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Income Tax Appellate Tribunal, DELHI BENCH:‘A’ NEW DELHI
Before: SHRI CHANDRA MOHAN GARG & SHRI L.P. SAHU
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER:
This appeal by the Revenue has been directed against the order of the Commissioner of Income Tax (Appeals)-I, New Delhi, dated 18/09/2013 in appeal no. 134/2013-14 for A.Y. 2010-11. Ground no. 1 & 3 of the Revenue are of general in nature which needs no adjudication. The remaining sole ground no. 2 reads as under: & CO No. 230/D/2015 2
2. “On the facts and circumstances of the case the ld. CIT(A) has erred in law in deleting the addition of Rs. 2,28,27,650/- made by the AO on account of benefit/perquisite u/s 2(24)(iv) of the Income Tax Act, 1961.” 2. Briefly stated the facts giving rise to this appeal are that a search and seizure operation u/s 132 of the Income Tax Act, 1961 (for short the Act) was carried out on 09/09/2010 in the M/s Amrapali Group of cases, which, inter-alia, include the assessee Shri Anil Kumar Sharma who is Chief Managing Director of M/s Ultra Home Construction Pvt. Ltd. (for short UHC), the flagship company of the group. The case of the present assessee was centralized/transferred to Circle No. 7 by an order u/s 127 of the Act issued by Commissioner of Income Tax, Delhi-XII, vide F.No. CIT-XII/Centralization/2011-12/88 dated 07.04.2011. The assessee filed original return u/s 139 of the Act by way of e-filing on 03/03/2011 declaring an income of Rs. 3,03,56,104/-. The AO passed assessment order u/s 143(3) read with section 153A of the Act on 26/03/2013 making two additions viz. income on account of benefit/perquisite u/s 2(24)(iv) of the Act pertaining to M/s AHS Joint Venture (AHS) and income on account of benefit/perquisite pertaining to M/s Amrapali Infrastructure Pvt. Ltd. (AIPL) assessed the taxable income at Rs. 5,31,83,754/- by making total addition of Rs. 2,28,27,650/- under the said provision.
Being aggrieved by the above assessment order, the assessee filed an appeal before the CIT(A) which was allowed by passing the impugned order and the AO was directed to delete both the additions. Now the aggrieved Revenue is before this Tribunal in the second appeal with the sole ground as reproduced hereinabove. 4. We have heard the argument of both the sides and carefully perused the relevant material placed on record. 5. The ld. Departmental Representative (DR), supporting the action of the AO, submitted that the amount of interest free & CO No. 230/D/2015 3 loan/advance received by the assessee from M/s AHS under the current account was primarily being used for providing interest free loans to the Directors/substantive shareholders of M/s UHCPL. Therefore, the payment received by the assessee amounting to Rs. 5,67,70,500/- from M/s UHCPL was rooted through the firm i.e. M/s AHS Joint Venture and thus, this transaction attract provisions of section 2(24)(iv) of the Act. The ld. DR further pointed out that the interest free advance shown from the books of M/s AIPL apparently do not fetch interest cost but the fund definitely has cost of interest which the Director of M/s AIPL viz. the assessee Shri Anil Sharma and Shri Shiv Sharma were availing being their position as a substantive shareholders of M/s AIPL. The ld. DR vehemently contended that the AO took a very balancing approach by taking rate of interest @ 6% p.a. and the total interest was computed at Rs. 3,01,58,645/- out of which Rs. 1,94,21,420/- pertains to assessee and the same amount was rightly taxed in the hands of the assessee as the benefit/perquisite received by the Directors to be taxed as income u/s 2(24)(iv) of the Act.
6. The ld. DR strongly contended that the CIT(A) granted relief to the assessee without any justified reason because the said loan payment were de-facto made by UHCPL but only rooted through M/s AHS Joint Venture to the assessee. The ld. DR lastly prayed that the impugned order may be set aside by restoring that of the AO.
Replying to the above, the ld. Authorized Representative (AR) supported the order of the first appellate authority and submitted that the case of the assessee is squarely covered in favour of the assessee by the order of the Hon’ble High Court of Punjab & Haryana in the case of CIT vs. Madhu Gupta reported as (2012) 205 Taxman 303 (P&H), wherein it was categorically held that the interest on interest free loan availed by the assessee from a company in which she was a Director & CO No. 230/D/2015 4 could not be treated as her deemed income u/s 2(24)(iv) of the Act. He further drawn our attention towards assessee’s paper book page 19, 21 & 22 and submitted that the provisions of section 2(24)(iv) of the Act are not applicable in the case of partnership firm but are applicable only in the case of companies and the amount received by the assessee from M/s AHS Joint Venture it is ample clear that there is no payment by M/s UHCPL to AHS which can be linked even remotely to the said amount of advance made by AHS Joint Venture to the assessee. Thus, the provision of section 2(24)(iv) of the Act is inapplicable to the present case.
