LAXMINARAYAN MANDIR TRUST,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX EXEM CIRCLE 1, MUMBAI

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ITA 716/MUM/2025Status: DisposedITAT Mumbai18 March 2025AY 2011-126 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the coordinate bench of the Tribunal, in the assessee's own case for assessment year 2013-14 (ITA No. 3273/Mum./2022, dated 18/09/2023), had deleted the addition on account of notional interest income. In that prior decision, the Tribunal observed that Section 13(2)(a) of the Act does not authorize the Revenue to compute notional interest if no interest is charged by the trust. The Tribunal found no merit in upholding the addition by computing notional interest when no real interest was accrued or received, nor recorded in the books. Respectfully following this precedent, the Tribunal found no merit in the addition on account of notional interest income for the assessment years 2011-12 and 2012-13 and accordingly deleted the same. The grounds raised by the assessee in both appeals were allowed. The operative direction is the deletion of the addition on account of notional interest income.

What were the facts?

The assessee, Laxminarayan Mandir Trust, is appealing against orders passed by the Commissioner of Income Tax (Appeals) for assessment years 2011-12 and 2012-13. The appeals were heard together due to similar facts and issues. For AY 2011-12, the assessee filed a return declaring a deficit. Reassessment proceedings under section 147 were initiated based on AY 2013-14 assessment, alleging escapement of income due to charging interest at 10.50% on loans to M/s Ramgopal Ganpatrai & Co. Pvt. Ltd., which was less than the market rate of 12%. The Assessing Officer (AO) added the differential interest of INR 9,73,573, also rejecting the assessee's eligibility for exemption under section 11 due to alleged violations of sections 13(3), 13(1)(c), and 13(2)(a) of the Act. The CIT(A) upheld the addition.

What were the issues?

1. Whether the learned CIT(A) erred in passing orders without providing adequate opportunity of hearing and without making relevant inquiry (mixed law and fact, concerning principles of natural justice and procedural fairness). 2. Whether the learned CIT(A) erred in not considering the Tribunal's order for AY 2013-14, which held that no notional interest could be taxed unless received or accrued (mixed law and fact, concerning interpretation of Section 11 and Section 13). 3. Whether the learned CIT(A) ought to have inquired into the final outcome of the AY 2013-14 case before passing orders, as the reassessment for the subject year was based on it (mixed law and fact, concerning procedural dependency). 4. Whether the learned CIT(A) erred in upholding the AO's addition of differential interest, as the AO cannot dictate business decisions or assess hypothetical earnings (mixed law and fact, concerning the scope of AO's powers under Section 147 and Section 143(3)). Assessee's contentions: The assessee argued that the coordinate bench of the Tribunal in its own case for AY 2013-14 deleted the addition on account of notional interest. Since the reassessment proceedings for the current years were initiated based on the AY 2013-14 assessment, the impugned addition has no basis. The AO cannot assume the position of the assessee and dictate business operations or charges like interest; the AO's power is to assess earned income, not potential earnings. Revenue's contentions: The judgment does not record specific contentions from the revenue.

Which sections of the Income-tax Act were involved?

Section 11,Section 13,Section 13(1)(c),Section 13(2)(a),Section 13(3),Section 143(2),Section 143(3),Section 147,Section 142(1),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, MUMBAI

Before: SHRI NARENDRA KUMAR BILLAIYA, AM & SHRI SANDEEP SINGH KARHAIL, JM

(Assessment Year: 2011-12) Laxminarayan Mandir Trust Asst. CIT, Circle 1 Bapubhai Vashi Road, 6th Floor, MTNL Telephone Vile Parle (W), Mumbai-400 056 Exchange Building, Vs. Cumballa Hill, Peddar Road, Mumbai-400 026 PAN/GIR No. AAATL 2061 J (Appellant) : (Respondent) Appellant by : Shri B. N. Rao Respondent by : Shri Ram Krishn Kedia Date of Hearing : 17.03.2025 Date of Pronouncement : 18.03.2025 O R D E R

Per Sandeep Singh Karhail, JM

1.

The assessee has filed the present appeals against the separate impugned orders of even date 02/12/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment years 2011-12 and 2012-13.

2.

As both the appeals pertain to the same assessee involving similar issues arising out of the similar factual matrix, therefore, these appeals were heard together as a matter of convenience, and are being decided by way of this consolidated order. Since the assessee has raised similar grounds in both appeals, the grounds raised

in the appeal for the assessment year 2011-12 are reproduced as follows for ready reference: – (A.Y.2011-12) Laxminarayan Mandir Trust vs. Asst. CIT

1. The learned Commissioner of Income-tax, (under NFAC), hereinafter referred to as the CITA) erred in passing orders without providing adequate opportunity of hearing and without making any relevant inquiry in the matter.

2. The learned CITA erred in not considering the Tribunal's order passed in the case of the assessee for the AY 2013-14 wherein the Tribunal has held that no notional interest could be charged to tax and unless any income is received or accrues the AO cannot charge any part of interest not charged or not received as income.

3. The CITA ought to have appreciated that the assessment was reopened for the subject assessment year on the basis of the order of the AO for the AY 2013-14 and he should have inquired on what has happened finally in that case, before passing orders.

