ITAT upholds deletion of interest addition by AO, ruling no real income accrued.

The ITAT dismissed the revenue's appeal, upholding the deletion of the addition made by the AO regarding the rate of interest on the ICD extended to the holding company. The ITAT held that the enhancement of notional income by the AO was not justified, as there was no real income accrued to the assessee. The decision of Ld. CIT (A) to delete the addition was upheld, and the revenue's appeal was dismissed.

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Issues:
1. Whether the rate of interest on the Inter Corporate Deposit (ICD) could have been enhanced by the Assessing Officer (AO).
2. Whether the addition made by the AO regarding the rate of interest was justified.

Issue 1 Analysis:
The appeal was filed by the revenue against the order passed by Ld. CIT (Appeals) for the quantum of assessment under section 143(3) for the assessment year 2010-11. The primary issue raised was the deletion of the addition of Rs. 6,77,97,413. The assessee, a Non-Banking Finance Company, had extended an ICD to its holding company at a reduced rate of interest of 7.25% per annum based on prevailing market rates. The AO, however, computed the interest at 15% per annum, resulting in the addition. The assessee contended that the income can only be said to have accrued when there is a right to receive it, and the ICD was risk-free as it was given to the holding company. Ld. CIT (A) accepted the assessee's contention and deleted the addition made by the AO.

Issue 2 Analysis:
The main issue for consideration was whether the rate of interest on the ICD could have been enhanced by the AO. The ITAT observed that the agreed rate of interest was 7.25% per annum, and the assessee agreed to the reduction based on prevailing market rates. The AO's argument that the interest rate should be seen from the angle of loans given by banks was rejected. The ITAT held that there was no enforceable right to receive income beyond what was agreed upon. The onus was on the assessee to prove reasonableness, which was discharged by showing lower rates offered by banks. The ITAT concluded that the enhancement of notional income by the AO was not justified, as there was no real income accrued to the assessee. The decision of Ld. CIT (A) to delete the addition was upheld, and the revenue's appeal was dismissed.

In conclusion, the ITAT dismissed the revenue's appeal, upholding the deletion of the addition made by the AO regarding the rate of interest on the ICD extended to the holding company.

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