2025 (8) TMI 40 - AT - Income Tax

Additional Interest Under Agreement to Sell Is Actual Income, Not Notional, Says ITAT in AY 2014-15

Deputy Commissioner of Income Tax, Circle- 4 (2), New Delhi Versus M/s. Citiland Commercial Credits Ltd. And (Vice-Versa)

The ITAT Delhi upheld the CIT(A)'s decision, ruling that additional interest received under an Agreement to Sell cannot be treated as notional income or ... Accrual of income - Earning of additional interest in terms of Agreement to Sell - assessee was in receipt of additional interest which has been termed as loss of profit or cost - HELD THAT:- The affidavit of M/s. Oris Infrastructure Pvt. Ltd. (Oris) is categorical regarding payment of interest. In case of assessee for assessment year 2014-15, it was hel that no addition can be made on notional income without having been received or accrued. Therefore, findings of Ld. CIT(A) are just fair, reasonable and legal. The ground of appeal no.1 being de void of merit is dismissed. ISSUES: Whether the addition of undisclosed income on account of alleged additional interest earned by the assessee under 'Agreement to Sell' is justified.Whether the assessment order passed under Section 143(3) of the Income Tax Act, 1961 is valid when the notice under Section 143(2) was issued by a non-jurisdictional Assessing Officer.Whether the assessee can challenge the jurisdiction of the Assessing Officer after expiry of the specified time period under Section 124(3)(b) of the Income Tax Act, 1961.Whether the affidavit furnished by the borrower confirming the rate of interest paid can be accepted as evidence to negate the addition of alleged undisclosed income. RULINGS / HOLDINGS: On the issue of addition for additional interest income, the Court held that 'no additional interest was received or accrued to the appellant' and that 'no corroborative evidence of having earned / received additional interest is brought on record by the AO.' The affidavit furnished by the borrower was accepted, and the addition was rightly deleted by the CIT(A).Regarding jurisdictional challenge, the Court held that the initiation of proceedings by one AO and completion by another is permissible under Section 129 of the Income Tax Act, 1961, and that 'No person shall be entitled to call in question the jurisdiction of an Assessing Officer after the expiry of a specified time period' as per Section 124(3)(b). The objection to jurisdiction raised belatedly was therefore not maintainable.The Court relied on Section 292BB to support the view that since the assessee appeared in proceedings but did not raise jurisdictional objections before assessment completion, such objections are waived.The addition based on notional income without actual receipt or accrual was held impermissible, consistent with earlier decisions of the CIT(A) on identical facts. RATIONALE: The Court applied the statutory provisions of the Income Tax Act, 1961, specifically Sections 124(3)(b), 129, 143(2), 143(3), and 292BB to address the jurisdictional and procedural issues.The Court relied on precedent including a recent Supreme Court decision affirming that jurisdictional objections cannot be raised after the stipulated time period and that succession of jurisdiction between Assessing Officers is valid.The Court emphasized the requirement of 'corroborative evidence' to support additions for undisclosed income and accepted the affidavit of the borrower as sufficient evidence negating the AO's presumption.The Court adhered to the principle that 'no addition can be made on notional income, without having been received or accrued,' reflecting a doctrinal consistency in assessing income recognition.No dissent or doctrinal shift was noted; the decision follows established legal principles and prior coordinate bench rulings on similar facts.