Real income principle bars notional interest addition on subsidiary loans where no actual accrual is shown.

Notional interest on loans and advances to a subsidiary was held not taxable where no actual interest had accrued and the addition was made only on a presumptive basis under section 5 of the Income-tax Act, 1961. The appellate view relied on the consistent deletion of the same addition in the assessee's earlier years on identical facts and applied the real income principle. The Revenue's challenge therefore failed and the notional interest addition was deleted.

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Issues: Whether notional interest could be added to the assessee's income on loans and advances given to its subsidiary despite earlier consistent deletion of such addition in the assessee's own case.

Analysis: The addition was made on a presumptive basis under section 5 of the Income-tax Act, 1961 on the premise that interest ought to have accrued on the outstanding advances. The record showed that the same issue on identical facts had repeatedly been decided in favour of the assessee in earlier assessment years by the first appellate authority and the coordinate bench, and the appellate order for the year under consideration followed that consistent view. In these circumstances, the absence of actual accrual of interest and the principle of real income justified deletion of the notional addition.

Conclusion: The addition towards notional interest was rightly deleted and the Revenue's challenge failed.

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