INCOME TAX OFFICER, BALLARI V. BELLARY IRON ORES PRIVATE LIMITED, BELLARY

ITA 661/BANG/2023

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 6249 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 24-10-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 05-09-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Question of law; Revised return; TDS; Set aside
• Section: 250; 143(2); 44AB; 48; 194A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No.661 & 662/Bang/2023 Assessment year : 2017-18 & 2018-19 The Income-tax Officer, Ward-1, Bellary. Vs. The Bellary Iron Ores Pvt. Ltd., 60/356-A, Modi Bhavan, Hospet Road, Allipura, Bellary-583 105. PAN – AAACB 7278 E APPELANT RESPONDENT Appellant by : Shri Balachandran, Advocate Respondent by : Dr. G Manoj Kumar, CIT(DR) Date of hearing : 25.10.2023 Date of Pronouncement : 25.10.2023 O R D E R Per Chandra Poojari, Accountant Member These two appeals are filed by the Revenue directed against the order of the NFAC, Delhi passed u/s 250 of the Act for the assessment year 2017-18 and 2018-19 both are dated 15/7/2023. ITA No.661 & 662/Bang/2023 Page 2 of 20 2. The issue involved in these two appeals are common except for the figures, hence these two appeals are clubbed together, heard together and disposed of by this common order for the sake of convenience. 3. The grounds of appeals in both the appeals are common except for the figures, hence the grounds raised in ITA No.661/Bang/2023 is reproduced as under:- ‘i. The Learned CIT(A) erred in deleting the addition of unaccounted accrued interest on Fixed Deposits even though the Hon’ble High Court of Karnataka in its judgment in WP No.112471/2019(T-IT) dated 21.09.2021 specifically mentioned in that the present order passed will not affect any TDS already deducted by the respondent No.3 to 5/Banks prior to interim order dated 09.09.2019 ii. The Learned CIT(A) erred in deleting the addition holding that the assessee admitted to the extent tax credit where as the assessee has not declared the corresponding interest income to the extent of TDS claimed which is not accordance with section 199 r.w.s 37BA of the IT Act. iii. Any other ground that may be raised subsequently.” 3. The facts of issue are that in the assessment order under consideration, the assessment was completed u/s 143 of the Act and while framing the assessment order, the AO brought to tax an amount of Rs.11,95,10,950/- related to interest on fixed deposits which are under prohibitory order in respect of the following deposits for the assessment year 2017-18:- ITA No.661 & 662/Bang/2023 Page 3 of 20 4. Similar is the position for the assessment year 2018- 19 except change in figures at Rs.6,40,61,338/-, which is as follows:- 5. Against this, the assessee went in appeal before the NFAC, Delhi. The NFAC, Delhi deleted the addition by ITA No.661 & 662/Bang/2023 Page 4 of 20 placing reliance on the judgment of Hon’ble Karnataka High Court in assessee’s own case in W.P No.112471/2019 (T-IT) dated 21/9/2021. 6. Against this, the Revenue is in appeal before us. 7. We have heard the rival submissions and perused the materials on record. Similar issue came up for consideration in assessee’s own case in ITA No.1540/Bang/2018 for the assessment years 2014-15 and in ITA No.15/Bang/2019 for the assessment year 2015-16. The Tribunal vide order dated 20/09/2023 deleted the addition by observing as under:- “6. We have heard the rival submissions and perused the materials available on record. The main contention of the assessee’s counsel is that the assessee has not offered the interest income accrued on bank deposits for taxation on the reason that these fixed deposits with State Bank of India, Commercial branch and State Bank of India, Kudithini branch and IngVysya Bank are under prohibitory order placed by CBI, Hyderabad. The interest on these fixed deposits was kept under prohibitory order, though it was accrued by the bankers but such accrued interest has not been paid to the assessee company except the TDS portion of such accrued interest. In other words, it was submission of the ld. A.R. that the assessee has no right to receive the said interest accrued on the FD in these banks due to prohibitory order placed by the CBI Hyderabad. 6.1 Under section 5 of the Act, the total income of the assessee in any previous year in case of resident includes all incomes, profits and gains from whatever sources derived, which are received or deemed to be received in the taxable territory in such year by or on behalf of such person, or accrue or arise or deem to accrue or arise to him in the taxable territory ITA No.661 & 662/Bang/2023 Page 5 of 20 during such year or having accrued or arisen to him without a taxable territory before the beginning of such year. Thus, it is not necessary that the income should be received by the assessee only. However, all receipts do not constitute income and do not come within the ambit of the Act. If income not received but accrued to the assessee, then it is taxable vice-versa if the income received but not accrued it is not taxable. In other words, though there is actually or constructively received but accrued then it is deemed to be received by the assessee. Receipt or accrual itself is not sufficient to bring a receipt within the clutches of taxation. In order to bring a receipt into taxation, it should be income and it ought to have been accrued to the assessee in the relevant assessment year. The question