RELIANCE ASSET RECONSTRUCTION CO. LTD., Mumbai V. A.C.I.T. CIR. - 2(3)(2), Mumbai

ITA 718/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2643 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 06-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Keywords: TDS
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO. 718/MUM/2018 ASSESSMENT YEAR : 2014-15 RELIANCE ASSET RECONSTRUCTION COMPANY LIMITED, 6 TH FLOOR, NORTH WING, RELIANCE CENTRE, OFF WESTERN EXPRESS HIGHWAY, SANTACRUZ EAST, MUMBAI [PAN : AADCR3968G] VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(3)(2), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JITENDRA SANGHAVI, RESPONDENT BY : SHRI D.G. PANSARI, SR.AR-CIT DATE OF HEARING : 07-03-2019 DATE OF PRONOUNCEMENT : 08-03-2019 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL, CHALLENGING THE ORDER DATED 13-11-2017 PASSED BY THE LD. COMMISSIONER OF IN COME TAX (APPEALS)-6, MUMBAI AND IT RELATES TO AY. 2014-15 . ITA NO. 718/MUM/2018 : 2 : 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE L D. CIT(A) IN CONFIRMING THE ADDITION MADE TO INTEREST INCO ME MADE BY THE AO ON ACCOUNT OF DIFFERENCE BETWEEN INTER EST INCOME SHOWN IN FORM 26AS AND THAT WAS DECLARED BY TH E ASSESSEE, BOTH IN NORMAL COMPUTATION OF INCOME AND TO THE BOOK PROFITS COMPUTED U/S. 115JB OF THE INCOME TAX AC T (ACT). 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ASSET RECONSTRUCTION AND MANAGEMENT FOR BANKS. IT FILED ITS RE TURN OF INCOME DECLARING TOTAL INCOME OF RS. 10,95,93,260 /-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NO TICED THAT THE ASSESSEE HAS CLAIMED CREDIT FOR TDS AMOUNT OF RS.79,15,150/-. THE SAID TDS AMOUNT WAS DEDUCTED FRO M THE AGGREGATE AMOUNT OF INTEREST INCOME OF RS. 7,95,71,500 /- FROM FIXED DEPOSITS KEPT WITH VARIOUS BANKS. THE AO NOTICE D THAT THE ASSESSEE HAS OFFERED INTEREST INCOME OF RS. 7,44, 13,551/- ONLY IN THE RETURN OF INCOME FILED BY IT FROM THE FIXE D DEPOSITS. THUS, THERE WAS A DIFFERENCE OF RS. 51,57,949/- BETW EEN THE INTEREST INCOME SHOWN IN FORM 26AS AND THAT DECLARED B Y THE ASSESSEE. ITA NO. 718/MUM/2018 : 3 : 5. WHEN QUESTIONED, THE ASSESSEE SUBMITTED THAT IT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND INTEREST ON FIXED DEPOSITS IS BEING ACCOUNTED FOR IN THE BOOKS OF ACCOUNT ON TIME BASIS. IT WAS FURTHER SUBMITTED THAT THERE WAS AL WAYS DIFFERENCE BETWEEN THE INTEREST INCOME DISCLOSED IN THE BOOKS OF ACCOUNT AND THAT WAS SHOWN IN FORM 26AS, AS THE ASS ESSEE IS NOT AWARE OF THE METHOD OF COMPUTING INTEREST FOLLOWED BY THE BANK. THE ASSESSEE PREPARED A TABLE CONSISTING OF SUCH TYPE OF DIFFERENCE IN INTEREST INCOME FROM FY. 2009- 10 TO FY. 2013-14. FROM THE TABLE, WHICH IS EXTRACTED IN PAGE 2 OF ASSESSMENT ORDER, IT CAN BE NOTICED THAT THE INTEREST INCOM E SHOWN BY THE ASSESSEE WAS MORE THAN THAT SHOWN IN FORM 26AS IN SOME YEARS. SIMILARLY, IN SOME OF THE YEARS , IT WAS IN OTHER WAY. THE CUMULATIVE EFFECT OF DIFFERENCE IN ALL THE FIVE YEARS WORKED OUT TO SHORTAGE OF RS. 1,18,734/-. THE A SSESSEE AGREED TO OFFER THE SAME ITS INCOME. HOWEVER, AO TOOK THE VIEW THAT TDS CREDIT SHALL BE GIVEN IN THE ASSESSMENT YE AR IN WHICH SUCH INCOME IS