IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE SHRI M. BALAGANESH (AM) AND SHRI RAM LAL NEGI (JM) ITA No. 1986/MUM/2017 Assessment Year: 2011-2012 & ITA No. 1987/MUM/2017 Assessment Year: 2012-2013 Income Tax Officer-2(2)(3), M/s Monsoon Trading Co. Ltd., Aayakar Bhavan, R. No. 542, Commerce House, 4th Floor, M.K. Road, 3, Currimbhoy Road, Mumbai Vs. Mumbai - 400001 PAN: AABCM4940K (Appellant) (Respondent) Revenue by : Shri J. Saravanan (CIT DR) Assessee by : Shri Yogesh Joijode (AR) Date of Hearing: 26/08/2019 Date of Pronouncement: 29/08/2019 ORDER PER RAM LAL NEGI, JM These appeals have been filed by revenue against order dated 09.12.2016 passed by Commissioner of Income Tax (Appeals)-5 (for short CIT(A), Mumbai, for assessment years 2011-2012 and 2012-13, whereby Ld. CIT(A) has partly allowed appeals filed by assessee against assessment order passed u/s 143 (3) of Income Tax Act, 1961 (for short Act ). ITA No. 1986/MUM/2017 (Assessment Year: 2011-2012) Brief facts of case are that assessee public Limited company registered with Reserve Bank of India as Non-Banking, filed its return of income for assessment year under consideration declaring total income of Rs. 21,087/-. Since, case was selected for scrutiny, AO issued notice 2 ITA Nos. 1986 & 1987/ MUM/2017 Assessment Years: 2011-12 & 2012-13 u/s 143 (2) and 142 (1) of Act. In response thereof authorized representative of assessee appeared before AO and furnished details called for. AO completed assessment u/s 143 (3) of Act determining total income at Rs. 11,18,20,990/- after making addition of Rs. 11,17,99,900/- on account of notional interest computed on secured debts of Swadeshi Cement Limited (SCL), which assessee had acquired. M/s SCL had taken loan of Rs. 79 lakhs from Punjab National Bank (PNB) in May 1992 and Rs. 3.22 crores from Industrial Development bank of India (IDBI) in December 1982. After acquiring secured loans, M/s SCL had turned sick and was under default for said loans. IDBI and PNB sold said secured debts of SCL to M/s Raghupati Cement P. Ltd. for total consideration of Rs. 1.50 crores. It was noticed that loan payable to PNB as on 27.09.1994 was Rs. 3.90 crores and to IDBI as on 15.12.2006 was Rs. 87.92 crores. AO further noticed that interest was thereafter not calculated on these loans. Accordingly, AO holding that business activity of assessee is earning interest and profits through activities of financing computed interest accrued to it for 12 months and determined total interest at Rs. 11,17,99,900/- and added said amount to total income of assessee. 2. assessee challenged assessment order before Ld.CIT (A). Ld. CIT (A) after hearing assessee allowed appeal and deleted addition made by AO. revenue is in appeal against said findings of Ld. CIT (A). 3. revenue has challenged impugned order passed by Ld .CIT (A) on following effective grounds:- 1. Whether on facts and to circumstances of case and in law, Ld. CIT (A) was right in deleting addition made by AO of Rs. 11,17,99,900/- without appreciating fact that assessee had created right to receive interest by acquiring debt and as per mercantile system of accounting such interest has been accrued to assessee and hence taxable. 2. Whether on facts and in circumstances of case and in law, Ld. CIT (A) was right in deleting addition 3 ITA Nos. 1986 & 1987/ MUM/2017 Assessment Years: 2011-12 & 2012-13 made by AO of Rs. 11,17,99,900/- being accrued interest on debt without appreciating fact that assessee is investment/Non Banking Finance Company (NBFC) and its business activity is mainly earning interest and profits through activity of Finance and maintain its books of accounts on mercantile system of accounting. 4. At outset, Ld. counsel for assessee submitted that this issue is covered in favour of assessee by order of B Bench of Tribunal in ITA No. 898/Mum/2014, AY 2010-11. Ld. counsel further submitted that since, order passed by Ld. CIT (A) is in accordance with order of ITAT rendered in assessee s own case for AY 2010-11, there is no infirmity in order passed by Ld. CIT (A). Hence, there is no merit in grounds of appeal raised by revenue. 5. On other hand, Ld. Departmental Representative (DR) admitted fact that this issue has been decided by Tribunal in favour of assessee. However, Ld. DR relying on assessment order passed by AO submitted that Ld. CIT (A) has wrongly deleted addition made by AO without appreciating fact that assessee is investment/Non Banking Finance Company and its business activity is mainly earning interest and profits through activity of finance and maintains its books of account on mercantile system of accounting. 