as to when exactly an assessee is said to have received the income or profits has to be largely determined with reference to the system of accounting employed by him. Where according to the method followed by the assessee, the same was accrued during the year of account, and it seems, that it would be brought into account of the income as soon as right to receive is accrued to assessee. In these circumstances, on actual accrual should be considered only on the basis of right to receive the same. Thus, it is clear, that income accrued to the assessee, without the actual right to receive the same, cannot be brought to tax. If the assessee acquires the right to receive the income, the income can be said to have accrued to him, though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by the parties concerned with whom the assessee made deposits for interest. Unless and until there is a creation of right in favour of the assessee, debt due by somebody it cannot be said that he had acquired a right to receive the income or that income, has accrued to him (E.D. Sasoon & Co. Ltd. Vs. CIT (1954) 26 ITR 27 SC). It is no doubt that the accrual of income does not depend upon the accounts maintained by him. The accounts may be made up at a much later date. That depends upon the convenience of the assessee and also upon the exigency of the situation. The amount of the income, profits or gains may itself be ascertained later on the accounts being made up. But when the accounts are thus made up, the income, profits & gains ascertained as a result of the accounts or referred back to the chargeable accounting period during which they have accrued or arisen and the assessee is liable to tax in respect of the same during that assessment year. In other words, the treatment accorded by assessee in his books of accounts does not affect the true nature of the receipt. For this purpose, we place reliance on the judgement of Hon’ble Supreme Court in the case of CIT Vs. Shoorji Vallabhadas & Company (46 ITR 144). 6.2 While determining the income of the assessee in particular assessment year, the legal consequences of the transaction must be kept in mind and ITA No.661 & 662/Bang/2023 Page 6 of 20 should be taken as guiding factor for arriving at a decision from the point of view of the incomes as well. This is because of fact that what is sought to be taxed under Income Tax Act is that commercial profits and not theoretical or notional income, unless the statute otherwise provides for imposing the tax on a notional basis by legislative fiction. In other words, if income does not result at all, there cannot be a tax even though the assessee made an entry in the books of accounts with regard to hypothetical income which does not accrue to the assessee. The character of the receipt offered as a trading receipt or as an income should not be based on the name given to the amount received by the assessee in his books of accounts because in law the real nature and character of the transaction must be determined in the light of treatment of the contract and the rights and obligations of the parties flowing therefrom unguided by the nomenclature of the transaction. For this purpose, rely on the judgement of Hon’ble Supreme Court in the case of National Cement Mines Industries Ltd. Vs. CIT (42 ITR 69) (SC). 6.3 While determining the nature of the receipt as being a trading receipt taxable as income from business or profession or otherwise, one should be guided by the terms of the agreement entered into between the parties. Revenue authorities cannot ignore the genuine agreement between the assessee and the concerned parties from whom the said amount has been received. In the absence of any situation or allegation or collusion, the revenue cannot resort to any attempt to rewrite the agreement with a view to impose the levy of tax shall be when the transaction between the parties are at arm’s length For this proposition we rely on the judgement of Hon’ble Delhi High Court in the case of D.S. Bist & Sons (149 ITR 276), wherein held that “The Act does not clothe the taxing authorities that any power or jurisdiction rewrite terms of agreement entered into, particularly in view of the finding of the Tribunal that “there is nothing to suggest the parties were not belong with each other at arm’s length and there is no situation of any collusion, commercial expediency of the contract is to be adjusted by the contracting parties as to its terms. It was further made clear that under the taxing system it is up to the assessee to conduct his business in his wisdom. The assessee may enter into commercial transaction with other party who has ad idem with the assessee as to the terms & conditions. In the absence of any collusion between the two, it is not possible to vary the terms.” Further, Hon’ble Supreme Court in the case of National Cements Mines Ltd. Vs. CIT (42 ITR 69) held that “in assessing the true character of the receipt for the purpose of income tax, inability to ascribe to the transaction a definite category is of little consequence. It is not the nature of the receipt under the general law. But in the commerce that is material.” Further, it was held by the Bombay High Court in the case of CIT Vs. Scindia Workshop Ltd. (119 ITR 526) that the revenue authorities must examine the ITA No.661 & 662/Bang/2023 Page 7 of 20 transaction and arrive at a conclusion having regard to the nature of the receipt from the commercial