MUKUND DATTATRAY BHIDE,,SANGLI vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 1,, SANGLI

Both the appeals relating to same assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. However, in order to adjudicate the issue, reference is being made to the facts and issue in ITA No.71/PUN/2018, relating to assessment year 2008-09.

The assessee in ITA No.71/PUN/2018, relating to assessment year 2008-09 has raised the following ground of appeal:- 1) On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in dismissing the appeal of the assessee confirming the addition made by the A.O. of Rs.8,13,465/- on account of hypothetical / notional interest for share application money remaining without allotment of shares. The addition of notional/hypothetical interest is not permissible in law as it cannot be taken as accrual of ‘real income’. The addition be deleted.

The only issue raised in the present appeal is in respect of addition made on account of notional interest on share application money remaining allotment of shares.

Briefly, in the facts of the case, the assessee was engaged in the business of re-sale of tyres mainly of Apollo Tyres and Falcon Tyres. The assessee had made deposits of ₹ 22,36,000/- under the head ‘Company Shares’. The Assessing Officer asked the assessee to furnish the details of interest received on the aforesaid deposits. The assessee explained that the investment was made earlier and the Assessing Officer noted that no interest was charged on accrual basis. The assessee in reply, explained that he used to receive various discounts from the companies for prompt payments, quarterly discounts, slab discount, sales discount, etc. As per oral instructions of M/s. Apollo Tyres, the assessee had made the aforesaid investments on

The CIT(A) upheld the order of Assessing Officer and brushed aside the plea of assessee that no notional income could be taxed in his hands.

The assessee is in appeal against the order of CIT(A).

The learned Authorized Representative for the assessee pointed out that the aforesaid deposits were made right from 2003 and no interest was charged in the hands of assessee in earlier years. He further pointed out that the

The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below.

On perusal of record and after hearing both the learned Authorized Representatives and after perusing the Balance Sheet of sole proprietary concern of the assessee, I find that there is credit balance of ₹ 47,22,400/- in the Capital Account of assessee, as against which the deposits which were made totaled to ₹ 22,36,000/- at the end of the year. The deposits with different companies associated with Apollo Tyres right from 01.04.2003 to 31.03.2007 totaled to ₹ 36,36,000/-, sum of ₹ 4 lakhs was returned back on 31.08.2007 and ₹ 10 lakhs on 24.09.2007 leaving balance of ₹ 22,36,000/- as on 31.03.2008. Where the assessee has own funds and had utilized the same for the purpose of giving advances to different concerns who were related to Apollo Tyres, where the assessee was dealer in tyres of Apollo Tyres Ltd., no adverse inference can be drawn against the assessee. The availability of interest free funds in the hands of assessee by way of Capital Account is not disputed and in such circumstances, where the available funds were much more than interest free advances in the hands of assessee, no disallowance on account of interest expenses is to be made in the hands of assessee. Accordingly, I hold so.

The facts and issue in ITA No.1347/PUN/2018 are identical to the facts and issue in ITA No.71/PUN/2018 and the decision in ITA No.71/PUN/2018 shall applicable mutatis mutandis to ITA No.1347/PUN/2018.

In the result, both the appeals of assessee are allowed.