as the tax deducted at source is made on behalf of the assessee, the same is offered as income. The Assessing Officer has considered the above submissions as well as clarification given by the CBDT in its Circular No. 03/2010 dated 02.03.2010. Since the assessee has not offered the interest income for taxation, the Assessing Officer added the same to the total income of the assessee and brought the same to tax.
The assessee carried the matter in appeal before the ld. CIT(A) and reiterated the submissions as made before the Assessing Officer. After considering the submissions of the assessee, the ld. CIT(A) confirmed the addition of ₹.8,27,840/-.
On being aggrieved, the assessee is in appeal before the Tribunal. By reiterating the submissions as made before the authorities below, the ld. Counsel for the assessee has pleaded that the addition made by the Assessing Officer should be deleted since the assessee has been adopting cash system of accounting and though interest income was accrued but actually the assessee has not received.
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On the other hand, the ld. DR has strongly supported the orders of authorities below.
We have heard both sides, perused the materials available on record and gone through the orders of authorities below. In this case, against the total interest receipt of ₹.11,97,092/-, in the profit and loss account, the assessee has admitted only ₹.3,69,252/- and the balance interest of ₹.8,27,840/- was not admitted on the ground that the assessee has been adopting cash system of accounting and though interest income was accrued but actually the assessee has not received. Since the assessee has failed to offer the interest income for taxation, the Assessing Officer made disallowance. On appeal, the ld. CIT(A) has observed and held as under: “5. I heard the contentions of the AR and perused the grounds of appeal, written submissions, assessment order and material available on record. My observations in respect of the grounds raised by the appellant are as follows: 6. (i) Interest on fixed deposit can be offered on accrual basis from year to year or on receipt basis on maturity of fixed deposits. But where interest is credited to the account of the account holder or where it is renewed along with interest on the maturity of fixed deposit amount, it has to be treated as receipt. A credit in one's bank account amounts to receipt by the account holder. Cash system of accounting does not mean that it should be cash received by the assessee. A credit to bank account is equally a receipt. It is true that if such interest is credited in the accounts of any third party, such interest cannot be taken as receipt. But interest from the bank is different, because the bank holds money on behalf of the account holder. Even where bank collects cheques, dividends, bills, promissory notes and the like for credit to customer's account, the bank is acting as the agent of the customer. This is the essence of banking business. The relationship of the banker and the customer is not necessarily different as between current account and fixed deposits. Since he can draw the fixed deposit amount on maturity, interest receivable on maturity is treated as received, though it is not drawn.
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The Central Board of Direct Taxes in Circular No. 243 dated June 22, 1978 stated that even in case of reinvestment deposit schemes, recurring deposits and cash certificates, it is possible to treat the income as taxable on annual basis on the ground that the banks provide for interest on such deposits in their own accounts, though it had not become due and payable except as provided under the terms of the deposit. But the circular should be taken as a concessional one, which is to be understood as taxable on accrual basis, when it advised as under: “4. Government has decided that interest for each year calculated at the stipulated rate will be taxed as income accrued in that year. The benefit of deduction under Sec. 80L will be available on such interest.” It may be seen that the Circular is intended to benefit persons, who like to avail Sec. 80L relief, but may not otherwise be able to avail the same on year to year basis, because of the bunching effect on long-term deposits losing for the depositor such interest as in excess of the ceiling under Sec. 80L in the year of receipt. Hence, it may be possible even for those who keep accounts on cash basis to avail the benefit of the circular for purposes of Sec. 80L of the Act. It is otherwise not possible to treat it as having been received. (ii) From the above mentioned analysis it is concluded that the interest credited to the appellant's account during the F. Y 2009-10, by M/s. State Bank of India, M/s. Dena bank and M/s. National Housing bank with respect to which TDS was deducted in F.Y. 2009-10 is to be assessed as income in the hands of the appellant in the A.Y 2010-11 relevant to the F.Y 2009-10. (iii) For the above mentioned reasons the action of the Assessing Officer to make addition of Rs 8,27,840/- towards difference in interest received as per Form 26 AS and interest disclosed in the return of income is upheld.” It is an admitted fact that the interest towards investment in various deposits has been credited to the account of the assessee and therefore, it has to be treated as receipt. A credit in one's bank account amounts to receipt by the account holder. Cash system of accounting does not mean that it should be cash received by the assessee. A credit to bank account is equally a receipt. It is true that if such interest is credited in the accounts of any third party, such interest cannot be taken as receipt. But interest from the bank is 6 I.T.A. No.1034/M/16
different, because the bank holds money on behalf of the account holder. Even where bank collects cheques, dividends, bills, promissory notes and the like for credit to customer's account, the bank is acting as the agent of the customer. The relationship of the banker and the customer is not necessarily different as between current account and fixed deposits. Since the assessee can draw the fixed deposit amount on maturity, the interest receivable on maturity shall be treated as “received”, though it was not drawn. The interest credited to the assessee’s account during the financial year 2009-10 by various Banks/institution, with respect to which TDS was deducted and therefore, the same has to be assessed as income in the hands of the assessee. The ld. CIT(A) has passed a well-reasoned order by referring the CBDT directions. Thus, we find no infirmity in the order passed by the ld. CIT(A) and hence, the ground raised by the assessee is dismissed.
In the result, the appeal filed by the assessee is dismissed. Order pronounced on the 28th July, 2017 at Chennai. (CHANDRA POOJARI) JUDICIAL MEMBER Chennai, Dated, the 28.07.2017 Vm/-
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आदेश क" ""त"ल"प अ"े"षत/Copy to: 1. अपीलाथ"/Appellant, 2.""यथ"/ Respondent, 3. आयकर आयु"त (अपील)/CIT(A), 4. आयकर आयु"त/CIT, 5. "वभागीय ""त"न"ध/DR & 6. गाड" फाईल/GF.