Deemed notional interest addition deleted where outstanding balance arose from a business transfer agreement, not a loan advance.

An addition for deemed notional interest on an outstanding balance in the name of a group company was unsustainable because the balance arose from a business transfer agreement under which the assessee had taken over the assets and liabilities of the transferred undertaking, not from an actual loan advance. The amount had been carried forward consistently from earlier assessment years and accepted in scrutiny assessments without any interest disallowance. The record also showed that the year's actual interest expenditure was well below the notional addition, undermining the estimate. The addition was deleted and the issue was decided in favour of the assessee.

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Issues: Whether the addition made on account of deemed notional interest on the outstanding balance in the name of a group company was sustainable when the amount represented a carried forward liability arising from a business transfer agreement and not an actual loan advance.

Analysis: The outstanding amount was traced to the acquisition of the automotive division under a business transfer agreement, under which the assessee had taken over the assets and liabilities of the transferred undertaking. The same balance had been carried forward consistently from earlier assessment years and had been accepted in scrutiny assessments without any interest disallowance. The record also showed that the total interest expenditure for the year was far below the amount notionally added, which further undermined the basis for the estimated addition.

Conclusion: The addition towards deemed interest was not sustainable and had to be deleted; the issue is decided in favour of the assessee.

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