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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 24.06.2019 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2014-15.
The only issue raised by the assessee in the various grounds of appeal is against the confirmation of Rs.4,50,000/- by Ld. CIT(A) as made by the AO on account of notional interest on loan given to Shringar Developers Pvt. Ltd. by the assessee in the earlier assessment year 2012-13.
2 M/s. Kewal Kiran Finance Pvt. Ltd.
The facts in brief are that the AO noted during the assessment proceedings that assessee had given loan to Shringar Developers Pvt. Ltd. of Rs.50 lakhs in A.Y. 2012-13 and assessee has not charged any interest on the said loan in that assessment year. The AO noted that assessee has not charged any interest from Shringar Developers Pvt. Ltd. and consequently an addition of 9% was made to the income of the assessee towards notional interest which worked out at Rs.4,12,500/- in AY 2012-13. Similarly, in the current year the AO applied a rate of 9% and made a notional addition of Rs.4,50,000/- to the income of the assessee on account of interest in the assessment framed under section 143(3) of the Act dated 30.06.2013.
In the appellate proceedings also the addition was affirmed by the Ld. CIT(A) on the ground that issue is recurring in nature and in A.Y. 2012-13 the predecessor CIT(A) has made the similar addition @ 9% towards notional interest.
The Ld. Counsel, at the outset, submitted that the issue is squarely covered in favour of the assessee in assessee’s own case in A.Y. 2012-13 as the co-ordinate bench of the Tribunal has decided this issue in favour of the assessee in A.Y. 2012-13 vide order dated 28.05.2019. The Ld. A.R. therefore prayed that since in the current year the same issue on the same loan is involved, therefore, the addition as sustained by Ld. CIT(A) may kindly be deleted by following the order of co-ordinate bench of the Tribunal.
After hearing both the parties and perusing the material on record and also the decision of the co-ordinate bench of the Tribunal in A.Y. 2012-13 (supra), we find that the identical issue has been decided in favour of the assessee by the co-ordinate bench of the Tribunal wherein it has been held that it is a settled law that it is the real income and not the hypothetical income which is to be assessed. The relevant operative portion is reproduced below: “9. We have heard the rival submissions and perused the relevant materials on record. It is a settled law that it is the real income and not the hypothetical income which is to be taxed. In the case of Kolkata Metropolitan Development Authority (supra), it is held that “when principal amount itself is unrecovered and practically unrecoverable, deemed accrued interest on such loans and advances cannot be brought to tax”.
In the case of UCO Bank (supra), it is held that “interest on a loan whose recovery is doubtful and which has not been recovered by the assessee-bank for the last three years but has been kept in a suspense a/c and has not been brought to the P&L a/c of the assessee, could not be included in the income of the assessee for the assessment on the basis of Circular No. F.201/21/84 TTA-II, dt. 9th Oct, 1984, which was applicable at the relevant time and was binding on the Department”.
The ratio laid down in the above cases is applicable to the instant case. Following the same, we delete the addition of Rs.4,12,500/- made by the AO as deemed interest. 10. In the result, the appeal filed by the assessee is allowed.”
Since the issue before us is identical to one as decided by the co-ordinate bench of the Tribunal in A.Y. 2012-13, we are therefore inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition.
Order pronounced in the open court on 22.06.2021.