Tax Not Payable On Interest Accrued On FD Which Is Subject To CBI’s Prohibitory Order: ITAT

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has held that tax is not payable on interest accrued on FD, which is subject to the CBI’s prohibitory order.

The bench of Madhumita Roy (Judicial Member) and Chandra Poojari (Accountant Member) has observed that the lower authorities have committed an error in bringing the interest accrued on FD, which is subject to a prohibitory order by CBI Hyderabad, into tax in these assessment years under consideration, and the same has to be taxed in the assessment year when it was actually received by the assessee or the right to receive accrued to the assessee.

The appellant/assessee is in the business of the extraction, processing, manufacturing, and sale of iron ore. The company also owns windmills that generate power.

The company has not carried out mining activities since the mining was suspended by the order of Apex Court in 2010. The mines of the assessee are situated in the Bellary district of Karnataka, bordering the neighbouring state of Andhra Pradesh. The CBI, Hyderabad, filed a charge sheet before the Court of Special Judge for CBI, Hyderabad under Section 173 of the CRPC against B. V. Sreenivasa Reddy, Managing Director of M/s. Obulapuram Mining Company Private Limited, and others for illegal mining, encroachment of reserved forest areas, falsification of documents, conspiracy, etc.

The banks had informed the assessee about the restraint order of the Special Judge, CBI Court, Hyderabad, communicating that the assessee would not be entitled to draw any amount or interest from the said fixed deposits. The Appellate Commissioner upheld the addition to the interest accrued from the fixed deposit.

The assessee noted that the bank has made TDS, and the TDS is made or credited to the account of the deductee concerned only when the interest has accrued. Hence, the entire interest on which TDS is made has accrued to the assessee in the subject assessment year, and the same cannot be deferred.

The assessee contended that, as per the AS-9, interest income should not be recognized if there is significant uncertainty as to its receipt. The source of interest income is the fixed deposits, and the fixed deposits themselves are placed under attachment.

The department contended that there is no doubt that the interest income accrued in the case of the assessee. As per the provisions of Section 5 of the Act, interest accrued is the income of the assessee in the year in which it is accrued. Further, the deposits in the bank accounts of the assessee are placed under a prohibitory order. But it had not affected accruing interest. It is also clear from the submissions of the assessee that the 5-year period of the prohibitory order has also been completed.

The tribunal held that because of the restraint order of the Court, there was no right accruing to the assessee to receive the income and accordingly the amount could not be treated as its income for the assessment year under consideration.

Counsel For Appellant: Shivprasad Reddy

Counsel For Respondent: D.K. Mishra

Case Title: M/s. Bellary Iron-Ores Pvt. Ltd. Versus ITO

Case No.: ITA No.1540/Bang/2018

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