2020 (5) TMI 279 - AT - Income Tax

Deemed income u/s 69B - notional interest as income on loan/advances to sister concern - addition has been made on account of notional interest - HELD THAT - It is not the case of the AO that the loan advanced to the sister concern was not recorded in the books of accounts. It is not also the case of the AO that interest expenditure claimed as deduction by the assessee should have been disallowed under the provision of section 36(1)(iii) The fact remains that the AO has proceeded to bring to tax notional income without there being any machinery provisions in the Act. Assesee s case is covered in its favour by the judgment of the Hon ble Delhi High Court in the case of Shivnandan Buildcon (P.) Ltd. 2015 (5) TMI 192 - DELHI HIGH COURT had held that notional income on advances could not be brought to tax in absence of any specific provision of the Act. The order of Punjab Stainless Steel Inds Vs CIT. 2010 (5) TMI 53 - HIGH COURT OF DELHI does not come to the aid of the department because in that case the AO had made disallowance out of interest claimed as deduction u/s 36 (1)(iii) of the Act. Since there is no specific provision in the Income Tax Act for bringing to tax notional interest as income on loan/advances to sister concern, we are unable to agree with the submission of the Ld. CIT (DR) and, therefore, while upholding the findings of the Ld. CIT (A) on the issue, we dismiss this ground. Reopening of assessment - addition of the share application money received - HELD THAT - As assessee was asked to show cause as to why addition of the share application money received should not be added to the income of the assessee or permission to get approval to issue notice u/s 148 be moved for assessment year 2011-12. Thus, apparently, the AO himself was aware that the share application money had not been received during the year under consideration but during the preceding assessment year. We also note that the assessment proceedings for assessment year 2011-12 were subsequently reopened u/s 147 of the Act and order u/s 147 read with section 143 (3) of the Act was passed on 10.4.2019 wherein the impugned sum of ₹ 87 crores has been added to the income of the assessee in assessment year 2011-12. Since this impugned amount has already been brought to tax in assessment year 2011-12 and since the impugned amount does not relate to this year under appeal, we agree with the findings of the Ld. CIT (A) on this issue and uphold his order of deleting the said amount. The related grounds stand dismissed.

Summary

Issues:
1. Disallowance of notional interest income under section 69B of the Income Tax Act.
2. Addition of share application money under section 68 of the Act.

Issue 1: Disallowance of Notional Interest Income:
The department appealed against the Ld. CIT (A)'s deletion of the addition of &8377; 5,02,500 as notional interest income under section 69B of the Income Tax Act. The Ld. CIT (DR) argued that the assessee failed to prove the business purpose of interest-free advances to a group company. Citing the Punjab Stainless Steel Inds. case, it was contended that disallowance was justified without a business purpose finding. However, the Ld. AR relied on the Shivnandan Buildcon case, stating that notional income on advances cannot be taxed without specific Act provisions. The ITAT upheld the Ld. CIT (A)'s decision, emphasizing the absence of machinery provisions in the Act for taxing notional income on advances.

Issue 2: Addition of Share Application Money:
Regarding the addition of &8377; 87 crores as share application money under section 68 of the Act, the Ld. CIT (DR) supported the AO's stance. It was highlighted that shares remained unallotted, and no steps were taken to increase authorized share capital. The lack of creditworthiness details of the share applicant was also noted. In response, the Ld. AR argued that the share application money was received in the previous assessment year, as per the Ld. CIT (A)'s finding. The ITAT concurred, noting that the AO himself acknowledged the money's receipt in the preceding year. As the amount was already taxed in the prior assessment year, the ITAT upheld the Ld. CIT (A)'s decision to delete the addition. Consequently, the appeal of the department was dismissed.

In conclusion, the ITAT upheld the Ld. CIT (A)'s decisions on both issues, dismissing the department's appeal. The judgment clarified the tax treatment of notional interest income and the addition of share application money under relevant sections of the Income Tax Act.