TaxTMI 
TaxTMI 
2017 (1) TMI 897
X X X X Extracts X X X X
X X X X Extracts X X X X
....erest on its borrowings. The AO computed an average rate of interest on the secured loans and unsecured loans at 9%. Similarly he computed the rate of interest on the interest received in respect of total sundry debtors, advance for properties, deposit and others at 4.96%. He therefore concluded that the rate of interest earned was less by 4.04% and therefore computed the equivalent additions of the interest that should have been received at Rs. 7.78 crores. He accordingly issued a show cause notice to the assessee as to why this addition should not be made. On receiving the assessee's reply the AO computed the interest that the assessee should have received only in respect of deposit and others and excluded the sundry debtors and advances for properties. Based on this computation, he arrived at average rate of interest on interest received at 5.22% He therefore, computed the interest not charged at Rs. 6.90 crores. This amount was added to the income of the assessee. 6. By the impugned order CIT(A) deleted the addition after observing as under:- Ground of appeal no. 1 is general. Ground of appeal no. 2 & 3 is in respect of addition of Notional income of Rs. 6.90 crores. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... at a particular rate and no addition can be made on the basis that such interest was not charged. This is well settled. For instance, in 199 ITR 702 (Gau) in the case of Highways Construction Co P Ltd, the High Court held that how can income tax department fix the interest that must be charged as due. Further, I also find that the AO has made a very hurried computation on rate of interest by merely taking the closing balance of the financial year instead of computing the interest rate based on actual balances throughout the year. 5.3.4. The appellant had submitted the details of the nature of advances and the purpose party wise for the amounts advanced on which the AO has held that the interest should have been charged. The perusal of the table extracted earlier shows that the amount advanced is business advances on which there is no requirement or basis for charging of interest. These are not in the nature of loans advanced for interest. Deposits with Utility Company and Municipal Corporation cannot give rise to interest income. From the detailed working furnished in the appellate proceedings, it is seen that the appellant has taken loans as vehicle loans on which the applicab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rged. From the record, we also found that following advances and deposit were given purely for business of property development and thus no interest can be charged on the same. Name of the Party Amount in Rs. Purpose Adwaits Holding Pvt. Ltd., 25,00,00,000 For property Deposit for Alternate Accom(AV) 26,21,200 For property Deposit MCGM/REL 36,038 Electricity MAN Infra Projects Pvt. Ltd., 1,36,00,000 For property Bela Vipul Shah 64,00,000 For Redevelopment of property Dilip Shah 64,00,000 For Redevelopment of property Heman Tilokani 20,00,000 For Redevelopment of property Kamla Gobind Panjnani 62,00,000 For Redevelopment of property Nirali D. Shah 64,00,000 For Redevelopment of property Saroj D. Shah 64,00,000 For Redevelopment of property Sulochhani Mangaldas Ahuja 45,00,000 For Redevelopment of property Vipul D. Shah HUF 64,00,000 For Redevelopment of property 8. We also found that the Assessing Officer has wrongly in calculating average rate of interest on the balance amount outstanding as at 31.03.2010 instead of taking average balance during the year....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cross objections filed by the assessee have become infructuous. 14. In the result, both the appeals of the Revenue and Cross Objections are dismissed. Order pronounced in the open court on this 09/11/2016 ============= Document 1 ADVANCES FOR PROPERTY Op.Balance as on 1.4.2009 Payments Addition recd. during the F.Y.2009-10 During the Balance as on 31.3.10 Note year ADWAIT HOLDING PVT. LTD., 25,00,00,000 MAN INFRA PROJECTS PVT. LTD., ADVANCE FOR ALTERNATE ACCOMMODATION DEPOSIT FOR ALTERNATE ACCOM (AV.) 1,36,00,000 Advance of Rs. 25,00,00,000/- wa given for property known s "Paville House"located at Mahim which was purchased at Rs.80,00,00,000/-. Agreement is attached on page no.11 to 21 of 25,00,00,000 paperbook. Memorandum of Understanding was entered for property located at Chembur. Payment made to Man Infraprojects Pvt. Ltd., on behalf of Parivar Infrastructure Pvt. Ltd., as per Memorandum of Understanding and Consent terms. Memorandum of Understanding between Parinee Realty Pvt. Ltd., and Parivar Infrastructure Pvt. Ltd., is attached on pag....