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TMI Blog2015 (6) TMI 564X X X X Extracts X X X X X X X X Extracts X X X X ..... The same would thus not fall to be covered within the compass of section 57(iii), given its limited scope, i.e., for earning income, and which is only the interest income on a single loan granted by the assessee to, one, Shri Maneklal Bhandari. In fact, the expenditure allowed, i.e., on filing fees, bank charges and audit fee, would, again, strictly speaking, not fall within the purview of section 57(iii), and stands allowed on being the minimum statutory expenses required to be incurred in view of the legal requirement incident on the assessee as a company. The decision by the AO, since endorsed by the ld. CIT(A), cannot, therefore, be faulted with. - Decided against assessee. Addition being notional interest on advances paid to M/s B.U. Bhandari treating the same as a loan - Held that:- When the principal amount itself is not forthcoming, there is great uncertainty in collecting interest, which has not been provided for. The same can, under the circumstances, be either agreed to between the parties, or directed by a third party, as an arbitrator, for example, to whom the parties may approach, or a court of law. We are conscious, when we state so, that we presume a normal, gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,04,000/- being notional interest on advances paid to M/s B.U. Bhandari treating the same as a loan. (b) The appellant submits that similar additions made by the Assessing Officer in earlier years has been deleted by the Commissioner of Incometax (Appeals) the learned Commissioner of Income-tax (Appeals) was not justified in taking a different view without any reasoning for the same. (c) The appellant submits that without prejudice to its argument that the aforesaid amount was not a loan, in any case there can be no addition for notional interest as the same is not warranted under the provisions of the Act. 5. The appellant submits that the Assessing Officer be directed: (i) to treat interest income as income under the head Profit gains of business or profession and not under the head Income from other sources ; (ii) to delete the disallowance of a sum ofRs.725,385/- out of total expenses; (iii) to delete the addition ofRs.2,04,000/- being notional interest on advances against office premises; and to modify the assessment in accordance with the provisions of the Act . 2. Ground No.1 was not pressed during the hearing. The same, as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further states to have, for this reason, decided to embark on the housing finance business, passing a resolution by its Board of Directors to that effect, besides seeking a clarification from the Reserve Bank of India (RBI), and which is stated to have clarified that no separate permission from it was required for the purpose, i.e., to commence the housing finance business. It is on this basis that the interest income is claimed for being treated as a business receipt. The only activity, however, undertaken by the company since inception is a loan or advance to Shri Maneklal Bhandari, Director, and which was in fact extended earlier perhaps since inception, being outstanding since f.y. 1996-97, the section 263 order tabulating the balance outstanding as at each year end, beginning 31.03.1997 (at ₹ 107.83 lacs) up to the current year (at ₹ 83.76 lacs). No interest, though charged, had been recovered, and the entire interest charged from year to year stands accumulated in a separate account as interest recoverable (being at ₹ 60.20 lacs as on 31.03.2002). The Revenue s stand of the interest income being, under the circumstances, not arising out of business activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. I have noted that the appellant simply claimed interest income as its business receipt and claimed various expenses. As the interest income is treated as income from other sources. A.O. is bound to consider whether any such expenses claimed have a direct nexus in earning interest income and therefore allowable u/s. 57(iii). I have noted that the A.O. has given his finding in the asstt.order as to which of such expenses has nexus to earn interest 'income. As such I do not find any reason to interfere the action of the Assessing Officer. This ground is dismissed. 6. We have heard the parties, and perused the material on record. The ld. CIT while passing the revision order had also directed the AO to consider the allowability of the various expenses claimed by the assessee in terms of section 57 of the Act (refer para 6 of the revision order). The same is, again, a specific direction, so that what the assessee was required before the AO in assessment, as well in the appellate proceedings following the same, was to justify the allowability of the said expenditure on the anvil and the touchstone of section 57(iii) of the Act. The expenditure disallowed, tabulated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement dated 18.04.1995, against the total cost of the said two properties at ₹ 18.10 lakhs, being ₹ 9 lacs and ₹ 9.10 lacs respectively. While the conveyance was agreed to be executed within a period of three years, neither the possession of the property had been taken by the assessee-company after nearly a decade, nor the amount recovered. The assessee clarified it to be an advance for office premises. The prolonged delay was stated to be on account of want of necessary permissions. The same was not found tenable by the AO in the absence of substantiation by the assessee of its claims. The correspondence adduced in support was only between the assessee and Shri M.B. Bhandari, a director, so that it would be of little consequence; the permissions being required from third parties. No steps to take possession of the flats had been taken by the assessee. Under the circumstances, the impugned advance was inferred to be a loan to the payee and, accordingly, interest computed @ 12% p.a., bringing an amount of ₹ 2,04,000/- as income from other sources. The same found confirmation in appeal as the assessee had failed to give any reasonable explanation for the purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e can, under the circumstances, be either agreed to between the parties, or directed by a third party, as an arbitrator, for example, to whom the parties may approach, or a court of law. We are conscious, when we state so, that we presume a normal, genuine problem on hand, while the Revenue s case is based on the transaction, as being reflected, in the absence of any evidence, as not true, raising serious and valid doubts with regard to its genuineness. True, but that would not by itself imply of the assessee-company to have benefited, at the cost of the payee, to any extent. Tax, it is trite law, can only be charged on real income, while we find no basis for inferring the interest cost on the part of Revenue. We decide accordingly, and the assessee succeeds on this ground. ITA No. 897/Mum/2009 (AY-2004-05) 9. The only issue/s raised in this appeal is that raised for AY 2002-03 vide grounds 2 and 3 before us, i.e., the taxability of interest income as business income and allowance of expenditure there-against. The same stand decided by us vide paragraphs 3 to 6 of our order for AY 2002-03 (supra), and which; the facts being identical, shall apply in equal measure for this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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