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Facts
The assessee, Ganapati Technology Services Pvt. Ltd., engaged in property development and fund investment, declared an income of Rs.1,97,828/- for AY 2016-17. During scrutiny, the AO added Rs.21,08,296/- as interest income from loans granted to Awani Projects and AKJ Minerals, despite the assessee claiming non-receipt of interest due to the borrowers' financial instability and doubtful recovery. The CIT(A) upheld this addition, stating the assessee failed to prove interest was foregone before 31.03.2016.
Held
The ITAT observed that the assessee had submitted various documents, including evidence of dishonored cheques, classification of loans as doubtful debts, and eventual principal recovery without interest from one party, which were not properly considered by the lower authorities. Therefore, the ITAT remitted the matter back to the Assessing Officer to examine the submitted documents afresh, provide an opportunity of being heard to the assessee, and pass a speaking order based on the merits.
Key Issues
Whether notional interest income should be added to the assessee's total income when the assessee claims non-receipt of interest due to the financial instability of the borrowers and classification of loans as doubtful debts.
Sections Cited
143(2), 142(1), 133(6), 143(3), 194A, 271(1)(c)
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Income Tax Appellate Tribunal, ‘SMC’ BENCH, KOLKATA
Before: Shri Duvvuru RL Reddy, Vice-(KZ)
Assessment Year: 2016-2017 Ganapati Technology Services Pvt. Ltd.,…Appellant 6B, Dr. Rajendra Prasad Sarani, Kolkata-700001 [PAN:AADCG2354D] -Vs.- Income Tax Officer,……………………………..Respondent Ward-6(3), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700069 Appearances by: Shri Sanjeev Kadel, A.R., appeared on behalf of the assessee Shri Susanta Saha, Sr. D.R., appeared on behalf of the Revenue Date of concluding the hearing: May 21, 2025 Date of pronouncing the order: July 28, 2025 O R D E R
The present appeal is directed at the instance of assessee against the order of Id. Additional/Joint Commissioner of Income Tax (Appeals)-10, Mumbai dated 28.01.2025 passed for Assessment Year 2016-2017.
(A.Y. 2016-2017) Ganapati Technology Services Private Limited 2. The facts in brief are that the Appellant is a Private Limited Company engaged in the business of property developers and income from fund investment in Mutual Fund. Return for the relevant assessment year was submitted on 22/09/2016 declaring a total income of Rs.1,97,828/-. The Appellant’s case was selected for limited scrutiny under CASS. The issues mentioned in Notice u/s 143(2) contained 2 issues for verification. First issue was whether tax aspects related to investments/ advances/ loans have been considered in the return of income and Second issue whether capital gain/ loss on sale of property has been correctly shown in the return of income. In response to notices issued under section 142(1) various compliances were made by the Appellant Company online. It was also submitted before the Assessing Officer that Loan to Awani Projects Infrastructure Ltd was given in Financial Year- 2010-11 and loan to A KJ Minerals Ltd was given in the Financial Year-2011-12. Both these parties had expressed their inability to pay any interest during Assessment Year-2016-17 and thus no interest was provided on the outstanding loan advanced to them as recovery of principal was also doubtful. The Appellant Company also filed details of addresses of these two parties along with copies of ledger account from the date when loan was advanced to them. It was also submitted before the Assessing Officer that interest income from loan to these parties were offered for tax as income in the earlier assessment years and TDS was also deducted by these parties. During the relevant Assessment Year, it was evident from Form No-26AS that no TDS under section 194A was deducted by these parties which proves that they have not provided for any interest payment in their books of accounts. The Learned (A.Y. 2016-2017) Ganapati Technology Services Private Limited Assessing Officer issued show cause notice on 23/11/2018 which stated to substantiate the source of investment made in Reliance Yield Maximiser and documentary evidence in order to substantiate non charging of interest on loans advanced to Avani Projects and Infrastructure Ltd and A KJ Minerals Ltd. In response to the said show cause notice, the Appellant Company submitted details of immediate source of investment made in Reliance Yield Maximiser and also provided details of present addresses of Avani Projects and Infrastructure Ltd and AKJ Minerals Ltd with a request to the AO to issue notice under section 133(6) to these parties in order to verify that they have neither provided or paid any interest to the Appellant Company. A perusal of Form No-26AS for the relevant assessment year also proves that Awani Projects and Infrastructure Ltd and AKJ Minerals Ltd did not provide or paid any interest to the Appellant Company. The Learned Assessing Officer by completely overlooking these evidences added a sum of Rs.21,08,296/- by treating the same as interest income without bringing any evidence on record to rebut the submissions made by the Appellant Company during the course of e- proceedings and completed the assessment under section 143(3) at a total income of Rs.23,06,130/- as against the returned income of Rs.1,97,830/-. Moreover, while adding interest income, he took the figure of interest income for last financial year amounting to Rs.21,08,296/- and this interest income does not include any interest income from Awani Projects and Infrastructure Ltd and AKJ Minerals Ltd since these two parties did not pay any interest in Assessment Year-2015-16 also. This action of the Assessing Officer is completely based on conjectures and surmises and (A.Y. 2016-2017) Ganapati Technology Services Private Limited without any credible evidence. The Learned Assessing Officer also initiated penalty proceedings under section 271(1)(c) for concealment of income whereas in fact there is no concealment on the part of the Appellant Company. The Appellant being aggrieved by this action of the Assessing Officer in treating a sum of Rs.21,08,296/- as interest income for the year under consideration and added to the total income of the assessee determining the taxable income at Rs.23,06,126/- without bringing any evidence on record is under appeal before the ld. CIT(Appeals) with a request to kindly allow the same.
