ACIT, CHENNAI vs. SRI C. ARYAMA SUNDARAM (INDL0, CHENNAI

The appeal filed by the Revenue is directed against the order dated 30.10.2013, passed by Ld. Commissioner of Income Tax (Appeals)-V, Chennai and it relates to assessment year 2006-07.

The Ld. counsel for the assessee has moved an application seeking adjournment of the case. After hearing the Ld. D.R., we have proceeded to dispose of this appeal ex parte, without the presence of the assessee.

The A.O. noticed that the assessee has borrowed a loan of `9 Crores from a bank and invested the entire amount in purchasing KVP certificates. The assessee did not declare any interest income from KVP certificates, whereas, he had claimed deduction towards payment of interest on the bank borrowings. The assessee had purchased KVP certificates on 24.1.2006. Hence, the Assessing Officer estimated the interest accrued on KVP certificates at `10,00,000/- for two months ending 31.03.2006 and added the same to the total income of the assessee.

The assessee challenged the said addition by filing appeal before Ld. CIT(Appeals). Before the Ld. CIT(Appeals), the assessee submitted that the interest is paid on KVP certificates only at the time of maturity of the same and hence, the Assessing Officer was not justified in assessing the accrued interest for a period of two months. The Ld. CIT(Appeals) was convinced with the contention of the assessee and accordingly deleted the addition of ` 10,00,000/- made by the Assessing Officer.

Aggrieved, the Revenue has filed appeal before us. The Ld. D.R. placed reliance on the decision of Hon'ble Kerala High Court in the case of Dr. R.P. Patel v. CIT (2009) 182 Taxman 305 (Ker.) and submitted that the Hon'ble Kerala High Court has held that the interest on Indira Vikas Patras ( another type of deposit certificates issued by the Post Office) have to be offered by every investor every year on accrual basis and the investors cannot contend that interest income on Indira VikasPatras can be assessed to tax only on maturity and after encashment. The Ld. D.R. also placed reliance on Circular No.687 dated 19.08.1994 issued by CBDT wherein the yearly interest accrual has been given on table. The Ld. D.R. submitted that the assessee has to offer the interest on KisanVikas Patra certificates also on accrual basis in view of the circular issued by CBDT as well as in view of the decision of the Hon'ble Kerala High Court referred above.

We have heard Ld. D.R. and perused the record. We have already noticed that the assessee had invested in Kisan Vikas Patra only on 24.01.2006. A reference to the CBDT circular (supra) would show that the interest on KisanVikasPatra is accumulated on half- yearly basis, meaning thereby the interest shall accrue for the first time after completion of six months from the date of purchase. In 4 the instant case, the interest shall accrue for the first time on 24.07.2006. Accordingly, in our view, it cannot be said that the interest has accrued in the instant case within a period of two months from the date of purchase of KVP, i.e. from 24.01.2006. Accordingly, we agree with the view of the Ld. CIT(Appeals) in deleting the impugned addition for the reasons stated above.

In the result, the appeal filed by the Revenue is dismissed.