The Income Tax Appellate Tribunal (ITAT) Bangalore bench has ruled that no tax is payable on interest earned from fixed deposits subject to the CBI’s restraining order.
The bench, comprising Madhumita Roy (Judicial Member) and Chandra Poojari (Accountant Member), has pointed out that the lower authorities made an error by including the interest from fixed deposits, which were subject to a CBI Hyderabad restraining order, in the tax assessment for the years in question. Instead, they should be taxed in the year when the assessee actually received the interest or when they had the right to receive it.
The appellant/assessee is engaged in the extraction, processing, manufacturing, and sale of iron ore and owns windmills for power generation.
The company ceased mining operations in 2010 following a Supreme Court order. The mines are located in the Bellary district of Karnataka, near Andhra Pradesh. The CBI Hyderabad filed charges against B. V. Sreenivasa Reddy, Managing Director of M/s. Obulapuram Mining Company Private Limited, and others for illegal mining, encroachment on reserved forest areas, document falsification, and conspiracy.
The banks informed the assessee about the Special Judge’s restraining order from the CBI Court in Hyderabad, stating that the assessee could not withdraw any amount or interest from the fixed deposits. The Appellate Commissioner upheld the addition of the interest accrued from the fixed deposits.
The assessee emphasized that the bank deducted TDS when the interest was accrued and credited it to the respective account. Therefore, the entire interest on which TDS was deducted had accrued to the assessee in the relevant assessment year and should not be deferred.
The assessee argued that, in accordance with AS-9, interest income should not be recognized when there is substantial uncertainty regarding its receipt. The source of this interest income is the fixed deposits, which are themselves subject to attachment.
The department, on the other hand, contended that there was no doubt that interest income had accrued to the assessee. According to the provisions of Section 5 of the Act, accrued interest is considered the income of the assessee in the year in which it accrues. Furthermore, although the bank deposits of the assessee were under a prohibitory order, this did not affect the accrual of interest. It is also evident from the assessee’s submissions that the 5-year period of the prohibitory order has elapsed.
The tribunal ruled that due to the court’s restraining order, no right was accruing to the assessee to receive the income. Consequently, the amount could not be treated as the assessee’s income for the assessment year under consideration.
| Case Title | M/s. Bellary Iron-Ores Pvt. Ltd. Vs ITO |
| Citation | ITA No.1540/Bang/2018 & ITA No.15/Bang/2019 |
| Date | 20.09.2023 |
| Assessee by | Shri Shivprasad Reddy, A.R. |
| Revenue by | Shri D.K. Mishra, D.R. |
| Bangalore ITAT | Read Order |