2021 (9) TMI 222 - AT - Income Tax

Addition u/s 56 - addition on account of locker rent on presumption basis - interest earned on deposit received against the locker facility - AO noticed that assessee has not collected any rent towards safe deposit vaults allotted to its customer and deposits was collected from customers against allotment of safe deposit vaults - HELD THAT - On the perusal of the copy of balance sheet placed in the Paper Book it is noticed that assessee has shown the amount of safe vault deposit in the liabilities side under the head deposits claiming that same was invested in working capital of bank for providing loans and making investments - interest income from loan and investment was reflected in the Profit and Loss Account and Income Tax Return was filed as per profit shown in the Profit and Loss Account. - In the decision of the Coordinate Bench of the ITAT in the case of Co-op. Bank of Mehsana Ltd. 2019 (1) TMI 1917 - ITAT AHMEDABAD wherein the similar issue on identical facts has been adjudicated in favour of the assessee - We find merit in the submission of the assessee and allow the appeal of the assessee as charging of notional interest is not justified. - Decided against revenue.

Summary

Issues:
Appeal against addition made under Section 56 of the Income Tax Act on presumption basis.

Analysis:
The appeal pertains to the assessment year 2014-15 and challenges the addition of ?34,95,154 under Section 56 of the Income Tax Act, 1961, related to locker rent on a presumption basis. The appellant had not charged any rent for lockers but had collected deposits from customers against the allotment of safe deposit vaults. The assessing officer estimated interest on these deposits at 8.25% and added it to the total income of the assessee. The CIT(A) confirmed this addition, leading to the appeal before the ITAT.

During the assessment, it was observed that the appellant did not collect rent for the safe deposit vaults but had received deposits totaling ?4,23,65,500 from customers. The appellant argued that these interest-free deposits were utilized in the banking business. However, the assessing officer disagreed and added ?34,95,154 as notional interest income to the total income of the assessee.

In the appellate proceedings, the appellant contended that since no interest was paid on the deposits and no rent was charged for lockers, a notional addition should not have been made. The appellant presented a Paper Book containing financial documents and judicial pronouncements supporting their case. The balance sheet showed the deposit amount invested in the working capital of the bank for loans and investments. The appellant also cited a decision by a Coordinate Bench of the ITAT in a similar case where the addition was not upheld.

Referring to the decision of the Coordinate Bench, the ITAT found no reason to deviate from the principle established in that case. The ITAT agreed with the appellant that charging notional interest was unjustified, especially when the bank had not actually levied such interest on lockers provided to customers. Consequently, the appeal was allowed, and the addition of notional interest was set aside.

The additional ground for fresh claims amounting to ?7,33,312 was not pressed by the appellant and was dismissed accordingly. The ITAT partially allowed the appeal, following the principle of consistency and the precedent set by the Coordinate Bench.