What did the Tribunal hold?

The Tribunal held that the addition for notional interest was uncalled for as the advance was not made from interest-bearing borrowings. The AO made a notional addition without establishing any facts against the assessee.

The assessee advanced funds for a plot of land, but the sale deed was not executed. The Assessing Officer disallowed notional interest on these surplus funds, which was upheld by the CIT(A).

What were the issues?

Whether notional interest can be disallowed on surplus funds advanced for a plot of land when the advance was not out of interest-bearing borrowings.

Ghanshyam Bhagwandas Kewalramani vs DCIT | ITAT Nagpur 2026

Income Tax Appellate Tribunal, NAGPUR SMC BENCH, NAGPUR

Before: SHRI MANISH BORAD

For Appellant: Shri K.P. Dewani, Advocate

For Respondent: Shri Shiv Shankar Yadav, Sr.DR

Hearing: 07/08/2026Pronounced: 07/09/2026

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR "SMC" BENCH, NAGPUR BEFORE SHRI MANISH BORAD, ACCOUNTANT MEMBER (Through virtual)

ITA No. 16/NAG/2026 (Asst. Year : 2017-18) Ghanshyam Bhagwandas ACIT, Circle-2, Nagpur Kewalramani, G/S 1 vs Hariom Apartment, Behind Sindhu Society, Jaripatka, Nagpur-440014 PAN : ACZPK 2764 L Assessee Revenue

Assessee by : Shri K.P. Dewani, Advocate Department by : Shri Shiv Shankar Yadav, Sr.DR Date of hearing : 07/08/2026 Date of Pronouncement : 07/09/2026

O R D E R This appeal by the assessee is directed against the order of Ld.ADDL/JCIT (Appeals), Panaji (for short, “CIT(A)”) dated 15.12.2025 passed u/sec. 250 of the Income Tax Act, 1961 (for short, “Act”) which is arising out of assessment order dated 17.12.2019 passed u/sec. 143(3) of the Act by the ACIT, Circle- 2, Nagpur for the Assessment Year (A.Y.) 2017-18.

The sole grievance of the assessee is against the addition for notional interest at Rs. 5,10,396/-

I have heard the rival submissions and perused the material placed before me. Assessee is an individual and declared income of Rs. 18,93,830/- in the return for A.Y. 2017-18 filed on 26.02.2018. After serving valid notice, assessee filed his submissions. Assessee derives income from

2 ITA No.16/PUN/2026 (Ghanshyam Bhagwandas Kewalramani) business of running a proprietary concern; namely, M/s. Silver Line Technology, which is engaged in the business of trading of mobiles, mobile accessories etc. Ld.Assessing Officer (AO) observed that assessee has advanced a sum of Rs. 85,43,757/- for purchase of a plot at Nirmal Nagari for construction of godown, but the sale deed was not executed due to technical reasons. Ld.AO has observed that surplus funds of Rs.42,90,456/- are available with the assessee. Ld. AO, thus, observed that assessee on one hand, not claiming interest expenditure and on the other hand, has not charged interest on surplus funds and accordingly, disallowed interest of Rs.5,10,396/-. Aggrieved, assessee preferred appeal before the Ld.CIT(A), but failed to succeed. Now assessee is in appeal before this Tribunal.

Learned counsel for the assessee referring to written submissions and paper book submitted that advance for purchase of a plot has been given by the associate concern M/s.Silver System, which is having business transactions with the assessee and the advance has subsequently been transferred to the assessee, who is sole proprietary to M/s.Silver Line Technology. He submitted that the aforesaid investment was existing in the books in the preceding year also, but no disallowance of interest has been made. Further, there is no nexus of investment with borrowed funds because investment is out of surplus funds and not from the funds on which the interest is paid.

On the other hand, Ld.DR supported the order of Ld.CIT(A).

I find merit in the contention of the learned counsel for the assessee because Ld. AO merely made a notional addition

3 ITA No.16/PUN/2026 (Ghanshyam Bhagwandas Kewalramani) without establishing any fact against the assessee and also disregarding the fact that assessee is having regular business transactions with M/s. Silver System and no interest has been paid to the associate concerned for making investment in the plot of land. Therefore, since the advance given for purchase of a plot is not given out of the interest bearing borrowings available with the assessee, the impugned addition for notional interest is uncalled for. Finding of Ld.CIT(A) is set aside and the addition of Rs. 5,10,396/- is hereby deleted. Effective grounds of appeal raised by the assessee are allowed.

In the result, appeal of the assessee is allowed.

Order pronounced on 07th September, 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963

Sd/- (MANISH BORAD) ACCOUNTANT MEMBER Pune & Dated : 07th Sept., 2026 vr/- Copy of the Order forwarded to: 1. Assessee 2. Revenue 3. PCIT concerned. 4. DR, ITAT, “SMC” Bench, Nagpur. 5. Guard File

BY ORDER Vukkem Digitally signed by Vukkem //True Copy// Rambabu Rambabu Date: 2026.09.08 18:31:10 +05'30' Senior Private Secretary ITAT, Nagpur

GHANSHYAM BHAGWANDAS KEWALRAMANI,NAGPUR vs. DCIT/ACIT CIRCLE-2, NAGPUR

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