DHRUV CHOUDHRIE,NEW DELHI vs. ADIT, NEW DELHI

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ITA 1841/DEL/2012Status: DisposedITAT Delhi22 May 2019AY 2006-076 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the transaction was indeed share application money, not a loan, and since shares were subsequently allotted, no notional interest should be charged. The addition made by the AO was directed to be deleted.

What were the facts?

The assessee provided share application money to M/s Sweet Home Estate Pvt. Ltd. The Assessing Officer (AO) treated this as a loan and added notional interest income, which was confirmed by the CIT(A).

What were the issues?

Whether notional interest can be charged on share application money advanced to a company when shares are subsequently allotted and the funds are not shown to be borrowed.

Which sections of the Income-tax Act were involved?

Section 148

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH: ‘B’, NEW DELHI

Before: SH. BHAVNESH SAINI & SH. N. K. BILLAIYA

For Respondent: Ms. Ashima Neb, Sr. DR
Hearing: 21.05.2019

This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals]-XI New Delhi, dated 02.01.2012 for Assessment Year 2006-07.

2.

The only grievance of the assessee is that the CIT (A) erred in confirming the addition of Rs. 36,55,900/- as interest income under the head income from other sources on share application money given to M/s Sweet Home Estate Pvt. Ltd.

3.

Facts on record shows that the original return of income was filed on 31/07/2006 declaring total income of Rs.13,82,584/-.

Subsequently, information was received from office of the ITO Ward- 7(4), New Delhi, regarding the share application money given to M/s

4.

On the basis of this information, notice u/s 148 was issued and accordingly reassessment proceedings were initiated.

5.

During the course of the reassessment proceedings, the assessee was asked to explain the transaction with M/s Sweet Home Estate Pvt. Ltd. to which it has given an amount of Rs. 3,04,65,827/-. The assessee explained that the said amount has been given as share application money and in support submitted a copy of the Board Resolution dated 21/11/2003. The assessee also contended that no interest should be charged on share application money given to said M/s Sweet Home Estate Pvt. Ltd. Since, it is not given as loan but represents share application money.

6.

The contention of the assessee did not find any favour with the A.O who was of the firm belief that no unrelated party would give an amount of Rs.3.04 crores without charging any interest.

Accordingly, the A.O computed the interest at Rs.36.55 lacs and added the same to the income of the assessee.

7.

The assessee carried the matter before the CIT (A) and once again strongly contended that the said amount has been given as share application money and not as loan. The assessee pointed out that the shares have been allotted in subsequent year. The contention of the assessee did not find any favour with the CIT (A), who was of the firm belief that the assessee should have received interest income and estimated interest @ 12% per annum and confirmed the additions made by the A.O.

8.

Before me, the Counsel reiterated what has been stated before the Lower Authorities and the DR strongly relied on the findings of the CIT(A).

9.

We have carefully considered the orders of the authorities below. A perusal of the assessment orders show that the A.O made the addition as a transfer pricing adjustment being transactions entered into between associated enterprises. It seems that the A.O has re-characterized the transaction of share application money as loan. Though, this issue was not agitated before the CIT (A) as ultimately the additions were made on the assumption that no unrelated party would advance money without charging interest and since in the present case, the money was advanced to a related party, the notional interest was estimated at 12% per annum.

In our considered opinion, the quarrel is now restricted to the addition of Rs.36,55,900/- only in respect of the addition on account of notional interest. In our considered view, the transaction has to be looked as it is. The facts on record show that the transaction is of share application money given by the assessee to M/s Sweet Home Estate Pvt. Ltd. It is also not in dispute that the shares have been subsequently allotted. It is not the case of the Revenue that the assessee has used borrowed funds in making such investment and it is also not the case of the Revenue that the assessee has paid substantial interest on borrowings.

10.

Considering the facts of the case in totality, we do not find any merit in the addition sustained by the CIT (A). The A.O is accordingly directed to delete the addition of Rs. 36,55,900/-.

Since, the assessee did not press the ground challenging the reopening of the assessment, the same is dismissed as not pressed.

Ground No. 2 is allowed.

11.

In result, the appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 22.05.2019.

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