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TMI Blog2020 (12) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... he concern to whom the loan was given had, in fact, paid any such interest to the assessee. It is a trite law that income tax cannot be levied on the ipse dixit of the AO, and, that too on a hypothetical income, which is a step away from real income. Thus, impugned addition computed by the Assessing Officer is merely hypothetical and notional and has been rightly set aside by the CIT(A). As noted by the CIT(A) that the assessee is a wholly owned subsidiary of Oleander Real Estate Private Limited dealing in real estate business. No doubt, the CIT(A) has referred to the investment agreement between the assessee and M/s India Best Buy Private Limited dated 31.3.2011 and such a reference is conspicuous by its absence in the assessment order. Be that as it may, the same does not turn much, inasmuch as the analysis of the nature of the arrangement, being a transaction carried out in the course of the business activity has been consistently canvassed by the assessee, and also noted so by the lower authorities. Thus, the plea of the learned DR to effect that such plea was not before the lower authorities, is not merited. Considering the entirety of circumstances, on this aspect of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee were to carry out real estate activities, whereas in actuality, it was only carrying out NBFC activities . In support, the Assessing Officer also referred to the financial highlights of assessee s holding company i.e. M/s Oleander Real Estate Pvt. Ltd. as well as the holding company of M/s Oleander Real Estate Pvt. Ltd. i.e. M/s IICL. The relevant discussion is contained in the assessment order. The emphasis of the Assessing Officer is that the funds received as interest-free unsecured loans from the holding company were, in turn, invested in India Best Buy Pvt. Ltd either by way of subscribing to the OCDs or advanced by way of unsecured loan free of interest. As per Assessing Officer, the assessee was indeed carrying on NBFC activities, and not the activity of real estate. The Assessing Officer required the assessee to furnish details/documents/explanation/information with regard to the transaction of investment in 0.001% OCDs in order to verify the genuineness of the transaction. The relevant discussion in the assessment order also reveals that notices u/s 133(6) of the Act were also issued to M/s Best Buy Pvt. Ltd., the investee company, calling for information. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal before the learned CIT(A), who allowed relief to the assessee. Before the CIT(A), assessee raised multiple pleas, both on facts and in law. Firstly, on facts, the plea of the assessee was that the addition made by the Assessing Officer on account of interest income was on mere presumptions without any factual support. It was canvassed by the assessee that such an addition was not based on any provision of the Act and that bringing to tax a notional income was unsustainable in law. Furthermore, it was sought to be explained that the impugned investments were made in a concern which was also in real estate sector and, that, it was intended for expansion of market opportunities in real estate sector. The CIT(A) has reproduced the varied submissions put forth by the assessee in his order. The CIT(A) has made certain pertinent findings which we are tempted to reproduce hereinafter. Firstly, the factual findings with regard to the nature of the transaction has been summed up in the following words: The appellant is a wholly owned subsidiary of OREPL and deals in real estate business directly and indirectly with group companies and others, in same business activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate from such investment/advance to M/s India Best Buy Ltd. 12. On the other hand, the learned representative for the assessee has primarily defended the order of the CIT(A) by placing reliance on the findings contained therein and reiterating the plea that the aspect of investing/advances to M/s India Best Buy Ltd. was on account of commercial expediency and that the transaction of receiving interest free funds from the holding company and, thereafter, advancing/investing in another unrelated concern for a return which is not found adequate by the Assessing Officer, cannot be subjected to tax on a notional basis. It was pointed out that the entire transaction stood verified and that there was no reason to doubt the genuineness of the transactions. It was also pointed out that the entire addition is based on mere conjectures and surmises and that income in question did not correspond to any real income earned by the assessee. 13. We have carefully considered the rival submissions. The factual matrix of the transaction, which has been subjected to taxation by the Assessing Officer, has already been succinctly noted by us in the earlier part of this order, and the same is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted by the Assessing Officer is merely hypothetical and notional and has been rightly set aside by the CIT(A). 14. Another aspect of the matter relates to the plea of the assessee that the impugned investment in the OCDs was based on commercial expediency. In this regard, the learned representative pleaded that such investment was made with a future perspective that on conversion of debentures into equity shares of the investee company, the assessee would own the investee company which was also in the similar business of real estate. It was explained by the assessee that by making investment in the convertible debentures, the assessee was in a position to closely observe the investee company, its financial affairs and its ability to run the real estate business. In sum and substance, the plea of the assessee is that since the investee company is also in the same line of business i.e. real estate, it was prudent for the assessee to acquire ownership in the investee company with a view to promoting its main objects of real estate business. 15. Although we have affirmed the decision of the learned CIT(A) of deleting the addition in earlier paras, we may briefly touch upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plea was not before the lower authorities, is not merited. Considering the entirety of circumstances, on this aspect of the matter also, the order of learned CIT(A) is wellfounded and does not require any interference from our side. 18. In order to impart completeness, before parting, we may also touch upon the observations made by the Assessing Officer, which we have noted earlier in paragraph 6 of this order, to the effect that the impugned transactions were for supplementing the accommodation of funds of the recipient entity, and that the same was prejudicial to the interests of the Revenue. In our considered opinion, after having gone through the assessment order as well as the order of the First Appellate Authority and the material on record, there is nothing referred to by the Revenue to justify the aforesaid observation of the Assessing Officer. In fact, learned CIT(A) has concluded (which we have noted and reproduced in paragraph 8 earlier) that there was no loss to the Revenue on account of the impugned transaction. On this aspect also, in our view, the observation of the Assessing Officer is a mere bland assertion, devoid of any factual support. 19. In the final an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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