The ld. AR further pointed out that regarding amount of Rs. 1,94,21,420/- received from Amrapali Infrastructure Pvt. Ltd. from the ledger account it is clear that no amount was actually received but it was only a general entry passed at the end of the year i.e. 31/03/2010 debiting the appellant (assessee) account by an amount of Rs. 32,40,90,344/- and correspondingly crediting the UHCPL account to enhance the promoters contribution in the joint venture project between AIPL & UHCPL. The ld. AR further submitted that this book entry was made to facilitate bank finance for the project and does not have any tax implication and hence under these factual matrix and legal position the additions made by the AO could not be sustained which were rightly deleted by the ld. CIT(A).
On a careful consideration of rival submissions at the very outset, we observe that the AO made impugned additions u/s 2(24)(iv) of the Act by observing that the assessee enjoyed benefit/perquisite u/s 2(24)(iv) of the Act from M/s AHS Joint Venture and M/s AIPL as interest free loans and he by applying interest rate @ 6% p.a. computed the notional interest and added the same to the return income of the & CO No. 230/D/2015 5 assessee. During first appellate proceedings, the assessee submitted following explanation by way of written submissions: “1. At the outset, it is submitted that the assessee has neither received any interest income nor any interest has accrued to it. It is only the real income that can be brought to tax. In the absence of any real income, there can be no taxability. The additions made by the AO are of hypothetical income and not of any real income. The AO has himself recognized the additions as on account of notional income. The question which needs to be asked is as to why the AO has estimated the alleged interest income @6% p.a. or not at 5% of 10% or any other rate, for that matter? The very fact that the AO has gone into estimation, assumption and presumption establish that there is no real income and it is only the hypothetical income added by AO. The Hon’ble Apex Court in the case of Godhra Electricity Co. Ltd. (1997) 225 ITR 746 (SC) held that the computation of income is made in accordance with the method of accounting regularly employed by the assessee which may be cash system or mercantile system; however, in both cases unless there is real income, there cannot be any income tax. The aforesaid proposition with regard to real income theory was reaffirmed by Apex Court in the case of CIT vs. Sujata vs. Manohar and G.B. Pattanaik (1999) 236 ITR 315 (SC).
There is no involvement of any “Benefit or Perquisite” given by company to the assessee. Similarly there is no payment for any obligation of the appellant by the company. There is no agreement or contract between the company and the assessee regarding provision or payment by the company of any perquisite, benefit or meeting obligation of assessee. It is not a case that some interest was to be charged by AHS Joint Venture and Amrapali Infrastructure P. Ltd. from the appellant, but was waived by them so as to hold it to be a “perquisite or benefit”. There is no basis for computing the notional interest income @6%. The transactions involved in the appellant’s case are money transactions and, therefore, there is no applicability of section 2(24)(iv). Section 2(24)(iv) deals with any “benefit” or “perquisite” whether convertible into money or not. Thus, it cannot be “money” itself because if it is money, the question of its convertibility into “money” or “not” will not & CO No. 230/D/2015 6 arise. The section speaks of value of any perquisite or benefit. 2.1 In the case of CIT vs. G. Venkataraman (1978) 111 ITR 444 (673) (Mad.), the Hon’ble High Court while considering the provisions of section 2(24)(iv) {corresponding section 2(6C)(iii) of Indian Income Tax, 1922} held as under: - “There are two aspects of the matter to be considered with reference to this provisions, viz., (1) in the first place, the section uses the expression, “the value of any benefit or perquisite, whether convertible into money or not”. From this language it is clear that the “benefit or perquisite” contemplated cannot be money itself. If it is money, the question of its value being taken into account or the benefit or perquisite being converted into money will not arise. Secondly, the very same section makes a distinction between ‘between or perquisite’ on the one hand and ‘any sum paid’ on the other. That itself will show that the benefit or perquisite contemplated by this section should be other than money. 2.2 In the case of Ravinder Singh vs. CIT (1994) 205 ITR 353 (Delhi), the assessee was a partner in a firm. During the course of assessment proceedings of the firm, the AO found debit balance in the capital account of assessee and that the assessee had utilized those over withdrawn funds without paying any interest. The AO applying section 28(iv) made addition on account of interest income @9% by holding it to be benefit or perquisite. The court held that transaction being relating to a cash payment, it cannot be a benefit or perquisite: The precise finding of Hon’ble Court was as under: Then there is another aspect of the matter. Section 28(iv) can be invoked only where the benefit or perquisite is other than the cash. Value of a thing would be the amount of money that it is worth. Valueless is what is worthless. In Installment Supply (P) Ltd. vs. CIT [1984] 149 ITR 457, this Court examined the term ‘whether convertible into money or not’ as appearing in section 40(a)(v) of the Act when the following question of law had been referred to it for decision for the A.Y. 1969-70 and 1970-71: “Whether, on the facts and in the circumstances and on a true interpretation of section 40(a)(v) of the Income-tax Act, 1961, reimbursement of the medical expenses to the managing director has been correctly restricted by the Tribunal to Rs. 12,000 for each of the assessment years 1969-70 and 1970-71?”