The ld. Addl./JCIT(Appeals) dismissed the appeal of the assessee by mentioning that since the assessee did not submit any evidence that the interest was foregone before 31.03.2016, the interest on these loans stands accrued as on 31.03.2016 on the basis of mercantile system of accounts. Hence, the addition so made by the ld. Assessing Officer was confirmed by the ld. Addl./JCIT(Appeals).
On being aggrieved, the assessee preferred an appeal before the ITAT and raised the following grounds:-
That the Learned Addl/JCIT(A)
10. Mumbai has erred in law and in facts in upholding the action of the Learned Assessing Officer in adding a sum of Rs.21,08,296/- on following counts: (i)The AO's addition of ?21,08,296/- in AY 2016-17, purportedly based on interest income earned in AY 2015-16, is fundamentally flawed. The AO incorrectly assumed interest income from loans granted to Avani Projects & Infrastructure Ltd. and AKJ Minerals Ltd. In reality, no interest was received from these companies during AY 2015-16, and the recoverability of the principal amounts was also doubtful. 4 (A.Y. 2016-2017) Ganapati Technology Services Private Limited
(ii)Neither Avani Projects & Infrastructure Ltd. nor AKJ Minerals Ltd. accounted for any interest expense in their books of accounts. Had they done so, they would have been obligated to deduct TDS, which would then have been reflected in the Appellant's Form 26AS for AY 2016-17. The absence of such TDS further substantiates the Appellant's claim of no interest income. (iii)The Learned Addl/JCIT(A)-10 failed to acknowledge the documented financial instability of Avani Projects & Infrastructure Ltd. During the assessment proceedings, the Appellant presented evidence of a dishonoured cheque for Rs.24,10,027/- issued by them on 20/01/2024, demonstrating their financial difficulties and the unlikelihood of interest accrual. (iv)Similarly, the Learned Addl/JCIT(A)-10 disregarded the documented financial instability of AKJ Minerals Ltd. The Appellant provided evidence of a dishonoured cheque for Rs.50,00,000/- issued by them on 30/12/2014, further supporting the Appellant's position. (v)The loans granted to these companies were appropriately classified as doubtful debts in the Appellant's audited financial statements, reflecting the uncertainty of recovery and the non- recognition of interest income. (vi)The Appellant duly disclosed the nonaccrual of interest income in the Notes on Accounts, in accordance with the provisions of Revenue Recognition (AS-9) read with Accounting Standard-1 relating to disclosure of accounting policies. This transparent disclosure fulfils the necessary accounting and reporting requirements. (vii)The Learned Addl/JCIT(A)-10 erroneously overlooked the fact that Avani Projects & Infrastructure Ltd. was undergoing Corporate Insolvency Resolution Process (CIRP). The Appellant submitted evidence of this during the appeal hearing, which was improperly disregarded. (viii)The Learned Addl/JCIT(A)-10 failed to acknowledge that the principal amount of Rs.35,00,000/- was fully recovered from AKJ Minerals Ltd. in AY 2018-19, without any interest. This recovery further reinforces the Appellant's contention that no interest income was earned or due. (ix)The Learned Addl/JCIT(A)-10 incorrectly stated that interest forgone must be recorded in the minutes of the Board Meeting. 5 (A.Y. 2016-2017) Ganapati Technology Services Private Limited Accounting for income and asset classification are governed by Accounting Standards. The Appellant's audited accounts, prepared in accordance with applicable Accounting Standards, clearly reflect the classification of the loans as doubtful and the non-recognition of interest income in the Notes on Accounts. The audited balance sheet and notes on accounts provide the required disclosures and classifications.
