TaxTMI 
TaxTMI 
2025 (1) TMI 274
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....National Faceless Assessment Centre, as undisclosed interest income on short term Loans and Advances purely on presumption without any factual basis and reference to any section of the Income Tax Act in support of his action, without properly appreciating the fact that no such interest income has been earned by the appellant and without considering various court judgements cited by the appellant before the Ld. CIT (Appeals) in this regard which should be set aside. 2. The appellant craves leave to add, alter or amend any/ all of the grounds of appeal before or during the course of the hearing of the appeal." 3. Brief facts of the case as culled out from the appellate order of the Ld. CIT(A) and the assessment order of the Ld. AO and the submissions made by the Ld. AR are that the assessee company is engaged in real estate development business, more particularly in developing affordable housing during the previous year 2017-18. The company had e-filed its return of income for AY 2018-19 on 26/09/2018 declaring total income at Rs. NIL. The assessee had shown deemed total income u/s 115JB of the Act at Rs. 69,07,501/-. The return was revised on 12/10/2018 showing the same ....
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.... copy of returns for AY 2018-19 in respect of 8 parties namely (1) G.S. Electrocom Pvt. Ltd (2) Modern Mobitech Pvt. Ltd (3) SG Aqua & Garden Fresh Pvt. Ltd (4) S.G. Computech Ltd (s) Samastha Infotainment Pvt. Ltd. (6) Transceivers India Ltd (7) S.G. Retails Pvt. Ltd and (8) Basilica Realcon Pvt Ltd through the e-proceeding portal on 24/09/2021 along with the reply to the show cause notice. These 8 parties together covered about 75% of the short-term Loans & Advances reflected in the balance sheet under the broad head 'current assets'. However, the Ld. AO has commented in para 11 of the assessment order that the loan confirmation letters and copy of returns of only 3 parties namely (1) Basilica 2) G.S. Electronics and (3) Modem Mobitech Pvt. Ltd had been filed, which as per the assessee is not a correct statement of fact. Vide show cause notice dated 23/09/2021, the Ld. AO proposed to add Rs 8,90,29,629/- towards interest income @9% of Short Term Loans and Advances of Rs 10 Lakh or more aggregating to Rs 98,92,18,103/- under section 69A on the ground that: (i) the assessee was paying interest @9% to its creditors (i) the assessee failed to give valid reasons for not charging inter....
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....been made. It is stated there is no provision under the Income Tax Act which empowers the Assessing Officer to add notional interest to the income of the appellant. The assessment order is thus unjustified, without any factual or legal basis and the addition of Rs 4,84,99,218/- has been made purely on presumption which is beyond the jurisdiction of the assessing authority. In the computation sheet forming part of the assessment order, while allowing the set off, the Ld. AO did not take note of the facts available from past assessment record of the appellant that aggregate carried forward business loss available for set off against income of AY 2018-19 amounted to Rs 5,94,64,678/- which pertains to AYs 2014-15 & 2015-16. Thus, without prejudice to the appellant's contention as regards the unlawful addition of notional interest, even after considering the addition of Rs 4,84,99,218/- the total income of the appellant would have been nil had the carried forward loss been calculated properly and tax demand would also have been Nil. Aggrieved with the additions, the assessee filed the appeal before the Ld. CIT(A) who confirmed the addition by giving the following findings in Para 5.....
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....ell. In the return, under the head interest expenses, the amount had been shown as NIL and there was no scope for claiming interest as a deduction for determination of the total income. Except for the Annual Maintenance of Rs. 9,03,233/- included in the total revenue from operation shown at Rs. 97,29,53,734/-, no other income had been earned nor any interest income was, therefore, disclosed. During the year, as is evident from the schedule of other current liabilities vide page 11 of the people amounting to Rs. 224,84,38,440/- read with the summary of current liabilities, it would be noticed that there had been substantial receipt of advance from customers (prospective flat buyers) during the years at Rs. 91,34,29,504/- and only interest-free advances received from customers had facilitated such interest-free advances which are given in the course of the business. Interest had been alien to either side. It was submitted that the cash flow statement furnished in the course of the hearing would also corroborate the fund availability without interest and the addition of fictional interest in the light of proven facts and the judgements cited in the course of hearing was requested to b....