point of view that the particular reference to the relevant provisions of the income tax. Further, the Hon’ble Karnataka High court in the case of Addl. CIT Vs. Mahatrashtra Apex Corporation Ltd. (116 ITR 616), wherein held that “the fact that in an earlier year, a particular receipt was not subject to tax cannot give rise to an inference that the mere receipt in the subsequent years would not also be taxable because the absence of an assessment to income tax in an earlier year is not to be equated with the decision of the subject relation to a similar amount, which is pending consideration in a subsequent year.” 6.4 Further, it was held by the Hon’ble Supreme Court in the case of CIT Vs. Kamal Beharilal Singha (82 ITR 460) (SC) that “a question of assessment to income tax would arise for consideration only in the hands of the recipient and, therefore, its character as income taxable or not must be determined only to the reference of legal position of the recipient. Thus, the question whether a particular receipt is in the nature of income or not and would be liable to tax or not, primarily for the AO to decide but having regard to the facts and circumstances f the case and in accordance with law. Further, in the case of CIT Vs. Associated Cables Pvt. Ltd.(286 ITR 596) the Bombay High Court held that— “The question of law sought to be raised in this appeal is as to whether the retention money could be considered to be the income of the assessee in the year in which the amount was retained. The Income-tax Appellate Tribunal has referred to a judgement of the Tribunal in Associated Cables P. Ltd. V. Deputy CIT (1994) 206 ITR (AT) 48 (Bom). Mr. Sathe appearing for the respondent has, however, drawn our attention to two judgements, viz., of the Calcutta High Court and the Madras High Court. The Calcutta High court judgement is reported in CIT Vs. Simplex Concrete Piles (India) P. Ltd. (1989) 179 ITR 8. A Division Bench of the Calcutta High Court in that matter has held that the payment of retention money in the case of contract is deferred and is contingent on satisfactory completion of contract work. The right to receive the retention money is accrued only after the obligations under the contract are fulfilled and, therefore, it would not amount to an income of the assessee in the yar in which the amount is retained. The other judgement relied upon is in the case of CIT Vs. Ignifluid Boilers (I) Ltd. reported in (2006) 283 ITR 295 (Mad). In that judgement also, a Division Bench of the Madras High Court has held that the amount retained does not accrue to the assessee and, therefore, the assessee would not be liable.” ITA No.661 & 662/Bang/2023 Page 8 of 20 6.5 Further, Madras High Court in the case of CIT Vs. East Cost Construction and Ind Ltd. (283 ITR 297), wherein held that “the assessee was entitled to receive the retention money after completion of the contract. On the date of the bills, no enforceable liability had accrued or arisen. When the assessee had no right to receive the money by virtue of the contract between the parties and the assessee also had no right to enforce payment, it could not said that the right to receive payment of the remaining 10 percent of the value of job had accrued.” In view of the discussion, the amount has not accrued to the assessee. The right to receive will accrue only after fulfillment of condition laid down in contract entered by the respective parties only then this amount cannot be said to be accrued to the assessee. Even if it is received against bank guarantee the bank guarantee could be revoked at any time at the pleasure of the payee. In such circumstances, this impugned amount cannot be brought to tax in the assessment year under consideration. More so, the said amount was actually offered for tax in subsequent assessment year and the department accepted the same in the subsequent assessment as income of the assessee and bringing the same amount to tax in this assessment year amount to double taxation, which cannot be permitted. 6.6 Further, Coordinate Bench of Kolkata in the case of Stewarts & Lloyds of Indi Ltd. in ITA No.1169/Kol/2017 & Others vide order dated 15.3.2019 held as under:- “4. The first common issue that arises for consideration in all these appeals is the rejection by the revenue of the claim of the assessee that retention money is not income of the assessee as it has not accrued or arisen during the year. both the parties have advanced lengthy arguments on the issue. On consideration of the facts and arguments we find that the issue is covered by the decision of the Hon'ble Jurisdictional High Court in the case of Commissioner Of Income-Tax vs Simplex Concrete Piles (India) Pvt. Ltd. 1989 179 ITR 8 Gal, wherein it was held as follows:- "Section 5 of the Income-tax Act, 1961 - Income - Accrual of - Assessment years 1965-66 and 1966-67 – Assessee Company was carrying on construction business and followed mercantile system of accounting - As per terms of contracts entered into with various parties assessee was entitled to get 90 per cent of payment in first instance when work was done and remaining 10 or 5 per cent, as case may be, was to be paid later on after submitting certificates from architects/engineers, removal of defects, payment of damages, etc. - Assessee was crediting 100 per cent of job value in past years but from assessment year 1965-66, it had started practice of crediting only 90 per cent value for work done