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TMI Blog2021 (3) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... audited financial statements of the assessee and it is seen that the share holders funds (Share Capital and Reserves Surplus) as on 31st March, 2012 stood at ₹ 4,88,60,427/- whereas the long term borrowing stood only at ₹ 11,84,274/- and the short term borrowing stood at ₹ 4,05,944/-. Thus, it can be safely concluded that the advance of ₹ 10,00,000/- given by the assessee was given from interest free funds/reserves of the assessee. In such a situation, we are unable to uphold the addition on account of notional interest to the income of the assessee and we direct the deletion of the same. Liability of unpaid creditors from the opening written down value of block of license - addition u/s 50 - HELD THAT:- Assessee has finally paid an amount which is much less than the agreed/ invoiced amount towards the purchase of fixed assets. The amount less paid is ₹ 4,37,38,637/-. Thus, in fact, the actual cost of the fixed assets to the assessee has been reduced by ₹ 4,37,38,637/- and to this extent the stand of the Department is correct that the assessee should have reduced the cost of assets by the amount of ₹ 4,37,38,637/-. Further, we are i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on Car amounting to ₹ 4,46,250/- was upheld. (ii) The Notional interest added to the income of the assessee amounting to ₹ 1,20,000/- was also confirmed. (iii) The challenge to addition pertaining to writ back of sundry creditor amounting to ₹ 4,37,38,637/- was sustained to the extent of ₹ 2,56,68,848/- and the balance addition of ₹ 1,80,69,789/- was deleted. (iv) The short term capital gain was confirmed to the extent of ₹ 2,56,68,648/-. 2.1 Aggrieved, the assessee is now before this Tribunal challenging the order of the Ld. CIT(A). The following grounds have been raised by the assessee in this regard: 1. That on the facts and in the circumstances of the case the learned CIT(A) was not justified in upholding the disallowance of depreciation on car amounting to ₹ 4,46,250/- 2. That on the facts and in the circumstances of the case the learned CIT(A) was not justified in sustaining the disallowance of ₹ 1,20,000/- on account of notional interest. 3. That the learned CIT(A) has grossly erred in law in reducing the liability of unpaid creditor of ₹ 4,37,38,637/- from the opening WDV of Bloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was submitted that the advance had not been made from any interest bearing loan. Reliance was placed on numerous judicial precedents for the proposition that if the assessee had sufficient interest free fund at its disposal, no disallowance/addition can be made towards notional interest on interest free advance/loan. 3.2 With respect to ground No.3, it was submitted that during the year under consideration, the assessee had shown loss on sale of fixed assets grossing to ₹ 5,39,16,901/- and the net loss on sale of assets at ₹ 1,01,78,264/-. It was submitted that the Assessing Officer had required the assessee to explain why the gross loss should not be added back to the assessee s income and it had been submitted during the course of assessment proceedings that it pertained to purchase of license which was specific to the business of the assessee and since the assessee company had started incurring losses, the asset value of the said license had become redundant and the company was unable to pay for the cost of the license to the company in United Kindom (UK). It was further submitted before the Assessing Officer that the assessee company had written back the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f purchase invoice of the vehicle. It is undisputed that the Department has allowed interest on vehicle loan as well as has also allowed the expenditure towards car running. Thus, in fact, it is accepted by the Department that the assessee has a vehicle which is used for the business purposes. Although, the assessee could have made efforts to obtain a copy of the purchase invoice from the hypothecating bank and produced it before the Lower Authorities, all the same, it is our considered opinion that the assessee should not be penalized for his failure to produce the purchase invoice, specially, when the Department has in principle accepted the assessee s claim of interest on car loan as well as claim of Car running expenditure. Therefore, in view of the facts of the case, we delete this disallowance. 5.2 As far as ground No.2 is concerned, it challenges the addition on account of notional interest added to the income of the assessee in respect of an amount of ₹ 10,00,000/- advanced to M/s Chander Rani Enterprises Pvt. Ltd.. We have gone through the audited financial statements of the assessee and it is seen that the share holders funds (Share Capital and Reserves Surplu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back in the computation. As far as the contention of the assessee regarding non-applicability of Section 41(1) of the Act is concerned, we are in full agreement with the same. The Hon ble Apex Court in the case of CIT vs. Mahindra And Mahindra Ltd. reported in [2018] 404 ITR 01 (SC) has laid down that waiver on loan amounts to cessation of liability other than the trading liability and it is neither taxable as perquisite u/s 28 (iv) of the Act nor taxable as a remission of liability u/s 41(1) of the Act. On similar reasoning the write back of sundry creditors pertaining to purchase of assets would not constitute income of the assessee. We have also gone through Note No.17 in Notes to the Financial Statements and it is seen that in the audited financial statements, the assessee has declared loss on sale of fixed assets of ₹ 5,39,16,901/- and has, thereafter, deducted the unpaid creditors for license amounting to ₹ 4,37,38,637/- and has thus declared a net loss of ₹ 1,01,78,264/- only. It is this, amount of ₹ 1,01,78,264/- which has been reflected in the computation of income filed by the assessee. This, in our considered opinion, is not correct. The fact rem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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