Clipped from: https://taxguru.in/income-tax/fdr-addition-remanded-ao-failed-verify-bank-records.html
Alliance Books Suppliers Pvt Ltd Vs ACIT (ITAT Kolkata)
FDs Given as Bank-Guarantee Margin Cannot Be Taxed as Unexplained Money – Matter Remanded; Only Interest Income Taxable
Assessee purchased bank guarantees from Central Bank of India backed by FDRs of ₹1,67,21,259 placed as margin. Later, business became NPA & bank invoked SARFAESI, taking possession & appropriating the FDRs. AO reopened assessment & treated the entire FDR amount as unexplained money u/s 69A, additionally taxing interest of ₹1,70,676. CIT(A) affirmed.
Assessee submitted letters showing repeated requests to bank for details, explaining that FDRs were security margin against ₹4 crore bank guarantee, not unexplained assets; bank had invoked FDs after NPA classification. Assessee had no access to old records as business had shut down.
Tribunal observed that:
- FDRs were security/guarantee given to bank;
- Bank appropriated them under SARFAESI;
- Principal of FDRs cannot be treated as income;
- Only interest income arising on such FDRs is taxable;
- Authorities failed to obtain bank records despite assessee’s explanation.
To meet ends of justice, Tribunal restored matter to AO with direction to issue summons to Central Bank of India, obtain full details & reassess correctly. It clarified that principal FDR amount is not taxable if already disclosed/recorded; only interest must be brought to tax.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 30.01.2025 for the AY 2019-20.
2. The assessee has challenged the order of the learned CIT (A) on legal issue as well as on merit.
2.1. On legal issue the assessee has challenged the reopening of assessment based on the reasons to suspect as the learned AO failed to demonstrate any live link between the tangible material and formation of the belief that the income has escaped assessment. So far as the merit of the case is concerned, the assessee has challenged the order of learned CIT (A) confirming the addition of ₹1,67,21,259/- as made by the learned AO on account of time deposit purchased by the assessee from Central Bank of India treating the same as unexplained money u/s 69A of the Act and also confirming the interest of ₹1,70,676/- as made by the learned AO on account of bank interest to Central Bank of India.
2.2. The facts in brief are that the assessee company has purchased bank guarantees from Central bank of India secured by FDRs which were given to Govt deptts. Later on the Sarfaesi proceedings u/s 132(2) of the Act of Sarfaesi Act, 2002 were initiated against the assessee and ultimately the bank took over the possession of the assessee’s premises under the said Act. The learned AO initiated the reassessment proceedings u/s 147 of the Act by issuing notice u/s148 of the Act on 14.03.2023, after passing the order u/s 148A(d) of the Act that income of the assessee has escaped assessment. The learned AO extracted the letter written by the assessee to assessment unit/ verification unit of income tax Department dated 25.01.2024, stating therein that the FDRs as alleged by the learned AO to have escaped assessment were given to bank as guarantee which have been mentioned by the AO. The assessee informed that asset become NPA in 2019 following which the bank invoked the guarantees and adjusted these FDRs towards outstanding demands and requested the learned AO to give one month time to collect the information and furnished reply accordingly. On page no.7. of the assessment order, the learned AO extracted the letter written by the assessee to Central Bank of India submitting to the bank that the assessee came to know from the income tax department that TDS amounting to ₹10,77,882/- had cut in the F.Y. 2019-20 for FDs amounting to ₹1,67,21,259/-. The assessee requested the bank to supply the details of the same again on page 8. The learned AO extracted the letter dated 05.02.2024, written by the assessee to the verification unit that as per form no.26AS for A.Y. 2019-20, the Central Bank of India deducted TDS of ₹17,082/- on the interest of ₹1,70,676.78. The assessee informed that the account was declared NPA and the company was shut down as well as it has no data as of now and communications were sent to the Central Bank of India time and again. Thereafter, the assessee informed that the assessee had bank guarantee sanctioned of worth of ₹4 crores from Central Bank of India against which assessee given margin of 25% and the said guarantee was used to give cash margin to various institutions against the said bank guarantee. The assessee submitted that the FDRs of ₹1,67,21,259/- was with the Central Bank of India as security/ guarantee which was invoked by the Bank adjusting the FDRs given to various institutions along with interest thereon. The learned CIT (A) confirmed the order of the learned AO.
2.3. Having considered submissions and perusing the materials available on record, we find that the assessee’s account was declared NPA following which security/guarantee given by the assessee in the form of FDRs with interest thereon to various institutions. We note that the bank has not responded to the various requests by the assessee. In these circumstances, we are considered opinion that the ends of justice would be well served if the case is restored to the file of the learned AO and learned AO is directed to collect all these information by issuing summon to the bank to furnish all the details. Accordingly, we set aside the issue to the file of the learned AO with a direction to issue necessary summon to the bank and call for the details from the bank and assessed the income accordingly. Needless to say that only interest income on FDS is to be assessed and the principal amount of FDs which was given as security to the bank against bank guarantee of ₹4 crores if disclosed is not liable to be taxed as income. With this observation, the case of the assessee is restored to the file of the learned AO for re-adjudication.
3. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 04.12.2025.
aniltikotekar4sme.com 