TaxTMI 
TaxTMI 
2025 (8) TMI 688
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....s and circumstances of the case, the appellate order passed by the learned Commissioner of Income Tax (Appeals) [hereinafter referred as "CIT(A)"] is bad both in the eyes of law and on facts. 2. That on the facts and in the circumstances of the case. the learned CIT(A) erred both in law and on fact in confirming ad-hoc estimated addition of Rs. 4,13,28,508/- made by the AO on account of notional interest at the rate of 12% on loan & advance given of Rs. 40,23,94,230/- as against interest earned of Rs. 69,58,719/- without giving any basis for such estimation. 3. That on the facts and in the circumstances of the case, the learned CIT(A) erred both in law and on facts in confirming adhoc estimated addition of Rs. 4,13,28,508/- on account of notional interest at the rate of 12% on loan & advance given of Rs. 40,23,94,230 by disregarding the settled proposition of law that: (a) income tax is to be levy only on real income and not on notional income and (b) no businessman can be compelled to maximize its profit and the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. 4. That on the facts and in....
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.... bring to tax notional interest income. It is trite law that only real income could be taxed and reliance in this regard is placed on the decision of Hon'ble Supreme Court in the case of CIT v. Shoorji Vallabhdas & Co. reported in [1962] 46 ITR 144 (SC) wherein it was held as under: "Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a "hypothetical income", which does not materialise. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income." 9. Respectfully following the above decision and the decision to charge interest lies with the assessee, he may choose not to charge interest because of business necessity, the businessman knows best how to run its business. In view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, we have no hesitation to delete th....
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.... 13. The Assessing Officer observed that As stated in the earlier para, M/s Gurudev Financial Services Pvt Ltd. has written off debt amounting to Rs. 4,83,18,516/- in their books which is evident from the account extract submitted by them. The same has also been categorically mentioned in the return of income filed by M/s Gurudev Financial Services Pvt Ltd. for AY 2018-19. However, the assessee company is still showing a liability of Rs. 5,22,14,897/- as on 31.03.2018 in its financials which includes outstanding interest expenses of Rs. 50,09,195/- debited to the P& L Account by the assessee company less the tax stated to have been deducted. 14. Further, the AO has proceeded to make the addition of outstanding balance in the books of M/s Gurudev Financial Services Pvt Ltd. which was written off the debts by them for the amount of Rs. 4,83,18,516/- in its books as on 01.04.2017. He observed that since the liability was written off, there is no liability towards M/s Gurudev Financial Services Pvt Ltd in the books of the assessee as on 31.03.2018, which according to him, is chargeable to tax u/s 41(1) r.w.s. 28 of the Act on account of cessation of liability for the year under cons....
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....cial Services Pvt Ltd. has not written off the loan and Interest receivable as appearing in the ledger account given to assessing officer, therefore disallowance of Interest expense of Rs. 35,06,436/- (i.e. Rs. 50,09,195 - Rs. 15,02,759) is bad in law and is liable to be allowed. 19. The Ld. AR further argued that the AO has made disallowance of interest without making any enquiry and confronting the confirmation of account of M/s Gurudev Financial Services Pvt Ltd. dated 01.04.2018 and Letter dated 11.07.2018 issued by M/s Gurudev Financial Services Pvt Ltd. directing the assessee to pay outstanding gross interest amounting to Rs. 2,38,21,789/- accumulated for the FYs 2013-14 to 2017-18 including interest of Rs. 50,09,195/- for the FY 2017-18 to M/s Gurudev Financial Services Pvt Ltd., which is bad in law. 20. The Ld AR of the assessee has also argued that it is the unilateral decision of M/s Gurudev Financial Services Pvt Ltd to write off the amount outstanding in their account, which might be in the interest of M/s Gurudev Financial Services Pvt Ltd to reduce tax liability of the relevant year by claiming bad debts. The Ld AR has also argued that there is no document on re....
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....ess of obtaining loans and that the remission of such loans by the creditors of the company was not a benefit arising from such business. Hence, provisions of section 28(iv) of the Act does not apply in the present case since the cessation of liability of loan are not in the nature of cash or money. 25. Considered the rival submissions and material placed on record. We observe that in the present case, during the course of assessment proceedings, AO has made enquiries with M/s Gurudev Financial Services Pvt Ltd by issue of notice u/s 133(6) of the Act and on verification of the ledger account of the assessee in the books of accounts of M/s Gurudev Financial Services Pvt Ltd submitted, the AO observed that M/s Gurudev Financial Services Pvt Ltd has already written off the debts and claimed the same in their books of account as bad debts as on 01.04.2017 of Rs. 4,83,18,516 as bad debts and also no interest/interest receivable of Rs. 50,09,195/- is shown for the financial year 2017- 18. 26. Therefore, the AO observed that the assessee is not liable for interest payment of Rs. 50,09,195/- and hence made a disallowance of Rs. 35,06,436/- after considering the disallowance of Rs. 1....
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..... 28. Therefore, we find force in the argument of the AR of the assessee and the very fact that the assessee has recognized liability in its books of accounts as payable to M/s Gurudev Financial Services Pvt Ltd and loan amount of Rs. 3.00 crore is a capital liability payable, it is not in the nature of any loss, expense or trading liability, the same cannot be brought to tax u/s 41(1) of the Act. Further, the AO has also relied on the decision of Hon'ble Supreme Court in the case of CIT v Mahindra & Mahindra that creditors or his successor may exercise the right of waiver unilaterally to absolve the debtor from his liability to repay and after such exercise the debtor is absolved from the liability of repayment of loan subject to conditions of waiver. In the given, the issue is the debtor has written off without communicating such a decision and also makes a claim, which is contrary to the claim made by the debtor., it is clearly distinguishable from the facts of case Mahindra & Mahindra (supra) as there are no waiver conditions imposed by M/s Gurudev Financial Services Pvt Ltd. upon the assessee while unilaterally writing off the liability as 'bad debt'. Since the balance outs....