2018 (4) TMI 243 - AT - Income Tax

Addition of unsecured interest free loans and advances against projects/properties - Held that - As decided in assess s own case the assessee company had received much more interest free trade advances/unsecured loans as comparison to interest free trade advances given. Assessee company has not given any interest free trade advances to any parties out of borrowed funds. Thus there is no nexus between borrowed funds and trade advances given to parties. Therefore, there is no question of disallowance of interest/addition on account of notional interest income on trade advances. - Decided in favour of assessee

Summary

Issues:
1. Whether the Ld.CIT(A) erred in deleting the addition of ?98,76,767/- made by the A.O. on the basis of unsecured interest-free loans and advances?
2. Whether the order of Ld.CIT(A) is erroneous and not tenable on facts and in law?

Analysis:

Issue 1:
The appellant, engaged in real estate business, provided interest-free loans and advances against projects/properties amounting to ?9,86,87,741/-. The Ld.AO disallowed ?98,76,767/- as expenses in the profit and loss account, claiming lack of commercial expediency for the loans. However, Ld.CIT(A) deleted the addition, citing that notional incomes are not taxable under the Income Tax Act, and business advances are not subject to notional income. The appellant had given business advances against properties/projects, which were consistent with previous years' assessments. The Tribunal also noted that the Revenue had accepted similar business advances in previous assessments, emphasizing the need for consistency. Various judicial pronouncements supported the appellant's claim, leading to the deletion of the addition.

Issue 2:
The Tribunal, considering the decision in the appellant's own case for the assessment year 2010-11, reiterated that no disallowance of interest expenses under section 36(1)(ii) was warranted as the advances were opening balances in the books of accounts. The Tribunal highlighted the Revenue's consistent approach in previous assessments, where no notional interest income was considered. Citing relevant case laws, the Tribunal upheld Ld.CIT(A)'s decision to delete the addition on estimation of interest on trade advances. The Tribunal dismissed the revenue's appeal, emphasizing the importance of maintaining consistency in the Revenue's approach.

In conclusion, the Tribunal confirmed Ld.CIT(A)'s decision to delete the addition of ?98,76,767/- on estimation of interest on trade advances, dismissing the revenue's appeal.