after deducting retention ITA No.661 & 662/Bang/2023 Page 9 of 20 money -Whether it could be said that on date of submission of bills assessee had no right to receive entire amount on completion of work and retention money did not accrue to it on such date but on later date in accordance with terms of contracts and ITO would be unjustified in making any addition by treating entire contract amount as accrued on submission of bills on completion of work - Held, yes" 5. The decision of the ITAT Mumbai 'H' Bench of the Tribunal in the case of Emerson Network Power India (P.) Ltd. v. Assistant Commissioner of Income-tax [2009] 27 SOT 593 (MUM.) relied upon by the Id. D/R is not applicable to the facts of the case, for the reason that, what was considered by the Bench was performance bank guarantee and not retention money as in the case of the assessee company. Even otherwise, we are bound by the judgment of the Hon'ble Jurisdictional High Court in the case of Commissioner of IncomeTax vs Simplex Concrete Piles (India) Pvt. Ltd. ITA No. 1169/Ko1/2017 Assessment Year: 2007-08 ITA No. 1170/Ko1/2017 Assessment Year: 2007-08 ITA No. 1171/Ko1/2017 Assessment Year: 2008-09 ITA No. 1172/Ko1/2017 Assessment Year: 2009-10. M/s. Stewarts & Lloyds of India Ltd 5.1. We also find that the reliance placed by the Id. D/R on the judgement in the case of E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax [1954] 26 ITR 27 (SC), is also misplaced as the Hon'ble Supreme Court was considering a case where the assessee had acquired the right to receive the income. In the case on hand, the assessee had no right to receive the income. 6. In view of the above discussion, we uphold the contention of the assessee and direct the Assessing Officer to exclude the retention money included in the sales. This retention money can be brought to tax in the year when the assessee received the same. Accordingly this ground of the assessee is allowed for all the Assessment Years.” 6.7 Further, Coordinate Bench of Kolkata in the case of DCIT Vs. EMC Limited in ITA No.2149/Kol/2017 dated 27.5.2020 held as under:- “23. Having heard both the parties and after perusal of records, we note that the assessee had filed its original return of income on 29.11.2014 showing total income of Rs.194,46,16,540/-. Thereafter the assessee’s case was selected for scrutiny and notices u/s. 143(2) of the Act dated 31.08.2015 was served upon the assessee. The AO noted that the assessee thereafter had filed revised income tax return on 17.03.2016 revising its income to Rs.49,98,06,980/-. The assessee explained that when the original return was filed on 29.11.2014 it was on the basis of profit as per the P&L Account ITA No.661 & 662/Bang/2023 Page 10 of 20 without considering the deduction made by parties (customers) on account of retention money. However, the assessee on proper application of the legal and factual position realised that company’s real income is much less than the revenue booked in the account and hence, revised return was filed on 17.03.2016 claiming deduction of the retention money debited by the parties during the year amounting to Rs.142,53,74,710/-. It was also brought to the notice of the AO that as per the contract between the parties certain percentage of the bills raised as per agreement can be retained by the contractee party as retention money which would be payable only after successful completion of the entire contract after it being certified by the party and after fulfilment of certain pre-determined conditions mentioned in the contract. Thus, it was explained to the AO that as per the accounting practise followed by the party though a part of the bill amount was retained by the contractee party and would be paid afterwards on agreed conditions, the assessee in its books of account has booked the entire revenue as and when the bills were actually raised and hence, the entire amount was reflected in the revenue from the operations in the P&L Account. It was brought to the notice of the AO that due to the said practice profit before tax as per P& L Account for the year ended on 31.03.2014 is Rs.204,38,30,030/- and the said profit was arrived after taking into account entire bills raised on parties for contract work including the retention money. It was explained further that thereafter, sales was credited and the party was debited with the entire bill amount and on that basis assessee had filed the original return on 29.11.2014 without considering the actual deduction made by the parties on account of the retention money and had shown total income of Rs.194,46,16,540/-. And when the assessee realised that its real income was much less than the revenue booked in the account it filed a revised return on 17.03.2016 claiming deduction of the retention money which was deducted by the parties to the tune of Rs.142.53 cr. and thus in the revised return income to the tune of Rs.49.98 cr. was shown. This explanation of the assessee was not accepted by the AO and he disallowed the deduction claimed by the assessee in respect of retention money to the tune of Rs.142,53,74,710/- and was added back to the income of the assessee. On appeal, the Ld. CIT(A) was pleased to allow the claim of the assessee and directed the AO to exclude the retention money from the total income. However, the Ld. CIT(A) also directed that TDS claimed by the assessee relatable to such retention money should be disallowed in this assessment year and