ASSESSABLE AS PER RULE 37BA OF THE INCOME TAX RULES R.W.S. 199 OF THE ACT. SINCE HE IS ALLOWING TDS CREDIT OF RS. 79,15,150/- DURING THE YEAR UNDER CONSIDERATION, THE AO PROPOSED TO ASSESS THE INTEREST I NCOME ITA NO. 718/MUM/2018 : 4 : OF RS. 7,95,71,500/- AS INCOME OF THE ASSESSEE. ACCO RDINGLY, THE DIFFERENCE AMOUNT OF RS. 51,57,949/- WAS ADDED BY THE AO BOTH FOR COMPUTING THE TOTAL INCOME AS WELL AS FOR COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT. THE LD. C IT(A) ALSO CONFIRMED THE SAME. HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 6. WE NOTICE THAT NEITHER THE ASSESSEE NOR THE AO HAS OBTAINED THE DETAILS FROM THE BANKS, WHICH CREDITED IN TEREST TO THE FIXED DEPOSIT ACCOUNT OF THE ASSESSEE, WHICH COULD HAVE THROWN LIGHT ON THE REASONS FOR THE DIFFERENCE. AT THE TIME OF HEARING, LD. AR SUBMITTED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HENCE IT IS ACCOUNT ING FOR INTEREST ON FIXED DEPOSITS ON TIME BASIS. HE SUBMI TTED THAT THE COMPUTATION OF ACCRUED INTEREST IS BEING VERIFIED BY THE STATUTORY AUDITORS ALSO. HE SUBMITTED THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING THE SAME METHOD AS PER THE ACCEP TED ACCOUNTING PRINCIPLES. HE FURTHER SUBMITTED THAT THE METHOD OF ACCOUNTING FOR ACCRUED INTEREST ADOPTED BY THE BANKS IS NOT KNOWN TO THE ASSESSEE AS WELL AS THE AO. THE LD. AR ALSO SUBMITTED THAT THE BANKS MAY BE CREDITING THE INTEREST IN T HE FIXED DEPOSIT A/C OF THE ASSESSEE ON QUARTERLY BASIS A ND BY ITA NO. 718/MUM/2018 : 5 : THE END OF THE FINANCIAL YEAR, IF ANY QUARTER PERIOD I S NOT COMPLETE, THE BANKS MAY BE ACCOUNTING FOR ACCRUED INTE REST BY CREDITING INTEREST ACCRUED ACCOUNT AND NOT THE CONCER NED F.D ACCOUNT. IN THE CASE OF SUCH A POSSIBILITY, THE ASSESSEE WOULD HAVE ACCOUNTED FOR INTEREST INCOME FOR THE INCOM PLETE PERIOD, WHILE THE BANK MAY BE CREDITING THE RELEVANT IN TEREST INCOME TO THE FIXED DEPOSIT ACCOUNT OF THE ASSESSEE ON COMPLETION OF THE QUARTER. THIS WOULD RESULT IN SHORTAG E IN THE FIRST YEAR AND EXCESS IN THE SECOND YEAR. THE LD A.R FURTHER SUBMITTED THAT THIS KIND OF DIFFERENCE WOULD GET NEUTRALIZED ON THE MATURITY OF FIXED DEPOSIT. ACCORDIN GLY HE SUBMITTED THAT THE ASSESSEE HAS PREPARED A TABLE FOR THE FINANCIAL YEARS 2009-10 TO 2013-14 AND DEMONSTRATED T HAT THE NET DIFFERENCE OVER THE FIVE YEARS PERIOD WAS ONLY RS.1,18,734/-. 7. ON THE CONTRARY, LD. DR SUBMITTED THAT THE ASSESSEE IS CLAIMING TDS AMOUNT OF RS. 79.15 LAKHS WHICH WAS DED UCTED FROM THE GROSS INTEREST INCOME OF RS. 795.71 LAKHS. HENCE, THE ADDITION MADE BY THE AO IS IN ACCORDANCE WITH RULE 37BA OF THE INCOME TAX RULES AND R.W.S. 199 OF THE ACT. ITA NO. 718/MUM/2018 : 6 : 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. ADMITTEDLY NEITHER THE ASSESSEE NOR THE AO HAD CALLED FOR DETAILS OF INTEREST CREDITED BY THE BANKS FROM THE R ESPECTIVE BANKS NOR DID THEY ASCERTAIN THE METHODOLOGY ADOPTED BY THE BANK FOR ACCOUNTING FOR ACCRUED INTEREST. SINCE BOTH THE BANKS AND ASSESSEE ARE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE INTEREST ACCRUED ON THE FIXED DEPOSITS SHOULD TALLY, I.E., SHOULD BE OF SAME FIGURE, ONLY IF UNIFO RM METHOD OF CALCULATING ACCRUED INTEREST IS FOLLOWED BY THE ASSESS EE AND THE BANKS. AS SUBMITTED BY LD. AR, IF THERE IS DIFFERE NCE IN METHODOLOGY, THERE BOUND TO BE DIFFERENCE BETWEEN THE INTEREST INCOME CALCULATED BY THE ASSESSEE AND THAT CREDI TED TO ACCOUNT OF THE FIXED DEPOSITS BY THE BANK. THE LD A .R RIGHTLY SUBMITTED THAT THE SAID DIFFERENCE WOULD GET NEUTRALIZED UPON MATURITY OF FIXED DEPOSIT. 