DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(2), CHENNAI, CHENNAI vs. JAYAPRIYA COMPANY, CHENNAI

ITA 3001/CHNY/2026Status: DisposedITAT Chennai09 October 2026AY 2023-2415 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the appeal filed by the Revenue stands dismissed. The Tribunal noted that the AO had made an addition by imputing notional interest on loans and advances made to related parties, not by disallowing interest under Section 36(1)(iii). The assessee contended that loans were advanced from own funds (capital and reserves) or out of business expediency, and that the interest rates charged were not lower than what was reasonable or agreed upon. The Tribunal found that the submissions made by the assessee remained uncontroverted by the Revenue's representative. The CIT(A) had analyzed each transaction and concluded that the assessee had not charged a lower rate of interest. The Tribunal found no illegality or perversity in the CIT(A)'s findings. Furthermore, the Tribunal observed that there is no provision under the Income Tax Act enabling the AO to impute notional income. Since the AO's case was not that income had actually accrued but was not offered, nor was it a case of disallowance under Section 36(1)(iii), the Tribunal found no merit in the Revenue's grounds of appeal.

What were the facts?

The Revenue is in appeal against the order of the CIT(A) for AY 2023-24. The assessee, a partnership firm engaged in real estate, filed a return of income of Rs. 22,98,030. The AO completed the assessment at Rs. 9,57,28,730, making an addition of Rs. 49,34,30,683 by imputing notional interest on loans advanced to related parties. The AO observed that the assessee paid interest at approximately 12% on its borrowings of Rs. 777,55,17,152, while it received interest at 7.2% on advances of Rs. 195,00,82,871 to related parties. The AO sought to tax the differential interest of Rs. 9,34,30,683.

What were the issues?

1. Whether the CIT(A) erred in deleting the addition of Rs. 9,34,30,683/- made by the AO on account of interest leviable for advances to related parties, thereby not making a finding of fact on the surplus available in Reserves & Surplus to warrant such advances. Assessee's Contentions: - Loans were advanced from the firm's own funds (capital and reserves). - The AO erroneously treated certain amounts as loans outstanding and advances against land, whereas when considered together, the total funds available were Rs. 893,74,15,462, with an effective interest rate of 10.22% on borrowings. - Interest was charged at 12% on loans to APJ Abdul Kalam Trust, contradicting the AO's assumption of a 7.2% rate. - Outstanding amounts from Trusts included accrued interest, and interest charged was 10.4%. - Loans to Jayapriya Food Products Pvt Ltd, Jayapriya Property Developers Pvt Ltd, and Jayapriya Trading Company were investments made under MOUs to earn profits, not loans, and the Tribunal had accepted this in earlier years (AY 2022-23). - Advances to Jayapriya Hotel Thirupayar, Jayapriya Life Investment Growth (P) Ltd, Jayapriya Nagar, and Jayapriya Sands (P) Ltd were capital contributions, not loans, so no interest was applicable. - Advances to Sun Traders were business loans advanced out of business expediency. Revenue's Contentions: - The CIT(A) erred in deleting the addition of Rs. 9,34,30,683/- on account of interest leviable for advances to related parties. - The CIT(A) failed to make a finding of fact regarding the surplus in Reserves & Surplus that warranted such advances.

Which sections of the Income-tax Act were involved?

Section 250,Section 143(3),Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CHENNAI BENCHES, CHENNAI BENCH: D

Pronounced: 09.10.2026

PER INTURI RAMA RAO, ACCOUNTANT MEMBER :

This appeal filed by the Revenue directed against the order passed by the order of Learned Commissioner of Income Tax(Appeal), Chennai-19 dated 23.02.2026 passed u/s.250 of the Income Tax Act, 1961 for the Assessment Year 2023-24. 1 JAYAPRIAY COMPANY [D]

2.

The Revenue raised the following grounds of appeal :

“1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

2.

The

The order continues below.

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