added that it may be allowed in the year in which the assessee declares the retention money as its income. Aggrieved by the aforesaid action of the Ld. CIT(A) the revenue has preferred the appeal. We note that the assessee is in the business of supplying erection and commissioning of electricity transmission towers, line powers, sub-station etc. the assessee continued the construction job for M/s. Power Grid ITA No.661 & 662/Bang/2023 Page 11 of 20 Corporation of India Ltd., M/s. Transmission Corporation of Andhra Pradesh Ltd., M/s. West Bengal State Electricity Distribution Corporation Ltd., M/s Maharastra Electricity Transmission Co. Ltd. The assessee had raised bills on the parties on progressive completion of particular project and credited the gross bill amount in its books of account which was reflected in the audited Balance Sheet under the head “Revenue from operations.” The assessee maintained books of account on mercantile basis and the revenue was recognized on the basis of progressive partial completion of particular project and the bills were raised accordingly. As per the contract between the parties there were clauses in the contract that the contractee shall retain specified percentage of the billed amount till successful completion of the entire project. The ld. AR drew our attention to the contract with M/s. Power Grid Corporation of India Ltd. wherein it is stipulated that the balance 10% of the erection process component (excluding processed component) for survey shall be paid after successful commissioning of the transmission line and issuance of taking over certificate. So, the final payment would be given as per the contract after the successful commissioning of the transmission line and issuance of taking over certificate by the Power Grid meaning the retention money would be given only after successful commissioning and after issuance of the taking over certificate. According to the assessee, as per such duly executed contract entered into between the parties, the contractee had retained specified percentage of the bills amount as retention money and in this assessment year these parties have retained a sum of Rs.142,53,74,710/- as retention money on the bills raised during the year. In the light of the said fact, according to assessee, it was neither entitled nor it could have claimed the retention money as income accrued till the entire project was commissioned. And since the projects were not completed during the year under consideration, the retention money has not accrued as income of the assessee and, therefore, assessee claimed deduction of the same. It was also brought to our notice that retention money would be included in the respective years when the project will be completed and it was also brought to our notice that a part of the said retention money retained by the parties were disbursed to the assessee in the succeeding assessment years, and which were duly offered asincome in the assessment years 2015-16 to 2017- 18 when particular projects got completed and have duly been included in the return of income during the respective assessment years from AYs 2015- 16 to 2017-18 and consequently there is no revenue loss at all. However, we note that the AO has rejected the claim of the assessee on the ground that the assessee had credited the amount of gross bill in its books of account which included the retention money in the accounts as also in the P&L Account and reflected the same in the original return of income filed by the assessee. The AO also noted that the assessee claimed TDS which was ITA No.661 & 662/Bang/2023 Page 12 of 20 deducted on the gross bill and the assessee had claimed credit for TDS including the TDS of retention money during the year. Therefore, according to AO, the retention money has to be included as income accrued in this assessment year. We note that the Ld. CIT(A) has taken care of the TDS issue and the assessee has not preferred to challenge the action of Ld. CIT(A) which crystallizes. Therefore, the direction of the Ld. CIT(A) to the AO to disallow the TDS credit claimed in respect of the retention money not shown as income by the assessee in the revised return and to allow it in the year in which the assessee declares retention money as its income takes care of the TDS credit even if erroneously claimed by the assessee in respect of the retention money. We note from the relevant clauses of the contract that the contractees had the right to withhold certain percentage of the consideration till the conclusion of the project and only after certification of concluded projects the retained portion of the amounts are disbursed finally which may be in the succeeding assessment years and is contingent upon the terms and conditions of the contract. We also note that the AO has not disputed the amount which has been retained by the contractees. In such a scenario, merely because the assessee had booked the income in this year without actual receipt of it, cannot be chargeable to tax as per the Act. The reasons given by the AO to disallow the claim of the assessee cannot be sustained and was rightly repelled by the Ld. CIT(A) whose view to accept the claim of assessee is based on the accepted judicial precedents laid down by the Hon’ble jurisdictional High Court in CIT Vs. Simplex Concrete Piles (supra); Hon’ble Gujarat High Court in Anup Engineering Ltd. (supra); Hon’ble Bombay High court in CIT Vs. Associated Cables P. Ld. (supra) and Hon’ble Madras High Court in CIT Vs. Ignifluid Boilers (I) Ltd. (2006) 283 ITR 295 (Mad). We hold that in the factual circumstances especially as per the terms of contract between the assessee and the contractee, the retention money retained by the contractee is deferred payment and is contingent upon satisfactory completion of contract work. We hold that the right to receive the retention money is accrued only after the obligations under the contract are fulfilled and the assessee had no vested right to receive the same in this assessment year, therefore, it would not amount to an income of the assessee in the year in which it is retained. