ITAT sets aside notional interest addition under Section 56 of Income Tax Act

The ITAT allowed the appeal, setting aside the addition of notional interest under Section 56 of the Income Tax Act. The appellant's argument that no interest was paid on deposits and no rent was charged for lockers was accepted. The ITAT found the notional addition unjustified, considering the deposits were utilized in the bank's operations and citing a similar case precedent. The additional ground for fresh claims was dismissed as it was not pressed by the appellant. The appeal was partially allowed based on consistency and the principle established by a Coordinate Bench.

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Issues:
Appeal against addition made under Section 56 of the Income Tax Act on presumption basis.

Analysis:
The appeal pertains to the assessment year 2014-15 and challenges the addition of Rs. 34,95,154 under Section 56 of the Income Tax Act, 1961, related to locker rent on a presumption basis. The appellant had not charged any rent for lockers but had collected deposits from customers against the allotment of safe deposit vaults. The assessing officer estimated interest on these deposits at 8.25% and added it to the total income of the assessee. The CIT(A) confirmed this addition, leading to the appeal before the ITAT.

During the assessment, it was observed that the appellant did not collect rent for the safe deposit vaults but had received deposits totaling Rs. 4,23,65,500 from customers. The appellant argued that these interest-free deposits were utilized in the banking business. However, the assessing officer disagreed and added Rs. 34,95,154 as notional interest income to the total income of the assessee.

In the appellate proceedings, the appellant contended that since no interest was paid on the deposits and no rent was charged for lockers, a notional addition should not have been made. The appellant presented a Paper Book containing financial documents and judicial pronouncements supporting their case. The balance sheet showed the deposit amount invested in the working capital of the bank for loans and investments. The appellant also cited a decision by a Coordinate Bench of the ITAT in a similar case where the addition was not upheld.

Referring to the decision of the Coordinate Bench, the ITAT found no reason to deviate from the principle established in that case. The ITAT agreed with the appellant that charging notional interest was unjustified, especially when the bank had not actually levied such interest on lockers provided to customers. Consequently, the appeal was allowed, and the addition of notional interest was set aside.

The additional ground for fresh claims amounting to Rs. 7,33,312 was not pressed by the appellant and was dismissed accordingly. The ITAT partially allowed the appeal, following the principle of consistency and the precedent set by the Coordinate Bench.

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