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Facts
The Revenue appealed against the CIT(A)'s decision to delete the ad-hoc/notional interest income addition made by the Assessing Officer for various assessment years. The AO had added Rs. 4,88,816/- as notional interest on alleged offshore bank accounts.
Held
The Tribunal held that the CIT(A) was correct in deleting the addition. The Tribunal noted that the AO calculated interest at a notional rate without any material to support that the interest was actually earned, and that it is settled law that notional interest cannot be taxed as income. The AO also failed to provide corroborative evidence.
Key Issues
Whether notional interest on offshore bank accounts can be taxed as income, and if the AO has provided sufficient evidence to support such an addition.
Sections Cited
69, 153A, 143(3), 271(1)(c), 154
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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI S. RIFAUR RAHMAN
ORDER
PER SATBEER SINGH GODARA, JM
The instant batch of nine appeals pertains to the single assessee herein Sh. Anurag Dalmia. All other relevant details herein are tabulated as under:
Sl. Appeal No. Appellant Respondent Order Appealed against No. 1.
Sh. Anurag CIT(A)-29, New Delhi’s 6516/Del/2017 Central Dalmia, order dated 11.08.2017 for AY: 2006-07 Circle-26, New Delhi passed in case no. 94/15- New Delhi 16/CIT(A)-29, involving proceedings under Section 153A/143(3) of the Act.
ITA No. DCIT, Sh. Anurag CIT(A)-29, New Delhi’s 6517/Del/2017 Central Dalmia, order dated 11.08.2017 for AY: 2007-08 Circle-26, New Delhi passed in case no. 95/15- New Delhi 16/CIT(A)-29, involving proceedings under Section 153A/143(3) of the Act.
3. ITA No. DCIT, Sh. Anurag CIT(A)-29, New Delhi’s 6518/Del/2017 Central Dalmia, order dated 25.08.2017 for AY: 2008-09 Circle-26, New Delhi passed in case no. 214/15- New Delhi 16/CIT(A)-29, involving proceedings under Section 271(1)(c) of the Act.
4. ITA No. DCIT, Sh. Anurag CIT(A)-29, New Delhi’s 6519/Del/2017 Central Dalmia, order dated 31.03.2017 for AY: 2009-10 Circle-26, New Delhi passed in case no. 450/15- New Delhi 16/CIT(A)-29, involving proceedings under Section 154 of the Act.
5. ITA No. DCIT, Sh. Anurag CIT(A)-29, New Delhi’s 6520/Del/2017 Central Dalmia, order dated 31.03.2017 for AY: 2010-11 Circle-26, New Delhi passed in case no. 451/15- New Delhi 16/CIT(A)-29, involving proceedings under Section 154 of the Act.
ITA No. DCIT, Sh. Anurag CIT(A)-29, New Delhi’s 6521/Del/2017 Central Dalmia, order dated 31.03.2017 for AY: 2011-12 Circle-26, New Delhi passed in case no. 452/15- New Delhi 16/CIT(A)-29, involving proceedings under Section 154 of the Act.
ITA No. DCIT, Sh. Anurag CIT(A)-29, New Delhi’s 6539/Del/2017 Central Dalmia, order dated 11.08.2017 for AY: 2009-10 Circle-26, New Delhi passed in case no.96/15- New Delhi 16 to 99/2015-16/CIT(A)- 29, involving proceedings under Section 153A/143(3) of the Act.
ITA No. DCIT, Sh. Anurag CIT(A)-29, New Delhi’s 6540/Del/2017 Central Dalmia, order dated 11.08.2017 for AY: 2010-11 Circle-26, New Delhi passed in case no.96/15- New Delhi 16 to 99/2015-16/CIT(A)- 29, involving proceedings
2 | P a g e under Section 153A/143(3) of the Act. 9.
Sh. Anurag CIT(A)-29, New Delhi’s 6541/Del/2017 Central Dalmia, order dated 11.08.2017 for AY: 2011-12 Circle-26, New Delhi passed in case no.96/15- New Delhi 16 to 99/2015-16/CIT(A)- 29, involving proceedings under Section 153A/143(3) of the Act.
Heard both the parties at length. Case files perused.
2. It emerges during the course of hearing with the able assistance coming from both the parties that the Revenue raises its identical sole substantive ground against the assessee that the CIT(A) has erred in law and on facts in deleting the ad-hoc/notional interest income involving varying sums; assessment year-wise; respectively, in his lower appellate discussion. And that, the Revenue’s “lead” appeal for AY 2006-07 seeks to revive the foregoing interest income addition of Rs.4,88,816/- added by the Assessing Officer representing the assessee’s undisclosed income in HSBC, Geneva account(s).
We note in this factual backdrop that the CIT(A)’s impugned lower appellate discussion granting relief to the assessee under challenge reads as under: “11. Ground no.5 relates to addition of Rs.4,88,816/- made by the AO under section 69 of the IT Act as notional interest on the amount of alleged offshore bank accounts with HSBC Bank, Geneva. I find that the AO had calculated 4% interest on the amount /balance related to 3 | P a g e the year under consideration and accordingly addition was made. The interest was calculated on notional/adhoc rate. There, was no material available on record to establish the fact that the interest was earned on this rate or actually on some other rate, it was earned. Even otherwise it is settled law that no notional interest can be taxed as income. Further, the AO has not brought any corroborative evidence on record in this regard, hence, addition made on this account is directed to be deleted.” This is what leaves the department aggrieved who has filed all of its instant appeals before the tribunal.
We have given our thoughtful consideration to the Revenue’s and the assessee’s respective vehement submissions against and in support of the impugned ad-hoc/notional interest income addition. We make it clear that the learned Assessing Officer had fairly not added the principal deposit amount in the assessee’s hands. There is further no material on record even prima facie indicating any such accrual of notional interest income in the assessee’s hands carrying reasonable certainty element so as to be taxable in his hands going by their lordships’ landmark decision in Chainrup Sampatram Vs. Commissioner of Income-Tax, West Bengal. (1953) 24 ITR 481 (SC).
Faced with this situation, we are of the considered view that the Revenue’s instant sole substantive grievance that we ought to revive the impugned ad-hoc/notional interest income @ 4% hardly carries any merit since not based on any supportive material on 4 | P a g e record. We thus reject the instant sole substantive ground as well as the “lead” appeal in very terms. Same order to follow in the Revenue’s remaining quantum appeals 6539, 6540, 6541/Del/2017 as well as in penalty cases 6519, 6520 & 6521/Del/2017 being consequential in nature in very terms.