Advances and notional interest cannot be taxed as income before crystallisation or actual accrual, the tribunal held.

Advances received against redevelopment-related flats could not be taxed as income before the Charity Commissioner's sanction for sale was obtained, because the sale had not crystallised in the relevant year and the receipts remained advances; the addition was deleted. Notional interest on a loan to a related concern could also not be assessed where no interest was actually charged, received, accrued, or recorded, and section 13 did not permit taxation of hypothetical income; the deemed-interest addition was deleted. The Revenue's appeal failed, while the issue of exemption under section 11 was left open.

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Issues: (i) Whether advances received against redevelopment-related flats could be assessed as income in the relevant year before sanction of sale by the Charity Commissioner. (ii) Whether notional interest could be brought to tax on an amount advanced to a related concern when no interest was actually received or accrued.

Issue (i): Whether advances received against redevelopment-related flats could be assessed as income in the relevant year before sanction of sale by the Charity Commissioner.

Analysis: The trust's ability to validly sell the flats was controlled by section 36 of the Bombay Public Trusts Act, 1950, under which previous sanction of the Charity Commissioner was necessary. The record showed that the sale approvals for the flats were granted only in financial years 2019-20 and 2020-21, after the year under consideration. The amounts received earlier were therefore only advances connected with proposed sales, and the transaction of sale had not crystallised in the relevant assessment year. The additions made by treating the advances, renovation component, and related receipts as sale consideration in that year were therefore unsustainable.

Conclusion: The advances could not be assessed as income in the relevant year, and the deletion of the addition of Rs. 21.85 crore was /accepted in favour of the assessee.

Issue (ii): Whether notional interest could be brought to tax on an amount advanced to a related concern when no interest was actually received or accrued.

Analysis: The Revenue's computation proceeded on a hypothetical rate derived from an earlier year, even though no real interest had been charged, received, accrued, or recorded in the books for the year under consideration. The consequence of any alleged infraction under section 13 is denial of exemption under section 11, and section 13(2)(a) does not authorise taxation of notional interest as income. On the facts found, the basis for making a deemed-interest addition was absent.

Conclusion: The notional interest addition of Rs. 1,66,77,849 was not sustainable and was deleted in favour of the assessee.

Final Conclusion: The Revenue's appeal failed and the assessee obtained relief on the disputed additions, while the issue concerning exemption under section 11 was not finally adjudicated and was left open.

Ratio Decidendi: Income cannot be assessed on the basis of mere advances or hypothetical interest unless the receipt has crystallised as taxable income under the applicable statutory regime, and a provision denying exemption does not by itself authorise computation of notional income.

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