9. THOUGH THE PROVISIONS OF SECTION 37BA PROVIDE FOR GIVING CREDIT FOR TDS ONLY IN THE ASSESSMENT YEAR FOR WHICH SUCH INCOME IS ASSESSABLE, THE SAID PROVISIONS ALSO PROVI DE FOR SPREADING OF TDS CREDIT, I.E., GIVING CREDIT OF TDS A MOUNT OVER THE YEARS DURING WHICH THE RELEVANT INCOME IS OFFERED. ITA NO. 718/MUM/2018 : 7 : 10. IN THE INTEREST INCOME, ACCORDING TO THE ASSESSEE, THE DIFFERENCE IN INTEREST INCOME HAS ARISEN DUE TO THE DIF FERENCE IN THE METHODOLOGY FOLLOWED FOR ACCOUNTING FOR INTERES T INCOME. HENCE, IT IS NOT A CASE OF UNDERSTATING INTERES T INCOME, WHICH WOULD WARRANT MAKING ADDITIONS. ACCORDI NGLY, IF THE METHODOLOGY ADOPTED BY THE ASSESSEE AND THE BANK FOR PROVIDING ACCRUED INTEREST DIFFERS, THEN, IT WILL BE D IFFICULT TO IMPLEMENT THE PROVISIONS OF SECTION 37BA AS IT CANNOT BE SAID THAT THE METHODOLOGY ADOPTED BY THE BANK ALONE IS CORRECT ONE. 11. IT WAS STATED THAT THE ASSESSEE IS CONSISTENTLY FO LLOWING SAME METHODOLOGY FOR ACCOUNTING FOR ACCRUED INTEREST AN D THE RELEVANT COMPUTATIONS ARE ALSO CERTIFIED BY THE STATUTOR Y AUDITORS. IT IS NOT THE CASE OF THE AO THAT THE ASSESSE E HAS KEPT UNACCOUNTED DEPOSITS WITH BANKS. IN THIS KIND OF SITUATION, IN OUR VIEW, IF THE AO IS SATISFIED WITH THE COMPUTATION OF ACCRUED INTEREST INCOME MADE BY ASSESS EE, THEN THE EXPLANATIONS OF THE ASSESSEE MAY BE ACCEPTED I N ORDER TO SETTLE THE MATTER. WE ARE HOLDING SO FOR THE RE ASON THAT THE DIFFERENCE, IF ANY, WOULD GET NEUTRALIZED UPON MATURITY OF FIXED DEPOSIT AND FURTHER THE ASSESSEE IS ITA NO. 718/MUM/2018 : 8 : CONSISTENTLY FOLLOWING SAME METHOD OVER THE YEARS, WHOS E COMPUTATIONS ARE VERIFIED BY THE STATUTORY AUDITORS. ACCORDINGLY, WE ARE OF THE VIEW THAT THE AO MAY BE DIR ECTED TO EXAMINE THE COMPUTATION MADE BY THE ASSESSEE FOR ACCOUN TING OF ACCRUED INTEREST AND IF HE IS SATISFIED THAT THE SAME METHODOLOGY IS FOLLOWED OVER THE YEARS, THEN THE AO MAY RESTRICT THE ADDITION TO RS. 1,18,734/- BEING THE NET AMOU NT OF DIFFERENCE OF INTEREST INCOME OVER FYS. 2009-10 TO 201 3-14 AND THIS, IN OUR VIEW, WILL PUT THIS ISSUE AT REST. ACCO RDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE THE I SSUE TO THE FILE OF AO FOR THE LIMITED PURPOSE OF EXAMINING TH E ISSUE IN THE LIGHT OF DISCUSSIONS MADE SUPRA. 12. IN THE RESULT, THE APPEAL OF ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH DAY OF MARCH, 2019 SD/- SD/- (RAVISH SOOD) (B.R. BASKARAN) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /MUMBAI; /DATED : 8 TH MARCH, 2019 TNMM ITA NO. 718/MUM/2018 : 9 : / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #!' / THE RESPONDENT 3. $ % ( ) / THE CIT(A), MUMBAI 4. $ % / CIT, MUMBAI 5. ()* +, , $ .+,$/ , / DR, ITAT, MUMBAI 6. *012 / GUARD FILE $ / BY ORDER, # //TRUE COPY// / $ (DY./ASST. REGISTRAR) $ .+,$/, / ITAT, MUMBAI