9911796707
TMI Blog2022 (4) TMI 1119X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds of appeal raised by the assessee read as under: The order of the CIT(A) dated 28.09.2017 is contrary to law and facts of the case. 1. The CIT(A) erred in confirming the assessing notional interest of Rs. 4,16,71,809/-. 2. The CIT(A) erred in not appreciating the fact that under the Income Tax Act notional interest cannot be assessed. 3. The CIT(A) erred in not appreciating the fact that the appellant did not charge interest on amount advanced to Hymavathi Enterprises Private Limited as they requested not to charge interest as they were facing financial difficulties and that non charging of interest was due to financial difficulties faced by Hymavathi Enterprises Private Limited. 4. For these and other grounds that may be ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lacs. The assessee had advanced loan of Rs. 3100 Lacs to an entity namely M/s. Hymavathi Enterprises P. Ltd. (HEPL) and outstanding balance at year-end was Rs. 3606.76 Lacs. 4.2. The assessee explained that during 2012-13, HEPL expressed inability to pay interest on advances since they were facing financial difficulties. Accordingly, they requested assessee not to charge interest which was agreed upon by both the parties. However, rejecting the same, Ld. AO proceeded to compute notional interest of 18% on outstanding loans. The assessee opposed the same on the ground that though the interest was charged in earlier years till 31.03.2012, no interest was paid to shareholders till 31.03.2013. The interest was paid to shareholders from 01.04. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not been charged against the loan amount given to M/s. Hymavathi Enterprises Pvt. Ltd. In response to AO's show cause notice, appellant is seemed to have stated that M/s. Hymavathi Enterprises Pvt. Ltd. has made a request of not charging interest due to its financial difficulties which has been readily accepted by the appellant and not charged interest against the loan amount given to M/s. Hymavathi Enterprises Pvt. Ltd. 4.4. Be it as it may, before me, Ld. AR has not made any substantial argument except stating that advances made to M/s. Hymavathi Enterprises Pvt. Ltd. stood at Rs. 49.60 crores at the end of the financial year 31.03.2014 and the said concern was not financially sound due to which interest was not charged. It is fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 6. After careful consideration of material facts, the undisputed position that emerges is that the assessee has paid interest expenses of Rs. 644.65 Lacs and earned interest income of Rs. 111.92 Lacs. The loans taken from shareholders amounts to Rs. 5521.26 Lacs out of which fresh loans were Rs. 3400 Lacs. The assessee had advanced loan of Rs. 3100 Lacs to HEPL and the outstanding balance at year-end was Rs. 3606.76 Lacs. It has been explained by the assessee that during 2012-13, HEPL expressed inability to pay interest on advances since they were facing financial difficulties. Accordingly, they requested assessee not to charge interest which was agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the loan has been granted by the assessee to its sister concern. Naturally the assessee had business interest in that entity. The assessee has charged interest till 31.03.2012 and thereafter no interest has been charged as per mutual understanding since the borrower entity was facing financial difficulties. The assessee did not pay interest to the shareholders till 31.03.2013. Therefore, non-charging of interest was fully justified by the assessee and the same could be said to have been out of commercial expediency. In such a case the ratio of decision of Hon'ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT (288 ITR 1) would be applicable wherein it was held that once it was established that there was nexus between th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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