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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI SUDHANSHU SRIVASTAVA
This appeal is preferred by the department against order dated 9.12.2016 passed by the Ld. Commissioner of Income Tax (Appeals)-3, Delhi {CIT (A)}. The appeal pertains to assessment year 2012-13.
2.0 Brief facts of the case are that the assessee company is engaged in the business of import export of machinery equipment and materials including technical consultancy for manufacturing electrical components. As per assessment order, the assessee company did not carry any business activity of sale/purchase during the year except for earning of interest income from other sources. The return of income was filed declaring an income of Rs. 36,200/-. During the course of assessment proceedings, the Assessing Officer (AO) noted that the assessee company had incurred a net loss of Rs. 8,45,87,299/-. The AO further noted that the assessee company had squared up an amount of Rs. 33,50,000/- during the year on account of advances given to M/s. Liquid Investment and Trading Company. The AO further noted that the said funds were advanced without charging any interest from the said party whereas interest had been charged from other parties. The AO proceeded to make an addition of Rs. 5,02,500/- being notional interest calculated @ 15% per annum as deemed income u/s 69B of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The AO also noted that the assessee had received share application money against un-allotted shares to the tune of Rs. 87 crores. Although the said share application money was received in assessment year 2011-12, the AO was of the opinion that since the assessee had not issued the shares and the share application money was pending allotment, the same was unexplained share application money. A sum of Rs. 87 crores was added to the income of the assessee u/s 68 of the Act. The assessment was completed at an income of Rs. 87,05,38,700/-.
2.1 Aggrieved, the asseseee approached the Ld. First Appellate Authority who was pleased to delete the addition on account of interest on the ground that once the genuineness is proved and interest is paid on the borrowings, the Assessing Officer could not disallow the deduction either on the ground that the rate of interest was unreasonably higher or that the assessee had himself charged a lower rate of interest. The Ld. CIT (A) also deleted the addition on account of share application money by observing that in the instant case no share application money has been received during the financial year relevant to the assessment year under consideration and, therefore, the provisions of section 68 of the Act could not be applied.
2.2 Now, the Department is in appeal before the ITAT challenging the deletion by the Ld. CIT (A).
3.0 The Ld. CIT (DR) submitted that the Ld. CIT (A) was not justified in deleting the disallowance of Rs. 5,02,500/- on the ground of commercial expediency because the assessee had failed to discharge the primary onus cast upon it to prove that providing financial assistance to the group company by way of interest free advance was the business object of the assessee company. The Ld. CIT (DR) further submitted that the assessee had not substantiated the business purpose even before the Ld. CIT (A) and, therefore, the interest had incorrectly been deleted by the Ld. CIT (A). The Ld. CIT (DR) placed reliance on the judgment of the Hon’ble Delhi High Court in the case of Punjab Stainless Steel Inds. Vs CIT reported in (2011) 324 ITR 396 (Delhi) for the proposition that where there is no finding that interest free advances were made by the assessee to the sister concern for the business purpose, disallowance of portion of interest was justified.
3.1 With reference to the issue of share application money being added u/s 68 of the Act, the Ld. CIT (DR) placed reliance on the order of the AO. It was highlighted that the shares were not allotted even after expiry of four years and no steps had been taken by the assessee to increase the authorised share capital despite receipt of share application money. It was also argued by the Ld. CIT (DR) that no details were filed in support of the creditworthiness of the share applicant.
4.0 In response, the Ld. AR submitted that the AO had made addition on account of notional interest u/s 69B of the Act whereas this was a case where there was no outstanding as on the closing date of the assessment year. Reliance was placed on the judgment of the Hon’ble High Court of Delhi in the case of Shivnandan Buildcon (P.) Ltd. vs. CIT reported in (2015) 233 taxman 297 (Delhi) for the proposition that where an assessee had given advance to its sister concern out of its own funds and no interest had been charged for this loan, in absence of any specific provision in the Act, notional income on advances could not be brought to tax.
4.1 With respect to the issue of share application money, the Ld. Authorised Representative submitted that the Ld. CIT (A) has given a categorical finding that the share application money had been received in the preceding assessment year and, therefore, the same could not have been brought to tax during the year under consideration.
5.0 We have heard the rival submissions and have also perused the material on record. As far as the issue of charging notional interest income is concerned, it is seen that the AO has brought an amount of Rs. 5,02,500/- as deemed income u/s 69B of the Act. Section 69B reads as under:-
“69B. Amount of investments, etc, not fully disclosed in books of account Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the 6 Assessing] Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the 1 Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.”
5.1 Thus, an addition can be made u/s 69B of the Act where during any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery 6 or other valuable article, which exceeds the amount recorded on this count in the books of account maintained by the assessee for any source of income, and where the assessee offers no explanation about such amount or the explanation of the assessee is found to be not satisfactory by the AO. However, in the present case, addition has been made on account of notional interest. It is not the case of the AO that the loan advanced to the sister concern was not recorded in the books of accounts. It is not also the case of the AO that interest expenditure claimed as deduction by the assessee should have been disallowed under the provision of section 36(1)(iii) of the Act. Thus, the fact remains that the AO has proceeded to bring to tax notional income without there being any machinery provisions in the Act. We are of the considered opinion that the assesee’s case is covered in its favour by the judgment of the Hon’ble Delhi High Court in the case of Shivnandan Buildcon (P.) Ltd. vs. CIT (supra) wherein the Hon’ble Delhi High Court had held that notional income on advances could not be brought to tax in absence of any specific provision of the Act. The order of the Hon’ble Delhi High Court in the case of Punjab Stainless Steel Inds Vs CIT (supra) does not come to the aid of the department because in that case the AO had made disallowance out of interest claimed as deduction u/s 36 (1)(iii) of the Act. Since there is no specific provision in the Income Tax Act for bringing to tax notional interest as income on loan/advances to sister concern, we are unable to agree with the submission of the Ld. CIT (DR) and, therefore, while upholding the findings of the Ld. CIT (A) on the issue, we dismiss this ground. 5.1 Coming to the second issue of share application money of Rs. 87 crores, it is seen that the Ld. CIT (A) has given a categorical finding in this regard that the share application money had been received in assessment year 2011-12. It is also evident from a perusal of the assessment order that the AO himself was aware that the share application money was received in assessment year 2011-12 and not in the year under consideration. In fact, on page 2 of his assessment order, he himself has stated that the assessee was asked to show cause as to why addition of the share application money received should not be added to the income of the assessee or permission to get approval to issue notice u/s 148 be moved for assessment year 2011-12. Thus, apparently, the AO himself was aware that the share application money had not been received during the year under consideration but during the preceding assessment year. We also note that the assessment proceedings for assessment year 2011-12 were subsequently reopened u/s 147 of the Act and order u/s 147 read with section 143 (3) of the Act was passed on 10.4.2019 wherein the impugned sum of Rs. 87 crores has been added to the income of the assessee in assessment year 2011-12. Since this impugned amount has already been brought to tax in assessment year 2011-12 and since the impugned amount does not relate to this year under appeal, we agree with the findings of the Ld. CIT (A) on this issue and uphold his order of deleting the said amount. The related grounds stand dismissed.
In the final result, the appeal of the department stands dismissed.