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.....00 The proof of filing of the confirmation cum ITR Return, could be viewed from the System generated Acknowledgment, vide PB 138-141 (containing the above names). It is also significant to note that while the Total Advance as on the last date had amounted to Rs. 1277903793/- (Balance Sheet PB 9, Schedule-PB 14 and Name-wise Details-PB 106-113), the aggregate of advance pertaining to the above eight (8) parties had amounted to Rs888985102.00. It signifies that the Advance due from the above eight (8) parties alone, had represented 69.56% of the Total Advance of Rs. 1277903793.00 However, most surprisingly, vide First Para of page 12 of the Assessment Order, the FAU had alleged that although Letters/Notices u/s 133(6)had been sent to as many as Eight (8) parties, only three (3) parties had responded. Such three (3) parties are Basilica, G. S. Electronics and Modern Mobitech Pvt. Ltd. As a result, it had accused the Appellant of not furnishing the details of the rest of the parties. But it is fully evident that all the Eight (8) Major Parties had duly furnished their Confirmations and ITR copies, through the Appellant, as some of them had found it....
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.... the assessee, the Ld. Assessment Unit, should not have proceeded to conjecture that Interest had been received by the Appellant and it had failed to disclose the same as income. As a result, it should not have most arbitrarily assume accrual of interest on a part of the Advance of Rs. 538880204.00 and applied Interest Rate of 9% thereon notionally, and accordingly add Rs. 48499218.00. Such addition for being bereft of any factual or legal merit, would call for total deletion. In this connection, it would be fully pertinent to highlight that the nature of activity for remaining same as earlier year and the Book Results for being accepted in the earlier year's scrutiny order, vide PB 132-134, it would call for consistent treatment, rather than deviation from the same merely on some imputation and allegation. The Ld. CIT(A), instead of applying his own mind and verifying the facts independently, has simply and superficially reiterated the observation of the FAU and accordingly, upheld the addition The addition for being devoid of any merit and fully based on conjecture and mere allegation and wrongful attribution of onus to the Appellant, would....
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....5, it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on of the business. [Para 23] The High Court as well as the Tribunal and other income-tax authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest-free loan was given to the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed. [Para 24] The expression 'commercial expediency' is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. [Para 25] No doubt as held in Madhav Prasad Jatia....
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....og (P.) Ltd. [2006] 151 TAXMAN 75 (ALL.) and Shivnandan Buildcon (P.) Ltd. v. Commissioner of Income-tax [2015] 60 taxmann.com 347 (Delhi) in support of the relief claimed. 7. It was reiterated that the assessee had ample interest-free funds and had not debited any interest in its books of accounts, therefore, there was no question of charging any interest on the amounts which were advanced for business purposes as the assessee had a project under construction named as "SANHITA". Reliance was also placed on several other judicial pronouncements, the relevant extracts of the findings of which are as under: 1. Highways Construction Co. Pvt. Ltd. v CTT [1993] 199 ITR 702 (Gauhati HC): "There is no finding of fact to the effect that actually the loan had been granted to the managing director or any other person on interest, or that interest had actually been collected and the collection of the interest was not reflected in the accounts. The finding of the Income Tax Officer is that the assessee ought to have collected interest. In other words, the view of the Income Tax Officer, which has been accepted by the Tribunal, was that the assessee, as a good business conc....
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....y-to-day expenses of these subsidiaries including their tax liabilities are met by the appellant company only shows the unity of control and management and interlacing of funds." The CIT(A)'s order was confirmed by the Tribunal in the impugned order. 6. Learned counsel for the Revenue urges that no material was placed before the AO to support the contention that the advances were made from the assessee's own funds and that in these circumstances, the CIT(A) fell into error in considering fresh materials. The submissions appear to be attractive considering that the CIT(A) has stated that the appellant placed before him copies of the relevant bank accounts. However, this Court sitting in second appeal against the decision of the lower authorities has to be circumspect in such matte Rs. This ground does not appear to have been urged before the Tribunal articulating that the CIT(A) omitted to give any opportunity to it to re-examine such materials. Such ground also does not appear to have been urged during the hearing. Furthermore, this has not been raised as a ground of appeal before this Court. In the circumstances, we see no reason to depart from the rule of consistency whic....