Notional interest on non-business advance is not taxable when it has neither accrued nor been received.

Interest waived on a non-business advance under a commercial arrangement was not taxable where no material showed the arrangement was sham and the interest had neither accrued nor been received. The principle applied was that tax cannot be levied on income that has not materialised. On those facts, the addition for notional interest was not sustainable and was deleted in favour of the assessee.

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Issues: Whether an addition could be sustained on account of interest not charged on an advance made for non-business purposes, where the interest was waived on commercial considerations and had neither accrued nor been received by the assessee.

Analysis: The waiver of interest was supported by a commercial arrangement between the parties, and no material was brought on record to show that the agreement was not acted upon. In the absence of actual accrual or receipt of interest, the amount could not be treated as taxable income. The principle that tax cannot be levied on income which has not materialised was applied.

Conclusion: The addition of Rs. 45,000 was not sustainable and had to be deleted, in favour of the assessee.

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