2017 (12) TMI 464

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.... Rs. 6,77,97,413/-. 2. The brief facts of the case are that the assessee company is Non Banking Finance Company registered with Reserve Bank of India and is wholly owned subsidiary of Bennett, Coleman & Co. Ltd. (BCCL). During the year under consideration the assessee has earned interest on Inter Corporate Deposit (ICD) given to BCCL. The assessee had extended ICD amounting to Rs. 147 lacs to BCCL which is 100% holding company, initially @ 10% per annum for three years vide agreement dated 17.6.2009. However in the late of the year 2009, BCCL proposed for reduction in the rate of interest to 7.25% per annum based on the then prevailing market rates. The assessee agreed to this reduction of rates, w.e.f., 1.1.2010 as it was not possible t....

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....er than the prevailing rate of interest offered by the bank on their fixed deposits at that point of time. Further the provision of section 40A(2)(b) would not be applicable, because interest earned on ICD extended to BCCL was the income of the assessee and not the expense and therefore, such interest income cannot be enhanced by the AO by invoking section 40(a)(2)(b) or by applying arms length principle as appearing in section 92 as it will not apply in assessee's case during the year under consideration. Ld. CIT (A), duly accepted the assessee's contention and held that AO was not justified in enhancing the rate of interest charged by the assessee from 7.25% to 15% and accordingly, the addition made by the AO was deleted. 4. After hear....

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....der arm's length principle which admittedly is not applicable for the year under consideration. Ostensibly, in this case, it is not issue of disallowance of interest which has been claimed as expense, albeit here the assessee has been receiving interest which is shown as income @ 7.25% which as per the revenue should have been @ 15%. For making such enhancement of notional income, first of all, it has to be seen, whether such an income had actually accrued to the assessee, i.e., whether the assessee got vested with any right to receive such kind of an income from BCCL or there is any debt which been created in favour of the assessee by the BCCL. There cannot be any enforceable right to receive the income to the assessee over and above what ....