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TMI Blog2022 (11) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of generation of power and energy. The return of income for the assessment under consideration was filed under section 139 of the Act on 29-09-2011 and order under section 143(3) of the Act dated 29-3-2014 originally assessed the total income at Rs. 17,54,953/-. Thereafter, the PCIT-Rajkot by way of order under section 263 of the Act dated 18-03- 2016 held that the original order under section 143(3) of the Act dated 29- 03-2014 is erroneous as well as prejudicial to the interest of the revenue and thereby set aside the aforesaid order. The primary reason for setting aside the order was that interest on advances given by the assessee to Sanman Holding Private Limited was not offered to tax in assessment year 2011-12, though in assessment year 2010-11, the said interest was offered to tax by the assessee. The assessee filed appeal against the order under section 263 of the Act before ITAT, Rajkot which decided that the issue in respect of accrued interest was valid and accordingly dismissed the assessee's appeal. Pursuant to ITAT order, the AO assessed the total income at Rs. 35,17,54,953/- wherein the AO computed notional interest at the rate of 10% on deposits held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 263. In view of the direction of Pr. CIT-2, Rajkot the present assessment has been finalized after making an addition of Rs 350 crores as notional interest income accrued on the deposit outstanding with M/s Tanti Molding Private Limited in which erstwhile M/s Sanman Holding Private Limited got amalgamated with effect from 01/04/2010 with approval by the Honourbale High Courts of Gujarat and Mumbai vide their orders dated 10-05-2011 and 20/08/2011. The assessee had contended that pursuant to loan agreement dated 25/09/2009, M/s Tanti Holding Private Limited intimated the assessee vide its letter dated 30/09/2011 that liability to provide/pay interest had ceased from 01/04/2010. The assessee thus contends that no interest accrued to assessee and therefore interest income is not justified. In this regard the assessee placed reliance upon the court judgments to the effect that only real income can be taxed and not the notional income. The Assessing Officer rejected the contentions of the assessee mainly on the grounds that the assessee had shown interest income on the same deposit in immediately preceding assessment year and that the facts of the case of assessee were differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any such interest to assessee in his books of accounts. Having considered facts and circumstances of the case of rival contentions, I find merit in contentions of the assessee that only real income can be taxed and not notional one. The loan agreement and subsequent fact of amalgamation clearly establish that no interest accrued to the assessee. The A.O. has admitted that it is not a case of diversion of interest bearing non interest bearing advances. It also find that the assessee has a deposit of Rs. 522.cr. from own HUF to which no interest is paid Besides, the assessee has not claimed any interest expenses. It is also noteworthy that subsequently in A.Y. 2012- 13 and 2013-14 no such additions on account of national income have been made by A.O. even though the deposit of the assessee with M/s Tanti Holding Private Limited is still outstanding. In view of above discussion in my considered opinion the impugned addition is not sustainable and the same is directed to be deleted." 5. The Department is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals). The DR during the course of arguments placed reliance on the order of Ld. CIT(Appeals), however, he also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td.[2015] 60 taxmann.com 347 (Delhi) assessee-company had given advance to one 'S' company out of its funds and no interest had been charged for this loan. The Assessing officer computed notional interest on said advance and made addition in income of assessee. The Delhi held that in absence of any specific provision under which said notional income on advance could be brought to tax, impugned addition was to be deleted. The Supreme Court in the case of Poona Electric Supply v. Ld. CIT(Appeals) (1965) 57 ITR 21 (SC) held that "income-tax is a tax on the real income, i.e., the profits arrived at on commercial principles subject to the provisions of the Income-tax Act". Subsequently, the Orissa High Court in Prafulla Kumar Malik AIR 1969 Ori 187 emphasized that income tax is imposed only on "profits he actually receives and not on the profits he might have, but has not received". This real accrual of income test was elaborated by the Supreme Court in Godhra Electricity Company(1997) 225 ITR 746. In this case, a Government Circular entitled the assessee to recover consumption charges from its customers at enhanced rates. As this order was the subject matter of protracted litig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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