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and so, we confirm it and dismiss the appeal of the Revenue.” 6.8 Further Accounting Standard (AS-9) with respect of revenue recognition clearly provides as under: “Revenue from sale of rendering services should be recognized at the time of the sale or rendering of services. However, if at the time of rendering of services or sale there is significant uncertainty in ultimate collection of the revenue, then the revenue recognition is postponed and in such cases revenue should be recognized only when it becomes ITA No.661 & 662/Bang/2023 Page 13 of 20 reasonably certain that ultimate collection will be made. It also applies to the revenue arising out of escalation of price; export incentive, interest, etc.” 6.9. Thus, it is apparent that interest income of the assessee can be recognized only when there is no uncertainty and significant scope to receive the same. Therefore, in the case of assessee, accrued interest on bank deposit on which prohibitory order placed by CBI Hyderabad cannot be treated as interest income of the assessee during these two assessment years, until the assessee has actually received it from the bank though it was subject to TDS. This view of ours is fortified by the order of Tribunal in the case of Selvi J. Jayalalitha Vs. ACIT (2016) Taxpub (DT) 4642 (Chennai- Trib) ITA No.1288/Mad/2008, WTA No.20/Mad./2008 in assessment years 2000-01 & 1997-1998 dated 30.9.2016. 6.10 Further, issue relating to the deduction of TDS u/s 194A of the Act of this impugned interest has been subject matter of dispute before the jurisdictional High Court in WP No.112471/2019 (T-IT) and the Hon’ble High Court vide order dated 21.9.2021 held as under: 7. The material on record indicates that it is not in dispute that FD's lying with the respondent Nos.3 to 5/Banks have been frozen/attached pursuant to an order dated 11.09.2009 passed by the CBI and the said proceedings initiated against the petitioner are still pending adjudication. In this contest, it is relevant to quote Section 194A of the IT Act , which reads as under : "194A. Interest other than "Interest on securities". (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (1) or clause (b) of Sections 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section. Explanation.- For the purpose of this section, where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of ITA No.661 & 662/Bang/2023 Page 14 of 20 account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly." 8. A plain reading of the said provision will indicate that tax deduction at source is permissible only if the income is credited to the account of the petitioner, in the instant case, in view of the freezing/attachment of the said FDs of petitioner, it cannot be said that the petitioner is receiving income by way of interest from the said FDs for the present and entitlement or otherwise of the petitioner qua the said FDs or interest will have to be decided only after conclusion of the proceedings initiated by the CBI against the petitioner. In otherwords, for the present, the interest on the FDs which is credited to the account of the petitioner is not income for the petitioner so as to attract the TDS under Section 194A of the IT Act, so as to enable deduction of TDS on the interest accruing on the FDs. 9. Under similar circumstances, in UCO Bank's case referred to supra, the Division Bench of the Delhi High Court has held as under : "17. In the present case, the controversy is regarding applicability of Section 194A of the Act which provides for deduction of tax at source in respect of any Payment/credit on account of interest, other than interest on securities. Section 194A(1) of the Act is quoted as under. “194A Interest other than “Interest on securities” – (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section. Explanation.--For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly." ITA No.661 & 662/Bang/2023 Page 15 of 20 18. In terms of Section 194A of the Act, the petitioner would, in the normal course, be obliged to deduct tax at source in respect of any credit or payment of interest on deposits made with it. However, in the present case, the question that needs to be addressed is whether Section 194A of the Act contemplates deduction of tax in a situation where the assessee is not ascertainable and the person in whose name the interest is credited is also, admittedly, not a person liable to pay tax under the Act. 19. The Registrar General of this Court is, clearly, not the recipient of the income represented by interest that accrues on the deposits made in his/her name. The Registrar General is also not an assessee in respect of the deposits made with the petitioner bank pursuant to the orders of this Court. The deposits kept with the petitioner