PRABHUDHAN FINANCE PVT. LTD.,KOLKATA vs. A.C.I.T.,CIRCLE-10(2), KOLKATA

The assessee in the present case is a Non-Banking Finance Company. The return of income for the year under consideration was filed by it on 31.03.2018 declaring total income of Rs.16,550/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has advanced loans to four parties including M/s. Puja Ferro Alloys Limited, but no interest has been charged on the said loans. Since the assessee had charged interest on the loans advanced to the Assessment Year: 2016-2017 Prabhudhan Finance Pvt. Limited other parties, the Assessing Officer calculated the notional interest in respect of loans advanced to the said four parties at Rs.8,96,220/- and an addition to that extent was made by him to the total income of the assessee in the assessment completed under section 143(3) vide an order dated 25.12.2018.

Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) challenging the addition made by the Assessing Officer on account of notional interest in respect of loans advanced to the concerned four parties. During the course of appellate proceedings, the ld. CIT(Appeals) noted that the assessee-company had charged interest on the loan advanced to M/s. Puja Ferro Alloys Limited even in the immediately preceding year while no such interest was charged on the loans advanced to the other three parties. He accordingly deleted the addition made by the Assessing Officer on account of notional interest in respect of loans given to the said three parties but confirmed the addition made by the Assessing Officer on account of the notional interest in respect of the loan advanced to M/s. Puja Ferro Alloys Limited observing that there was no satisfactory reason given by the assessee-company for not charging interest on the loan given to M/s. Puja Ferro Alloys Limited for the year under consideration. The ld. CIT(Appeals) accordingly restricted the addition of Rs.8,96,220/- made by the Assessing Officer on this issue to Rs.4,71,190/-. Still aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.

I have heard the arguments of both the sides and also perused the relevant material available on record. The ld. Counsel for the assessee has submitted that even though the interest was charged by the assessee- company on the loan given to M/s. Puja Ferro Alloys Limited for the immediately preceding year, there was no such interest actually charged for the year under consideration. He has contended that a conscious Assessment Year: 2016-2017 Prabhudhan Finance Pvt. Limited decision was taken by the assessee-company not to charge interest on the loan given to M/s. Puja Ferro Alloys Limited for the year under consideration keeping in view the relevant facts and circumstances and in the absence of any understanding or agreement to charge such interest, the income on account of the said interest had not accrued to the assessee for the year under consideration. Keeping in view this submission made by the ld. Counsel for the assessee, I hold that there was no real income on account of interest on the loan advanced by the assessee-company to M/s. Puja Ferro Alloys Limited that had accrued to the assessee for the year under consideration and the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of such notional interest is not sustainable. I, therefore, delete the said addition and allow this appeal of the assessee.