9911796707
TMI Blog2025 (1) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... from the total advances for calculating the notional interest. The observation of the Ld. AO confirmed by the Ld. CIT(A) that the assessee had paid 9% interest on the funds borrowed is also not borne out of analysis of the facts of the case as reported in the balance sheet and audited accounts and no interest was debited during the year while calculating its income. No justification for presuming notional interest on the amounts advanced merely because replies were not received from the debtors, though the assessee counters that argument by stating that confirmations/replies from eight of the debtors comprising 69.56% of the total advances in value were uploaded. Hence no income could be presumed nor any disallowance out of interest debited could be made when the assessee had not claimed any interest as a deduction. Decided in favour of assessee. - Shri Sonjoy Sarma, Judicial Member And Shri Rakesh Mishra, Accountant Member For the Appellant : Indranil Banerjee, AR For the Respondent : Ankur Goyal, JCIT, Sr. DR ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, the aggregate outstanding in respect of such advances amounted to Rs 127,79,03,793/- and this amount was properly disclosed on the assets side of the balance sheet under the head Short Term Loans Advances under the broad head of Current Assets ; the corresponding amount as on 31st March, 2017 being Rs. 103,98,49,292/-. On perusal of the Profit Loss A/c, it was noted by the Ld. AO that no income by way of interest or any other receipt had been offered on these advances/loans. The corresponding figure for the last year was shown at approximately Rs. 104 crores, which meant that these amounts had been outstanding for significant amount of time and yet nothing had been offered on these advances/loans by way of interest. The Ld. AO required the assessee company to provide party wise details of such advances and the details of interest earned on these amounts. The assessee provided the details and submitted that no interest had been received or was receivable against such advances, which were paid purely for business purposes for purchase of land and project expenses. The Ld. AO, thereafter, issued notices under section 133(6) of the Act to the parties to ascertain the genuineness and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s filed before the Ld. CIT(A) that though in the show cause notice, the Ld. AO had proposed to add notional interest income by invoking section 69A the Act, however in the final assessment order he chose not to mention any section under which the addition was made. In response to this show cause notice, the assessee submitted sample copies of development agreements in respect of some of the parties to explain the nature of the advances as also balance confirmation letters and copy of Income Tax returns for AY 2018-19 in respect of 8 parties from whom advances were outstanding as on 31 March 2018 and shown in the balance sheet as short-term loans and advance under the broad head current assets . In the final assessment order, the Ld Assessing Officer reduced the outstanding balances of the parties from the above said aggregate amount of Rs 98,92,18,103/- for whom development agreement documents were submitted and assessed the interest income @9 percent on the balance amount of Rs 53,88,80,204/- to arrive at a notional interest income of Rs 4,84,99,218/- and has added the same to the returned income treating it as undisclosed interest income. It is stated that it is apparent from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor are the details of the 'Other Income', thereby implying through subterfuge that no interest has been paid. Similarly, the copy of accounts of the 'loans and advance parties' are given, and no confirmed copies of account of the creditors is furnished. The details of the projects are not given, and as to how the investment made benefits the Assessee company, is not explained. Further, the fundamental reason as to why the interest has not been charged is not explained even in appellate proceedings. In light of the above, the addition of Rs. 4,84,99,218/- made by the Assessing Officer is hereby confirmed and the grounds of appeal no. 1, 2, 3, 4 and 5 are dismissed. 3.1 Regarding the set-off of the losses, directions were issued to the Ld. AO to allow the set of the losses if the same was allowable as per the records and the returns of income had been filed by the assessee within the time allowed u/s 139(1) of the Act. 3.2 Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal. 4. Rival contentions were heard and the record and the submissions made were examined. While the Ld. AR submitted that the addition was unjustified, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that had given rise to the controversy and consequently, the agitation in the present appeal, is as under. The issue is concerned with the Interest Free Short Term Loans and Advances amounting to Rs. 1277903793/- (Previous Year 1039849292/-) vide the Balance Sheet-PB 9/Note No. 11, PB-14. The Party-wise details are available, vide the Statement, appended vide PB 106 to 113. Page No. of the Assessment Order Requisition conveyed by Compliance made the Ld. FAU Compliance made 7 The Return Copies of such parties, along with the Computation Confirmations had been evidently uploaded for Eight Major parties, vide the Acknowledgement generated by the system, PB 138-141. Please refer to the following Tabulation Evidently, the Confirmation from the following Parties, to whom the Advances had been made, had been filed: Name PAN Balance (Rs.) Evidence PB 1. GS Electrocom Pvt. Ltd. AALCA7871M 8553640.00 106/114-Admitted in Order 