2023 (9) TMI 1111 - AT - Income Tax

Addition on account of interest income - AO worked out interest income of the assessee by applying the rate of interest @12% for the whole year that came and held that the assessee has suppressed interest income - AO levied tax under the provisions of section 115BBE on the said undisclosed investment - HELD THAT - From the ledger accounts reproduced in the assessment order, it is very clear that the assessee has lent the loan after October, 2017 on various dates and that interest is calculated considering the number of days for which the loan was advanced. Given this, we are unable to understand or appreciate why despite reproducing all the details the AO proceeded to calculate interest for the whole assessment year. Since it is evident from the details submitted by the lower authorities that the assessee has obtained the loan from DHFL only in October 2017 and has advanced the same to various parties out of the said loan, we see no logic in AO calculating interest for the whole year. Therefore we hold that there is no infirmity in the findings of the CIT(A) deleting the addition towards interest. This ground of the revenue is dismissed. Addition u/s 69B - advances outstanding include the interest accrued net of TDS - difference between advances outstanding as of 31/03/2018 and loan balance as on the said date - HELD THAT - As also clear that the amount of outstanding advances includes the interest accrued on the advance net of TDS. In the order of assessment, we notice that the Assessing Officer has not considered any of the submissions but has simply calculated the difference between advances outstanding as of 31/03/2018 and loan balance as on the said date to make an addition under section 69B. We are unable to appreciate the action of the AO for the reason that assessee has clearly explained and provided a proper reconciliation for the amounts shown in the balance-sheet as on 31.03.2018 and the addition has been made without giving finding contrary on record. Accordingly, addition made u/s 69B by AO is not tenable. We, therefore, see no reason to interfere with the order of the CIT(A) in this regard. Accordingly, this ground of the revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of interest income.
2. Justification for commercial expediency of loans.
3. Logical reasoning for interest rate on loans.
4. Deletion of addition on account of suppression of loans under section 69B.

Summary:

1. Deletion of Addition on Account of Interest Income:
The revenue challenged the deletion of an addition of Rs. 7,56,21,843/- on account of interest income by the CIT(A). The Assessing Officer (AO) had calculated interest income by applying a 12% rate for the entire year, resulting in a higher interest income than reported by the assessee. The CIT(A) found that the loan from DHFL was received on multiple dates from October 2017, and the advances were also given in tranches. Therefore, applying a 12% interest rate for the whole year was incorrect. The Tribunal upheld the CIT(A)'s decision, noting that the AO's calculation lacked logic as the loan was not available for the entire year.

2. Justification for Commercial Expediency of Loans:
The AO questioned the commercial expediency of the loans given by the assessee, stating that no relevant documents were provided. The CIT(A) considered the submissions and details provided by the assessee, including ledger accounts, bank statements, and confirmations from parties. The Tribunal agreed with the CIT(A), finding no infirmity in the deletion of the addition towards interest income, as the assessee had substantiated the timing and interest rate of the loans.

3. Logical Reasoning for Interest Rate on Loans:
The AO argued that loans given during the same period as loans taken could have been given at a higher interest rate. The CIT(A) found that the AO's action of charging 12% notional interest for the entire year was incorrect. The Tribunal upheld this finding, noting that the interest was correctly calculated based on the actual number of days the loans were advanced.

4. Deletion of Addition on Account of Suppression of Loans under Section 69B:
The AO made an addition of Rs. 2,64,72,535/- under section 69B, claiming suppression of loans advanced. The CIT(A) found that the balance sheet showed both secured and unsecured loans and advances, including accrued interest, which was already offered for taxation. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided a proper reconciliation of the amounts shown in the balance sheet, and the AO's addition was not tenable.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order in favor of the assessee on all grounds. The appeal of the revenue was dismissed.