ITAT directs re-examination of exemption claim u/s.11, rules out notional interest.

The ITAT allowed the appeals for statistical purposes, directing the Assessing Officer to re-examine the claim regarding exemption u/s.11 with evidence. It clarified that tax could only be levied on income in violation of section 13(1)(d). The ITAT ruled that notional interest did not apply due to the absence of a contractual obligation for interest on loans & advances, instructing the Assessing Officer to delete the additions of notional interest for both assessment years.

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Issues:
Appeal against rejection of exemption u/s.11 of the Income Tax Act, 1961 and addition of notional interest on loans & advances.

Analysis:
1. The appeals were filed against the order passed by the Commissioner of Income Tax (Appeals) regarding assessment years 2016-17 & 2017-18, where the assessee's exemption u/s.11 was rejected, and notional interest on loans & advances was added.

2. The Assessing Officer treated the loans & advances as a violation of section 13(1)(d) of the Act, rejected the exemption u/s.11, and added notional interest. The assessee contended that the advance for land was not an investment u/s.11(5) and challenged the addition of notional interest.

3. The learned CIT(A) upheld the Assessing Officer's decision, stating that the loans & advances violated section 13(1)(d) and imputed interest was justified. The assessee argued that the advance for land did not violate the Act and relied on a High Court decision.

4. The ITAT found that the advance for land was not an investment under u/s.11(5) and directed the Assessing Officer to re-examine the claim with evidence. It clarified that even if there was a violation of section 13(1)(d), tax could only be levied on the income in violation.

5. Regarding the notional interest, the ITAT ruled that the concept did not apply as there was no contractual obligation for interest on loans & advances. It directed the Assessing Officer to delete the additions of notional interest for both assessment years.

6. Consequently, the appeals were allowed for statistical purposes, and the orders were pronounced on 14th September 2022.

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