TaxTMI 
TaxTMI 
2020 (12) TMI 95
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.... Act 1956 and for the assessment year under consideration, it filed a return of income declaring a loss of Rs. 10,222/-. The return of income so filed was selected for scrutiny assessment under CASS with the reason 'large increase in unsecured loans'. In the course of assessment proceedings, the Assessing Officer noted that the unsecured loans outstanding at the close of the year was Rs. 235,28,00,000/- as against an amount of Rs. 204,98,00,000/- as at the beginning of the year; and, the said unsecured loan was received interest-free from M/s Oleander Real Estate Pvt. Ltd., the assessee's holding company. 4. The Assessing Officer further noted that the assessee had invested Rs. 205,00,00,000/- in .001% Optimally Convertible Debentures (in short OCDs) of Rs. 10/- each in India Best Buy Pvt. Ltd. The said OCDs were convertible into equity shares @ Rs. 25,000 per equity share. It was also noted by the Assessing Officer that the investee company i.e. India Best Buy Pvt. Ltd. was not related with the assessee or any of its associates in any manner. The Assessing Officer also noted that during the year, the only revenue from operations was a sum of Rs. 20,500/- on account of intere....
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....ssessee from the transaction of the assessee receiving funds as interest-free unsecured loans from its holding company and investing/advancing the same to an unrelated entity either without any interest or for any insignificant business purposes. As per the Assessing Officer, such transactions showed that assessee was not carrying on activities relating to its main objects, i.e. real estate and instead, assessee was carrying out activities, which are akin to NBFC activities. The Assessing Officer further inferred that the impugned transactions were "for supplementing the accommodation of funds without deriving any benefit out of it in such a manner which is a pernicious practice and is highly prejudicial to the interests of the Revenue". 7. As per the Assessing Officer, assessee was liable to be assessed for interest income commensurate to the prevailing bank rate; and, accordingly, he took into consideration the total of the amount invested in the OCDs as well as the amount advanced as interest free unsecured loan and computed interest income @ 10% p.a., thereby resulting in an addition of Rs. 21,67,22,122/- in the hands of the assessee. The rate of interest applied corresponde....
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..... He has also failed to bring on record any provision of the Act under which notional income is chargeable to tax." 10. Against the action of the CIT(A) in deleting the addition of Rs. 21,67,22,122/-, the Revenue is presently in appeal before us as per the aforestated Grounds of Appeal. The primary plea of the Revenue before us is based on the discussion in the assessment order, whereby it is sought to be pointed out that though the assessee was incorporated for carrying out the business of real estate development, but the financial statements reveal that no such activity was carried out and instead, interest free funds were raised from the holding company and the same were invested/advanced in an unrelated entity without any business purpose and/or without substantial return of income. Notably, a sum of Rs. 30,30,00000 was advanced as unsecured loan to M/s India Best Buy Pvt. Ltd. and Rs. 205 crore was invested in .001% OCDs of M/s India Best Buy Pvt. Ltd., which were convertible into equity shares @ Rs. 25,000 per equity share on a later date. 11. According to the learned DR, the business prudence does not justify such a transaction and, therefore, the Assessing Officer was....
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....ceive any income qua the amounts invested/advanced to India Best Buy Pvt. Ltd. , which is over and above the amount declared by the assessee. The finding of the CIT(A) in this regard, which we have extracted above, clearly shows that there is no material led by the Assessing Officer to point out that the assessee has actually received or accrued any income corresponding to the interest in question. Before us also, the Department has not led any material or evidence which would enable us to interfere with the aforesaid finding of the CIT(A) and, therefore we hereby affirm the same. On the point of law, the CIT(A) made no mistake in relying on the judgment of the Hon'ble Delhi High Court in the case of Shivanndan Buildcon Pvt. Ltd. vs CIT 233 Taxman 297 (Delhi) to say that the Assessing Officer is not entitled to bring to tax any notional interest income without demonstrating that the assessee had, in fact, received such interest income or that the concern to whom the loan was given had, in fact, paid any such interest to the assessee. It is a trite law that income tax cannot be levied on the ipse dixit of the Assessing Officer, and, that too on a hypothetical income, which is a s....
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....e Limited to expand its market opportunity in real estate sector and want to have a deep interest in the investee company so the appellant invested in optionally converted debenture. Thus, the appellant has made investment and loans to India Best Buy Private Limited out of commercial expediency/prudence." 17. In fact, in operative part of his order in para 3.1.3, the CIT(A) again notes the stand of the assessee that the investment in M/s India Best Buy Private Limited was in the course of business activity and that such investment was made in the immediately preceding Financial Year 2011-12. It is also noted by the CIT(A) that the assessee is a wholly owned subsidiary of Oleander Real Estate Private Limited dealing in real estate business. No doubt, the CIT(A) has referred to the investment agreement between the assessee and M/s India Best Buy Private Limited dated 31.3.2011 and such a reference is conspicuous by its absence in the assessment order. Be that as it may, the same does not turn much, inasmuch as the analysis of the nature of the arrangement, being a transaction carried out in the course of the business activity has been consistently canvassed by the assessee, and al....