6. We have heard rival submissions of parties in light of rival contentions. We notice that coordinate Bench has decided identical issue in favour of assessee in assessee s own case for A.Y. 2010-11 (supra) vide order dated 10.10.2017. findings of coordinate Bench reads as under:- 5. learned D.R. before us even though vehemently relied on order of AO but could not adduce any evidence or material which may prove that interest income added by AO has actually accrued to assessee so that it can be added in income of assessee. It is not denied that interest which has been computed by AO on debt recovered of which itself is doubtful for last several years. In view of this fact we are of 4 ITA Nos. 1986 & 1987/ MUM/2017 Assessment Years: 2011-12 & 2012-13 view that no interference is called for in order of CIT(A). In our opinion issue involved is duly covered by decision of Hon'ble Supreme Court in case of UCO Bank vs. CIT 237 ITR 889 in which it was held that in respect of sticky advances if interests are not taken into Profit & Loss Account but taken to suspense account cannot be income of assessee and such interest is not actually received or accrued to assessee. In impugned case it is not denied that debt which has been taken over by assessee relate to SCL which has become sick industrial undertaking in year 1987 itself and off these debts have become nonperforming assets. In process IFIC and ICICI had sold their debts to Asset Care Enterprises Ltd. and PNB and IDBI had assigned/sold their debts to Raghupati Cement Pvt. Ltd. which in turn sold same to assessee company by way of Registered Deed of Assignment dated 04.05.2009 for full and final amount of `1.50 crores. In view of this fact we are of view that CIT(A) has correctly held that no notional interest on such debt can be charged to income tax. We accordingly confirm order of CIT(A). 7. Ld. CIT (A) has allowed appeal of assessee and deleted addition made by AO on account of notional interest holding as under:- 4.2 Before me, it has also been submitted that ultimately movable and immovable assets of SCL were put to auction on 03.05.2010 by Asset Care Enterprises Ltd. [ to whom other two banks IFCI & ICICI had assigned their debts] and that assessee company had got entire assets of SCL [ land, building Plant & machinery and scrape] on payment of Rs. 6.20 crore as full and final payment. physical possession of SCL s assets were received by assessee on 17.05.2010 and sale deed was registered on 26.05.2010. Thus, gain on transactions needs to be assessed in A.Y. 2011-12 based on market value of those assets as on date of its possession over SCL s entire assets with reference to cost [ including that of Rs. 1.50 crore which was paid by assessee while loans of PNB & IDBI was assigned to it from RCL vide Registered deed of Assignment dated 04.05.2009 as well as amount that it had paid on account of acquiring entire assets by way of auction by ACE]. adjustment on 5 ITA Nos. 1986 & 1987/ MUM/2017 Assessment Years: 2011-12 & 2012-13 account of assesseee s share of rights onto SCL s assets by way of acquiring debts on payment of Rs. 1.50 crore of course needs to be adjusted for arriving at gain in A.Y. 2011-12 on account of such transactions. It is also noted that scrap out of SCL s assets so acquired by assessee was sold for Rs. 1.90 crore in year relevant to A.Y. 2012-13, but profit thereon amounting to Rs. 4,87,000/- only has been offered to tax. adequacy and appropriateness of gain and profit needs to be examined/ascertained by AO in A.Y. 2011-12 and 2012-13. AO may take note of these observations accordingly. As far as issue of taxing notional interest on accrual basis in year under consideration, which is subject matter of appeal, is concerned same stands allowed in favour of assessee as discussed in para 4.1 above. Accordingly, entire amount of addition of Rs. 10,23,83,242/- is deleted. In above order of my predecessor, he was of view that though these debts were taken in 1982 by SCL, as SCL had become sick these debts were sold to RCL. Though total amount of debt was Rs. 91,82,76,201/- along with principal and interest which has to be paid to PNB and IDBI, but appellant had paid consideration of Rs. 1.50 Crs. for purchase of above loans. This itself shows that there is no chance of recovery and according to CIT (A) s order notional interest cannot be calculated on total amount of debt which was taken by appellant as there is no interest accrued to appellant during year. Neither he received interest nor there is right to receive to appellant. According to I.T. Act, interest income can be assessed to tax if it is received or accrued. Form above facts it is clear that appellant has not received any interest from debts purchased from PNB and IDBI. Further whether appellant had accrued interest income, for accrual of income Supreme Court in case of E.D. Sasoon vs. CIT [26 ITR 27] held that debt must have come into existence and he must have acquired right to receive payment unless and until any contribution is effective in bringing into existence debt or right to receive