bank under the orders of this Court are, essentially, funds which are custodia legis, that is, funds in the custody of this Court. The interest on that account - although credited in the name of the Registrar General - are also funds that remain under the custody of this Court. The credit of interest to such account is, thus, not a credit to an account of a person who is liable to be assessed to tax. In this view, the petitioner would have no obligation to deduct tax, because at the time of credit there is no person assessable in respect of that income which may be represented by the interest accrued/paid in respect of the deposits. The words "credit of such income to the account of the payee" occurring in Section 194A of the Act have to be ascribed a meaning in conformity with the scheme of the Act and that would necessarily imply that deduction of tax bears nexus with the income of an assessee. 20. In absence of an assessee, the machinery of provisions for deduction of tax to his credit are ineffective. The expression "payee" under Section 194A of the Act would mean the recipient of the income whose account is maintained by the person paying interest. In the present case, although the FD is made in the name of the Registrar General, the account represents funds which are in custody of this Court and the Registrar General is neither the recipient of the amount credited to that account nor the interest accruing thereon. Therefore, the Registrar General cannot be considered as a "payee" for the purposes of Section 194A of the Act. The credit by the petitioner bank in the name of the Registrar General would, thus, not attract the provisions of Section 194A of the Act. Although, Section 190(1) of the Act clarifies that deduction of tax can be made prior to the assessment year of regular assessment, nonetheless the same would not imply that deduction of tax is mandatory even where it is known that the payee is not the assessee and there is no other assessee. ITA No.661 & 662/Bang/2023 Page 16 of 20 21. It is relevant to note that there is no assessee to whom interest income from the deposits in question can be ascribed; no person can file a return claiming the interest payable by the petitioner as income. The necessary implication of this situation is recovery of tax without the corresponding income being assessed in the hands of any assessee. The ultimate recipient of the funds from the FD would also not be able to avail of the credit of TDS. It is apparent that in absence of an ascertainable assessee the machinery of recovering tax by deduction of tax at source breaks down because it does not aid the charge of tax under Section 4 of the Act but takes a form of a separate levy, independent of other provisions of the Act. This is, clearly, impermissible. 22. The impugned circular proceeds on an assumption that the litigant depositing the money is the account holder with the petitioner bank and/or is the recipient of the income represented by the interest accruing thereon. This assumption is fundamentally erroneous as the litigant who is asked to deposit the money in Court ceases to have any control or proprietary right over those funds. The amount deposited vests with the Court and the depositor ceases to exercise any dominion over those funds. It is also not necessary that the litigant who deposits the money would be the ultimate recipient of those funds. As indicated earlier, the person who is ultimately granted the funds would be determined by orders that may be passed subsequently. And at that stage, undisputedly, tax would be required to be deducted at source to the credit of the recipient. However, the litigant who deposits the funds cannot be stated to be the recipient of income for the reasons stated above. 23.Deducting tax in the name of the litigant who deposits the funds with this Court would also create another anomaly because the amount deducted would necessarily lie to his credit with the income tax authorities. In other words, the tax deducted at source would reflect as a tax paid by that litigant/depositor. He, thus, would be entitled to claim credit in his return of income. The implications of this are that whereas this Court had removed the funds from the custody of a litigant/depositor by judicial orders, a part of the accretion thereon is received by him by way of Tax deducted at source. This is clearly impermissible because it would run contrary to the intent of judicial orders. 24.In the given circumstances, the writ petitions are allowed and the impugned notice dated 25.04.2012, the impugned circular bearing no. 8/2011 and the impugned order dated 10.03.2014 are set aside." ITA No.661 & 662/Bang/2023 Page 17 of 20 10. The said decision of Delhi High Court has been reiterated and affirmed by the CBDT in its circular at Annexure-D dated 28.12.2 015. 