TaxTMI 
TaxTMI 
2016 (11) TMI 1056
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.... assessee per its appeal are as under:- "01. For that, on the facts and in the given circumstances, the addition of Rs. 5,76,231/- on account of notional interest on temporary accommodation by way o loan free of interest to an associate company was not justified and therefore, is liable to be quashed/cancelled. 02. For that, on the facts and in the given circumstances, the Learned Assessing Officer was totally unjustified in concluding that the Appellant adopted dual policy of utilizing interest baring bank loan for running its business operations and giving its own funds to a related company without any interest. The Learned Assessing Officer did not appreciate the other aspect o commercial prudence on the basis of which, the sums wer....
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....ee has given interest free loan to its associate concern on which the interest income was worked out at Rs. 5,76,231/- on notional basis. Accordingly, AO added a sum of Rs. 5,76,231/- to the total income of the assessee. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that the loan was given to the associate enterprises out of its own surplus fund and no borrowed fund has been utilized for the loan given to the associate enterprises. However, Ld. CIT(A) rejected the plea of assessee and confirmed the order of AO by observing as under:- "I have gone through both the A/R's arguments as well as the AO's order. I believe the AO has firmly established that the company indeed exhibited a dual policy ....
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....e on notional basis and it was also confirmed by Ld. CIT(A). However, the ld. AR before us argued that the dispute before the AO was the interest expenses claimed by the assessee and therefore he should have disallowed the interest expenses rather charging the interest income on notional basis on the amount advanced to the associate concern. In this connection we agree with the argument of the ld. AR in so far the income charging on the money advanced to the associate concern. As per the AO the fund was given out of the borrowed fund therefore the interest income was calculated on such fund. There was a direct link as per the lower authorities between the borrowed fund and money advanced to associate concern. We also find whether the AO has....
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....the interest free advance given to M/s Hindustan National Glass & Industries Ltd., a company of which the assessee was a promoter. The assessee did not have any borrowed funds on 31st March, 2005 and as such it was not a case where borrowed funds were diverted for granting interest free loans the assessee had applied its own funds in granting interest free advance to a body corporate of which the assessee was a promoter. On these facts, I fully agree with the A/R's submissions that the Assessing Officer has brought to tax notional or hypothetical income. The Supreme Court in catena of case has held that the subject matter of tax is always income which should be real income and not hypothetical income. The Income Tax Act does not permit taxa....