payment or in other words debitum in presenta and obendeum in future . It cannot be said that any income has accrued to him. From above decision of Supreme Court in above mentioned 6 ITA Nos. 1986 & 1987/ MUM/2017 Assessment Years: 2011-12 & 2012-13 case, it is clear that if any amount has to accrue to appellant, debt should have come into existence and by coming of this debt into existence which is income of appellant, appellant acquires right to receive payment. Here in this case AO is of view that appellant is right to receive payment. Here in this case AO is of view that appellant is right to receive interest income, hence, he added notional interest on debt to be received by appellant. In order to get any amount right to receive, first there should be debt. Debut should come into existence means someone must agree to pay interest to appellant. So that forms debt which can be paid now in present or future. But, in this case if appellant has right to receive interest amount, he has to receive from someone. There should be two entities, one is receiver of interest, and other is payer of interest. On examination of facts of this case, here appellant had purchased loans from PNB and IDBI which had defaulted by earlier takers of loans and here there is no question of appellant receiving any interest from anyone and anyone even acknowledging that appellant will be paid interest. Hence here there is no right to receive any interest to appellant. Hence, according to AO, AO s argument that appellant has right to receive interest is not justified. Further Supreme Court also held that income can be assessed under I.T. Act based on real income and not on notional basis, there cannot be any notional interest and total debt purchased by appellant from PNB and IDBI. Hence in view of above decision of CIT (A), AO s addition is deleted. Ground of appeal is allowed. 8. We have carefully examined order passed by Ld. CIT (A). As pointed out by Ld. counsel for assessee, order passed by Ld. CIT (A) is in accordance with settled principle of law and evidence on record. coordinate Bench has decided identical issue in favour of assessee in assessee s own case for AY 2010-11 discussed above by upholding findings of Ld. CIT (A). issue involved in present case is identical to issue involved in assessee s own case for AY 2010-11. Since, revenue has not pointed out any material change in facts of present 7 ITA Nos. 1986 & 1987/ MUM/2017 Assessment Years: 2011-12 & 2012-13 case, we find no infirmity in order passed by Ld. CIT (A). Hence, respectfully following decision of coordinate Bench rendered in assessee s case aforesaid, we uphold findings of Ld. CIT (A) and dismiss appeal of revenue. We accordingly direct AO to delete addition. ITA No. 1987/MUM/2017 (Assessment Year: 2012-2013) facts and issue involved in present case are identical to facts and issue involved in assessee s own case for AY 2011-12. Hence, we do not consider it necessary to narrate facts of present case. revenue has challenged impugned order passed by Ld. CIT (A) on following effective grounds:- 1. Whether on facts and to circumstances of case and in law, Ld. CIT (A) was right in deleting addition made by AO of Rs. 15,07,02,377/- without appreciating fact that assessee had created right to receive interest by acquiring debt and as per mercantile system of accounting such interest has been accrued to assessee and hence taxable. 2. Whether on facts and in circumstances of case and in law, Ld. CIT (A) was right in deleting addition made by AO of Rs. 15,07,02,377/- being accrued interest on debt without appreciating fact that assessee is investment/Non-Banking Finance Company (NBFC) and its business activity is mainly earning interest and profits through activity of Finance and maintain its books of accounts on mercantile system of accounting. 2. only issue involved in this appeal is identical to issue involved in assessee s own case for AY 2011-12 discussed above. Since, we have dismissed identical ground raised by revenue in assessee s case for AY 2011-12 by following order of coordinate Bench rendered in assessee s own case for AY 2010-11 (supra), consistent with our findings in 8 ITA Nos. 1986 & 1987/ MUM/2017 Assessment Years: 2011-12 & 2012-13 aforesaid appeals, we dismiss present appeal of revenue for same reasons. Accordingly, we direct AO to delete addition. In result, appeals filed by revenue for assessment years 2011-12 and 2012-13 are dismissed. Order pronounced in open court on 29th August, 2019. Sd/- Sd/- (M. BALAGANESH) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 29/08/2019 Alindra, PS /Copy of Order forwarded to : 1. / Appellant 2. / Respondent. 3. CIT(A)- 4. / CIT 5. DR, ITAT, Mumbai 6. / Guard file. / BY ORDER, True Copy (Dy./Asstt. Registrar) , / ITAT, Mumbai Income-tax Officer-2(2)(3), Mumbai v. Monsoon Trading Co. Ltd