I have heard both the sides. The only grievance of the assessee is that the assessee-company has not received any interest income for the impugned assessment year, but the ld. Assessing Officer added the interest income based on the previous financial year amounting to Rs.21,08,296/-. On this aspect, it was the submission of the assessee that the interest income from loans granted to Awani Projects & Infrastructure Limited and AKJ Minerals Limited, though the assessee-company has not received any interest from these companies during assessment year 2015- 16. He further submitted that the recovery of principal amount was also doubtful. He further submitted that the above two companies not accounted for any interest expenses in their books of account and also, they have not deducted TDS, which has been reflected in assessee’s Form 26AS for assessment year 2016-17. In the absence of such TDS, which clearly substantiated the appellant’s claim that he has not received any interest income during the impugned assessment year. He further submitted that the ld. Addl./Jt. Commissioner (Appeals) failed to acknowledge the documented financial instability of Awani Projects & Infrastructure Limited during the assessment proceedings. He further submitted that the appellant presented evidence of a dishonoured cheque for Rs.24,10,027/- issued by them on 20.01.2024, demonstrating their financial difficulties. The ld. (A.Y. 2016-2017) Ganapati Technology Services Private Limited Counsel further submitted that the ld. Assessing Officer granted loans to these two companies, which were appropriately classified as doubtful debts in the assessee’s audited financial statements, reflecting the uncertainty of recovery and the non-recognition of interest income. He further submitted that the revenue authorities failed to acknowledge that the principal amount of Rs.35,00,000/- was fully recovered from AKJ Minerals Limited in AY 2018-19 without any interest, which clearly indicates that the assessee- Company has not received any interest income during the impugned assessment year. He further submitted that the assessee has filed paper books, wherein the assessee has filed balance-sheet, all documents like ledger copies, Bank statement, AS-26 etc., which clearly indicate that the assessee-company has not received any interest income. Therefore, the ld. Counsel for the assessee pleaded to set aside the orders passed by the revenue authorities.
On the other hand, ld. Departmental Representative submitted that the assessee-Company failed to file any documentary evidence in order to substantiate non-charging of interest on loans and advances to the above two companies. Therefore, the ld. Assessing Officer made the addition on account of interest income. Before the ld. Addl./JCIT(Appeals), the assessee-company failed to substantiate its claim. Therefore, he pleaded to uphold the orders passed by the revenue authorities.
I have heard both the sides and perused the material available on record. The main grievance of the ld. Counsel for the (A.Y. 2016-2017) Ganapati Technology Services Private Limited assessee is that the assessee has not received any interest income. The assessee filed all the relevant documents before the ld. Assessing Officer as well as ld. Addl./JCIT(Appeals), but they have not considered the same. The ld. Counsel for the assessee has also filed the paper books, which contain the ledger account, balance- sheet and all other relevant documents, in order to prove that the assessee has not received any interest income and also, he placed evidence before me that the assessee-company received only principal amount during the assessment year 2018-19 from AKJ Minerals Limited without any interest. The ld. Counsel for the assessee brought to my notice that Avani Projects & Infrastructure Limited failed to file Insolvency petition, copy of which is placed at page no. 223 of the paper book. Considering all the facts and circumstances of the case, I am of the view that it is a fit case to set aside the orders passed by the lower authorities and remit the matter back to the file of ld. Assessing Officer to examine the documents filed by way of paper books and pass a speaking order. Hence, I remit the matter back to the file of ld. Assessing Officer to examine the documents afresh with a direction to pass a speaking order after providing opportunity of being heard to the assessee. At the same breath, I also hereby caution the assessee to promptly co-operate with the proceedings before the Ld. Assessing Officer failing which the Ld. Assessing Officer shall be at liberty to pass appropriate order in accordance with law and merits of the case, based on the materials available on the record. Thus, the grounds raised by the assessee in the appeal are allowed for statistical purposes.
(A.Y. 2016-2017) Ganapati Technology Services Private Limited 8. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 28/07/2025.