11 . Though the decision of the Delhi High Court in UCO Bank's case and the aforesaid circular pursuant thereto issued b y the CBDT was in respect of the Court deposits made in the name of the Registrar General, t he underlying legal principle that can be discerned therefrom would be applicable to the facts of the instant case also where the petitioner would be entitled to the interest only in future and not in praesenti and the said income from the interest on the FDs of the petitioner would merely be hypothetical future income to which the petitioner would be entitled t o only after conclusion of CBI proceedings. In otherwords, the entitlement of interest accruing o n the FDs to the petitioner would be depend ant on the result of the pending Court/CBI proceedings and consequently, till conclusion of the said Court proceedings, the interest accruing on the FD cannot be construed or treated as income for the purpose of deduction of TDS under Section 194A of the IT Act. Under these circumstances, I a m of the view that the necessary directions in this regard are to be issued against the respondent Nos.3 to 5; it is needless to state that the directions to be issued to the respondent Nos.3 to 5-Bank not to deduct TDS on the interest on the FDs, cannot be treated as absolving petitioner of its liability to pay tax on the interest accruing on the FD if the petitioner becomes entitled to the same after conclusion of the Court proceedings. 12. In the result, I pass the following: ORDER The petition is hereby allowed. ii . The respondent Nos. 3 t o 5/Banks are directed not to deduct the TDS in respect of the interest arising/accruing on FD s of the petitioner lying with the respondent Nos . 3 t o 5 / Bank still conclusion of the proceedings initiated by the 6th respondent -CBI against the petitioner . iii . It is however made clear that the alleged liability of the petitioner , if any , to pay taxes in respect of the interest accruing on the said FDs shall arise aft r conclusion of the said proceedings. ITA No.661 & 662/Bang/2023 Page 18 of 20 iv. It is made clear that the present order passed will not affect any TDS already deducted by the respondent No s.3 t o 5 / Banks prior to interim order dated 09.09.2019 passed by this Court.” 7. Thus, as seen from the above order of the jurisdictional High Court on the issue of deduction of TDS u/s 194A of the Act, it has been held by Hon’ble Court that “the entitlement of interest accruing on the FDs to the assessee would be dependent on the result of the pending Court/CBI proceedings and consequently, till the conclusion of the said court proceedings, the interest accruing on the FD cannot be considered as income for the purpose of deduction of TDS u/s 194A of the Act and directed the bank not to deduct TDS on the interest of FDs. However, it cannot be treated as absolving the assessee of its liability to pay tax on the interest accruing on the FD if the petitioner becomes entitled to the same after conclusion of the court proceedings.” It is also brought on record by assessee that first appellate authority i.e. CIT(A) Gulbarga/NFAC in assessee’s own case for AY 2017-18 vide his order dated 15.7.2023 taken a decision in this issue in appeal No.CIT(A) Gulbarga/10049/2019-20 in that assessment year as follows: “The direction of the honourable High court is that till the conclusion of the proceedings by the CBI, no tax at source is required to be deducted and also the liability under income tax in respect of the interest income would arise also only on completion of the said proceedings. The said direction in the writ petition is binding and therefore, in the absence of any reversal of this decision, in a writ appeal filed, the issue is to be decided in favour of the appellant. To the extent tax credit by way of TDS availed, the appellant had already admitted the same. Therefore, the interest net of TDS brought to tax by the AO is directed to be deleted.” 7.1 Same view was taken by the first appellate authority i.e. CIT(A)/NFAC in assessee’s own case for the assessment year 2018- 19 in appeal No.NFAC/2017-18/10045058 dated 15.7.2023 as follows: “Similar issue came for adjudication for the earlier AY 17-18. Without going into the merits of the issue whether any income by way of interest would accrue to the appellant chargeable to tax for the impugned AY, since the matter is covered by a direction of the Honourable High Court in writ proceedings, following the same stand as in last AY, the AO is directed to delete the addition by way of interest income accrued. Accordingly, this ground is allowed.” ITA No.661 & 662/Bang/2023 Page 19 of 20 8. Being so, in our opinion, the lower authorities has committed an error in bringing the interest accrued on FD which is subject to prohibitory order by CBI Hyderabad into tax in these assessment years under consideration and the same has to be taxed in assessment year when it was actually received by the assessee or right to receive accrued to the assessee. In other words, the assessee has to pay the tax on the same on actual accrual of right to receive this impugned interest by the assessee in any assessment year and not in these assessment years. Accordingly, this ground of appeal of the assessee is partly allowed.” 8. Since issue in these two appeals are similar to the one, which is considered by the Tribunal on earlier occasions in assessee’s own case cited supra, we confirm the deletion made by the NFAC, Delhi in its order passed u/s 250 of the Act cited supra and on similar observations. Further, we make it clear that the assessee cannot claim credit for TDS on interest income in these assessment years and same shall be claimed in the assessment year when this income offered for taxation. 9. In the result, both the Revenue’s appeals are partly allowed. Order pronounced in the open court on 25 th October, 2023. Sd/- Sd/- (BEENA PILLAI) ( CHANDRA POOJARI) Judicial Member Accountant Member Bangalore, Dated, 25 th October, 2023 / vms / ITA No.661 & 662/Bang/2023 Page 20 of 20 Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore