2017 (10) TMI 930 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on advances & compensation. No notional interest. Correct year for loss claim.

The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decisions on both issues. The Tribunal found that the advances were for business ... Disallowance of interest chargeable on interest free advances to its group company - Held that:- It is not in dispute that the advance in question have been given to M/s. DLF Limited in earlier years. It is also not in dispute that various companies who have advanced amount to M/s. DLF Limited have ultimately merged with the assessee-company. The advances were given for the purpose of business. The amount is coming up from earlier year on which no interest have been charged. Since the amount is coming up from the earlier years and given for the purpose of business, therefore, no notional interest could be charged on the same. The advances are not given out of interest bearing funds. The Ld. CIT(A) has recorded the findings of fact that these advances were given purely for the purpose of business i.e., for acquisition of land and cannot be termed as interest bearing advance. The A.O. did not charge any notional interest in earlier year. Therefore, no income accrued to the assessee-company as was held by the A.O. CIT(A) on proper appreciation of the facts and material on record, correctly deleted the addition. The ground raised by the Department has no merit. Disallowance of loss on compulsory acquisition - Held that:- It is not in dispute that land belonging to the assessee-company was acquired in earlier year. The land acquired were owned by assessee-company through the group companies which were amalgamated with the assessee-company. The compensation was released to the assesseecompany on 4th December, 2006 amounting to ₹ 27,95,550. The assessee-company has shown the cost of the land at ₹ 1,30,30,176 in the books of account. Therefore, difference was considered as loss to the assessee-company because assessee-company is in the business of real estate development. The assessee-company is following the mercantile system of accounting. The assessee-company produced sufficient evidence before the Ld. CIT(A) to show that matter was considered by the legal department of the assessee-company and on the basis of the letter dated 17th April, 2007, the compensation was accounted for in the books of account in assessment year under appeal and it was offered for tax and the loss was also booked on account of difference in the cost of land which have been acquired. The assessee-company, therefore, rightly claimed the loss in assessment year under appeal because the assessee-company has accounted for the compensation on the basis of crystallization of the claim during assessment year under appeal and the cost of the same has been written-off in the assessment year under appeal. The Ld. CIT(A) therefore, on proper appreciation of facts and material on record, correctly deleted the addition. Issues Involved:1. Deletion of addition on account of disallowance of interest chargeable on interest-free advances to a group company.2. Deletion of addition on account of disallowance of loss on compulsory acquisition.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Disallowance of Interest Chargeable on Interest-Free Advances to a Group Company:The Revenue challenged the deletion of an addition of Rs. 7,63,972 made by the Assessing Officer (A.O.) due to notional interest. The A.O. noted that the assessee had taken unsecured loans from M/s. DLF Limited, which were interest-bearing at 6.5% p.a., but no interest was charged on advances made by the assessee to M/s. DLF Limited. The assessee argued that the advances were for business purposes, specifically for the purchase of land, and were not out of interest-bearing funds. The Ld. CIT(A) accepted the assessee's explanation, noting that the advances were old and given for business purposes, thus no notional interest could be charged. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the advances were not given out of interest-bearing funds and were for business purposes, thus no notional interest could be charged.2. Deletion of Addition on Account of Disallowance of Loss on Compulsory Acquisition:The Revenue challenged the deletion of an addition of Rs. 1,02,34,626, which was disallowed by the A.O. on the grounds that the loss on compulsory acquisition of land arose in A.Y. 2001-2002, not in A.Y. 2008-2009. The assessee explained that the compensation for the land acquired by the Haryana Government was received in December 2006, and the corresponding cost of the land was written off in the books of accounts for the year under appeal. The Ld. CIT(A) accepted the assessee's explanation, noting that the compensation was received in December 2006 and the loss was claimed in the year of receipt, in line with the Supreme Court's decision in CIT vs. Ghanshyam HUF. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the compensation was received and accounted for in the assessment year under appeal, and the loss was rightly claimed.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decisions on both issues. The Tribunal found that the advances were for business purposes and not out of interest-bearing funds, thus no notional interest could be charged. Additionally, the compensation for the compulsory acquisition was received in the assessment year under appeal, and the loss was rightly claimed in that year.