2. Basilica Realcom Pvt. Ltd. Hexatek AADCH2156E 42077900.00 106 /115-Admitted in Order 3. Modern Mobitech Pvt. Ltd. AAGCMS226K 47516927.00 106/116-Admitted in Order 4. SG Aqua Garden Fresh Pvt. Ltd AANCS6531Q 90600026.00 107/117 (Not Admitted in Order) 5. SG Computech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chedule of aforesaid Finance Cost (PB 10), there had been no Interest Payment either in the current year of in the preceding year (PB 14). c) Accordingly, in the Return, vide PB 61/SI. No 43 being the Box earmarked for Interest Expenses, the amount had been NIL d) In conclusion, there had been no debit, whatsoever, on account of any interest anywhere. e) Accordingly, there had remained no scope for claiming Interest as a deduction, for the determination of Total Income. Interest Income - Credit a) Vide Profit and Loss Account, PB 10, Total Revenue from Operation had been Rs. 972953734.00 (P.Y 383613837.00). b) Vide Schedule 12 (PB 14) showing the Break-up of above figure of Gross Revenue, besides core business Revenue of Rs. 972050501.00 ( . 345907906,00), only Rs. 903233.00 had been earned as other income. c) From the Break Up of other Income, vide PB 105, it is fully and unmistakably evident that excepting the Annual Maintenance of Rs. 903233.00, no other income of interest had at all or ever been earned. Even the prior year's figure of Rs. 37705931.00 had never included interest. d) Vide Income Tax Return, PB 52, SL. No 2, it is evident that in the absence of any interest in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers which was given as interest-free advances to the business associates and no interest was charged nor the same was chargeable. Our attention was also drawn to the decision of Hon ble Supreme Court in the case of S.A. Builders Ltd. v. Commissioner of Income-tax (Appeals), Chandigarh [2007] [2007] 158 Taxman 74 (SC)/[2007] 288 ITR 1 (SC)in which it has been held that: The High Court in the impugned judgment as well as the Tribunal and the income-tax authorities had approached the matter from an erroneous angle. In the instant case, the assessee borrowed the fund from the bank and lent part of it to its sister concern (a subsidiary) as interest-free loan. The test in such a case was really whether this was done as a measure of commercial expediency. [Para 21] The decisions relating to section 37 will also be applicable to section 36(1)(iii) be-cause in section 37 also the expression used is 'for the purpose of business'. It has been consistently held in decisions relating to section 37 that the expression 'for the purpose of business' includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances. Where holding company, has a deep interest in its subsidiary, and the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the holding company would ordinarily be entitled to deduction of interest on its borrowed loans. [Para 35] In view of the above, the appeals were to be allowed and the impugned judgments of the High Court, the Tribunals and other authorities were to be set aside and the matter was to be remanded to the Tribunal for afresh decision, in accordance with law and in the light of the observations made above. It was submitted that the assessee s case was on a better footing as it had not advanced out of interest-bearing funds but from interest-free funds and the Ld. AO could not sit in the chair of the business man. Reliance was also placed on the decisions in the case of Commissioner of Income-tax v. Girir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ERSAL LTD. HIGH COURT OF DELHI: 378 ITR 197 (Del): 5. The AO added back the sum of Rs. 47,85,650 during the assessment year on the ground that the assessee had not claimed any interest towards the advance of Rs. 2,65,86,781 to its subsidiary companies. The AO had inter alia also considered certain amounts paid towards the income-tax liabilities of such subsidiaries companies. The assessee's appeal was accepted by the CIT(A) who noticed that for all previous years commencing from asst. y Rs. 1984-85 to 1991-92, such advances had been accepted and additions not made. The CIT(A) also recorded as follows: However, the appellant has placed before me copies of relevant bank accounts to show that these advances have not been made out of borrowed funds. There is no nexus between the borrowed funds on which the interest is being paid by the appellant and the moneys advanced to the subsidiaries. There cannot be any ground for charging any notional income to tax. However, the proportionate interest could be disallowed if the borrowed funds had been diverted for non- business purposes. This is not the case. The fact that even day-to-day expenses of these subsidiaries including their tax li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not hypothetical and it has really accrued to the assessee. Even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, there was no corresponding liability on the customs authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is therefore not the income of the assessee. Thus, the Onus of substantiating real and factual earning of income by the Appellant, not having been discharged by the Ld. Lower Authorities, no Income on account of Interest could be fictionally or arbitrarily added in the hands of the Appellant. 8. On appreciation of the facts of the case, in our view, there was no justification for adding any notional interest on the interest free advances as the assessee had ample interest free funds out of which such advances were made for business purposes. In the case of S.A. Builders (supra), even interest paid on borrowings was allowed as a deduction if the same were advanced for business pur ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
