9911796707
TMI Blog2020 (10) TMI 1076X X X X Extracts X X X X X X X X Extracts X X X X ..... t accordingly. Appeal of the assessee is allowed. - ITA No. 742/DEL/2020 - - - Dated:- 20-8-2020 - N. K. Billaiya, Member (A) and Suchitra Kamble, Member (J) For the Appellant : Ajay Vohra, Sr. D.R. and Gaurav Jain, Adv. For the Respondents : Jagdish Singh, Sr. D.R. ORDER N.K. Billaiya, Member (A) 1. This appeal by the assessee is preferred against the order of the Commissioner of Income Tax (Appeals)-7, New Delhi dated 10.01.2020 pertaining to the Assessment Year 2016-17. 2. The solitary grievance of the assessee is that the CIT(A) erred in confirming the addition of ₹ 3,84,13,000/-, being notional interest income, computed @17.95% on loan of ₹ 21.40 crores advanced to group concern M/s. Red Fort Akbar Properties Pvt. Ltd. 3. The representative of both the sides were heard at length, the case records carefully perused and with the assistance of the Learned Counsel, we have considered the relevant documentary evidences brought on record in the light of Rule 18(6) of ITAT Rules. Judicial decisions duly considered. 4. Roots of the quarrel lie in the Financial Year 2012-13 relevant to Assessment Year 2013-14. In that year vide loan agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 019-20, taking into consideration the long drawn litigation between Red Fort Akbar and Deccan and the remote chances of recovery of the said amount, management of the appellant company vide Board resolution dated 29.09.2018 decided to write off the principal sum advanced as bad debt. 10. The lower authorities had failed to appreciate the factual matrix discussed hereinabove and made the additions of notional interest income on the ground that the same accrued to the appellant under the mercantile system of accounting. Moreover the CIT(A) upheld the order of AO relying upon the directions of DRP dated 06.09.2018 in appellant's own case for A.Y. 2014-15. It would be pertinent to mention here that in the appeal for A.Y. 2014-15, the Tribunal vide order dated 14.06.2019 set aside the matter for fresh adjudication by the AO after taking complete note of facts. 11. Before us, the Counsel for the assessee drew our attention to Accounting Standard-9 ( AS-9 ) on Revenue Recognition which is as under: 9. Effect of Uncertainties on Revenue Recognition 9.1 Recognition of revenue requires that revenue is measurable and that at the time of sale or the rendering of the servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the assessee's appeal. Facts of the Case: Return of income was filed by assessee company on 17.10.2016 declaring income of ₹ 2,92,98,070, and assessment u/s. 143(3) of the Act was completed vide order dated 16.12.2018 at total income of ₹ 6,77,11,070 after making addition of ₹ 3,84,13,000, being notional interest income accrued at 17.95% p.a. on outstanding loan of ₹ 21,40,00,000 advanced to group concern, viz., M/s. Red Fort Akbar Properties Pvt. Ltd. ('Red Fort Akbar') in the previous year relevant to AY 2013-14. Against the above, the appellant filed appeal before the Ld. CIT(A), which was dismissed vide order dated 10.01.2020. The assessee company is engaged in the business of development and construction of real estate projects in India. 2. The assessing officer, vide assessment order dated 16.12.2018 passed under section 143(3) of the Act, raised income tax demand of ₹ 1,68,91,624. The assessee company paid ₹ 50,68,000/- i.e. 30% of outstanding demand and balance was stayed by Hon'ble ITAT vide order dated 14/02/2020 for a period of six months or disposal of appeal whichever earlier. 3. The case was las ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the AO is hereby confirmed. Revenue's point of view: It is humbly submitted that the revenue (respondent) fully support the order of Ld CIT(A) as well as of AO on the issue taken in appeal. The AO's report on factual matrix as ruled for by the Hon'ble ITAT on last hearing has been submitted forgoing paragraphs which may kindly be considered. 15. A perusal of the afore mentioned reply of the DR along with the report of the AO show that instead of examining factual matrix which we have discussed elsewhere, the AO has simply relied upon the findings given in A.Y. 2014-15 without realizing that the Tribunal has set aside the assessment to the files of the AO. 16. In our considered opinion where the principle amount of loan/advance is doubtful of recovery interest thereon cannot be accrued and added to income even under the mercantile system of accounting. Our view is fortified from the decision of the Hon'ble Madras High Court in the case of CIT v. Motor Credit Co. P. Ltd. 127 ITR 572, wherein the Hon'ble High Court observed as under: ..... Where no income has resulted, it cannot be said that income has accrued merely on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was placed, the Tribunal came to the conclusion that it would be very unrealistic on the part of the assessee to take credit for a highly illusory interest. (emphasis supplied) 17. The revenue's SLP was dismissed by the Hon'ble Supreme Court vide SLP (Civil) No. 2806 of 1981. A similar view was taken by the Hon'ble High Court of Punjab and Haryana in the case of CIT v. Ferozepur Finance (P) Ltd. 124 ITR 619. 18. The Hon'ble High Court of Delhi in the case of CIT v. Goyal M.G. Gases (P) Ltd.: 303 ITR 159 has held that when the when the realization of even the principal amount of loan was in jeopardy, there could not be any real accrual of income by way of interest, even as per the mercantile system of accounting. The relevant findings of the Hon'ble High Court are as under: 10. The principle that the Supreme Court applied was that even if the accounts are maintained in the mercantile system, what has to be seen is whether income can be said to have really accrued to the assessee. In support of this principle, reliance was placed upon Commissioner of Income-tax v. Birla Gwalior (P) Ltd., [1973] 89 ITR 255 which approved the view taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
