2015 (11) TMI 422 - AT - Income Tax

Addition on account of benefit/perquisite u/s 2(24)(iv) - receipt of loan/advance - CIT(A) deleted the addition - Held that - We are inclined to agree with the conclusion of the CIT(A) that no amount of loan/advance was actually received by the assessee from AIPL but it was only a journal entry passed on 31/03/2010 debiting the assessee s account and correspondingly crediting the UHCPL account to enhance the promoters contribution in the Joint Venture object between AIPL and UHCPL. Hence, estimated notional addition made by the AO u/s 2(24)(iv) of the Act on both the count could not be held as sustainable and the same was rightly deleted by the CIT(A). The said conclusion also gets support and strength from the ratio of the order of Hon ble Jurisdictional High Court of Delhi in the case of Sohan Singh vs. CIT (2001 (8) TMI 68 - DELHI High Court ). We also hold that the interest free advance/loan to assessee from AHS also does not attract provisions of section 2(24)(iv) of the Act because this provision is only applicable to the cases wherein a company provides benefits/perquisites and this provision is not applicable in the case of partnership firm such as AHS. We are unable to see any infirmity or perversity or any other valid reason to interfere with the order of the first appellate authority and we uphold the same. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 2,28,27,650/- made by the AO on account of benefit/perquisite under section 2(24)(iv) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 2(24)(iv):

The appeal by the Revenue was directed against the order of the Commissioner of Income Tax (Appeals)-I, New Delhi, which deleted the addition of Rs. 2,28,27,650/- made by the AO under section 2(24)(iv) of the Income Tax Act, 1961. The AO had made two additions: income on account of benefit/perquisite pertaining to M/s AHS Joint Venture (AHS) and income on account of benefit/perquisite pertaining to M/s Amrapali Infrastructure Pvt. Ltd. (AIPL).

Arguments by the Departmental Representative (DR):
The DR argued that the assessee received interest-free loans/advances from M/s AHS and M/s AIPL, which were used to provide interest-free loans to the directors/substantive shareholders of M/s UHCPL. The DR contended that these transactions attracted the provisions of section 2(24)(iv) of the Act, and the AO rightly taxed the notional interest computed at 6% p.a. as benefit/perquisite received by the directors.

Arguments by the Authorized Representative (AR):
The AR argued that the provisions of section 2(24)(iv) are not applicable to partnership firms but only to companies. The AR cited the case of CIT vs. Madhu Gupta, where it was held that interest on interest-free loans availed by the assessee from a company in which she was a director could not be treated as deemed income under section 2(24)(iv). The AR also pointed out that the amount received from M/s AHS Joint Venture was not linked to any payment by M/s UHCPL and that the amount from AIPL was merely a journal entry to facilitate bank finance for the project.

Tribunal's Observations and Conclusions:
The Tribunal observed that the AO made the additions by applying a notional interest rate of 6% p.a. on the interest-free loans/advances. However, the Tribunal noted that the ledger accounts did not show any payment from UHCPL to AHS Joint Venture that could be linked to the interest-free loan to the assessee. Moreover, AHS Joint Venture is a partnership firm, and the provisions of section 2(24)(iv) are only applicable to companies. Therefore, the Tribunal upheld the CIT(A)'s conclusion that the provisions of section 2(24)(iv) were not applicable in this case.

Regarding the addition of Rs. 1,94,21,420/- from AIPL, the Tribunal noted that it was merely a journal entry passed to enhance the promoters' contribution in the joint venture project between AIPL and UHCPL. There was no actual transfer of funds, and the AO had admitted that the interest-free funds did not fetch any interest cost. The Tribunal also referred to the judgments in CIT vs. Madhu Gupta and Sohan Singh vs. CIT, which supported the view that interest on interest-free loans could not be treated as deemed income under section 2(24)(iv).

Conclusion:
The Tribunal concluded that the additions made by the AO under section 2(24)(iv) were not sustainable. The provisions of section 2(24)(iv) were not applicable to the partnership firm (AHS Joint Venture), and the journal entry from AIPL did not result in any actual receipt of funds by the assessee. The Tribunal upheld the CIT(A)'s order deleting the additions and dismissed the Revenue's appeal. The cross-objection filed by the assessee was also dismissed as not pressed.