4. The CITA erred in upholding the order of the AO that the differential figure between the actually charged and received interest and the interest that the AO held as market rate was chargeable to tax. He did not appreciate that the AO cannot arrogate the position of the assessee and dictate the decision as to how the business should be conducted and what charges including interest etc. are to be charged. He ought to have appreciated that his powers and authority was to assess the income earned by the assessee and not what he could have earned.

3.

The solitary grievance of the assessee is against the addition made on account of interest income.

4.

The brief facts of the case, as emanating from the record, are that the assessee is a religious and charity trust and maintains Laxminarayan Mandir at Vile Parle, Mumbai. For the assessment year 2011-12, the assessee filed its return of income on 26/12/2011, declaring a deficit of INR 9,65,508. Subsequently, on the basis of the assessment proceedings for the assessment year 2013-14, wherein addition was made on account of interest income in respect of the loans/advances to M/s Ramgopal Ganpatrai & Co. Pvt. Ltd., notice under section 148 of the Act was issued on 03/04/2017, and proceedings under section 147 of the Act were initiated, as for the year under (A.Y.2011-12) Laxminarayan Mandir Trust vs. Asst. CIT consideration, the assessee charge the interest at 10.50% which was less than the market rate of 12%. Accordingly, it was alleged that the differential interest amounting to INR 9,51,830 has escaped assessment within the meaning of section 147 of the Act. In response to the notice, the assessee requested to treat the return of income originally filed as the return in response to the notice issued under section 148 of the Act. During the reassessment proceedings, statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Vide order dated 11/12/2017 passed under section 143(3) read with section 147 of the Act, the Assessing Officer (“AO”) held that since the assessee has given advance/loan to M/s Ramgopal Ganpatrai & Co. Pvt. Ltd. without any adequate security, wherein the trustees of the assessee are directors having substantial shares (conjointly more than 20%), the assessee has violated the provisions of section 13(3) read with section 13(1)(c) and section 13(2)(a) of the Act. Accordingly, the AO held that the assessee is not eligible for exemption under section 11 and, therefore, the claim of the assessee under section 11 of the Act was rejected. Since the assessee received interest of INR 68,15,010 at 10.50% of the loan amount, which was less than the market rate which was 12%, the AO proceeded to make the addition of the differential interest amount, i.e., INR 9,73,573, to the total income of the assessee.

5.

The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the addition on account of differential interest income in the hands of the assessee. Being aggrieved, the assessee is in appeal before us.

(A.Y.2011-12) Laxminarayan Mandir Trust vs. Asst. CIT 6. We have considered the submissions of both sides and perused the material available on record. During the hearing, the learned Authorised Representative (“learned AR”), at the outset submitted that the coordinate bench of the Tribunal in assessee’s own case for the assessment year 2013- 14 deleted the addition on account of notional interest income in the hands of the assessee. The learned AR further submitted that since the proceedings under section 147 of the Act were initiated in the year under consideration based on the assessment proceedings for the assessment year 2013-14, which have now been deleted by the Tribunal, the impugned addition made in the year under consideration has no basis. We find that the coordinate bench of the Tribunal in assessee’s own case in Laxminarayanan Mandir Trust v/s ITO, in ITA No. 3273/Mum./2022, for the assessment year 2013-14, vide order dated 18/09/2023, deleted the addition made on account of notional interest income in respect of loan/advance to M/s Ramgopal Ganpatrai & Co. Pvt. Ltd., by observing as follows: –

“16. Since no interest was charged by the assessee on the amount advanced to M/s Ramgopal Ganpatrai & Co. Pvt. Ltd., the AO proceeded to compute the interest @10.5% by applying the rate at which interest was paid in the assessment year 2011-12 and made an addition of Rs. 1,66,77,849. It is pertinent to note that the only consequence of the case which falls within the four corners of section 13 is the denial of exemption under section 11 of the Act. Section 13(2)(a) of the Act also does not authorise the Revenue to compute the notional interest, in case no such interest is charged by the trust. Thus, in a case when no real interest was accrued or received nor the same was recorded by the assessee in its books of accounts, we find no merits in the findings of the learned CIT(A) in upholding the addition made by the AO by computing the notional interest and adding the same to the total income of the assessee. Accordingly, AO is directed to delete the addition of Rs. 1,66,77,849 on account of notional interest income. As a result, the grounds raised by the assessee are allowed.”

(A.Y.2011-12) Laxminarayan Mandir Trust vs. Asst. CIT 7. Therefore, respectfully following the decision of the coordinate bench of the Tribunal in assessee’s own case for the assessment year 2013-14 cited supra, we do not find any merits in the addition on account of notional interest income in the hands of the assessee, and accordingly, the same is deleted.

8.

We find that in the assessment year 2012-13, the proceedings under section 147 of the Act were also initiated on the basis of the assessment proceedings for the assessment year 2013-14, and it was alleged that the interest income in respect of loan/advance to M/s Ramgopal Ganpatrai & Co. Pvt. Ltd. has escaped assessment. Therefore, in light of the decision of the coordinate bench of the Tribunal in assessee’s own case for the assessment year 2013-14 cited supra, we do not find any merits in the addition on account of notional interest income in the hands of the assessee, and accordingly, the same is deleted.

9.

Accordingly, the grounds raised by the assessee in its appeals for the assessment year 2011-12 and 2012-13 are allowed.

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