ITA No. 6204/D/2013 & CO No. 230/D/2015 7 This Court held that use of the words ‘whether convertible into money or not’ goes to show that the term ‘benefit or amenity or perquisite’ cannot relate to cash payments. In CIT vs. Alchemic (P) Ltd. [1981] 130 ITR 168 (Guj.), the term ‘benefit or perquisite’ arising from business as appearing in section 28(iv) fell for consideration. The Court held that if what was received either by way of benefit or perquisite was money, there was no question of considering the value of such monetary benefit or perquisite under clause (iv) of section 28. It held that it was only if the benefit or perquisite was not in cash or money that section 28(iv) would apply. 2.3 In the case of CIT Madhu Gupta (2012) 303 Taxman 303 (P&H) the Hon’ble Punjab & Haryana High Court held that interest on interest free loans availed by assessee from companies in which she was a director, could not be treated as per deemed income in terms of section 2(24)(iv). 2.4 In the case of DCIT vs. Ashok Kumar Amit Kumar & Shipra Estates (P) Ltd. (ITA No. 3247/Del/2012), the Hon’ble Delhi Bench of ITAT vide its order dated 27.08.2013 held that granting of interest free advances cannot be treated as benefit or perquisite.
3. There is yet another reason because of which the additions made by the AO is not sustainable. The value of any benefit or perquisite as referred to in section 2(24)(iv) of Income Tax Act, 1961, obviously and necessarily has to be the cost/loss incurred/suffered by the company. In the appellant’s case before your honour, because of the interest free advances received by the assessee company, there has been no cost incurred/no loss suffered by AHS Joint Venture or Amrapali Infrastructure Pvt. Ltd. as they had the availability of interest free funds with them. The AO has himself admitted in para 6.2 of the assessment order that the interest free funds advances shown from the company apparently do not fetch interest cost. In view of this admitted position by AO, there could have been no justification for the AO to give a value to the so called benefit or perquisite and made addition thereof. In the case of Ashok W. Phansalkar vs. ITO (2010) 38 SOT 136 (Mum.), the assessee company purchased a flat from a company, in which he was a director for a sum of Rs. 10 lacs, the value of which in the books of company was Rs. 75.90 lacs resulting into loss of Rs. 65.90 lacs to the company. The AO based on market value of flat & CO No. 230/D/2015 8 and other factors computed the value of perquisite/benefit u/s 2(24)(iv) at Rs. 80 lacs and made addition thereof to the assessee’s income. The Hon’ble ITAT held that since the company has suffered loss of Rs. 65.90 lacs, loss so suffered could only be considered as a benefit received by the assessee u/s 2(24)(iv) of Income Tax Act, 1961.
With regard to addition of Rs. 3406230/- in respect of advances received from AHS Joint Venture, the AO has ignored the basic provisions of section 2(24)(iv) of the Income Tax Act, 1961. The amount of Rs. 3406230/- added by AO as 6% interest is on Rs. 56770500/- which has been received from AHS Joint Venture. M/s AHS Joint Venture is not even a company. Thus, there is no applicability at all of the provisions of section 2(24)(iv) to the transaction with AHS Joint Venture. With regard to observation of AO that amount advanced by AHS Joint Venture in a de-facto payment by Ultra Home Construction P. Ltd., it is submitted that firstly, there is no nexus established by the AO between the amount received by AHS Joint Venture from Ultra Home Construction P. Ltd. and the amount granted by AHS Joint Venture to the assessee. Moreover, under any circumstances, no adverse inference can be drawn in the hand of the appellant even if AHS Joint Venture had received any amount from Ultra Home Construction. AHS Joint Venture and Ultra Home are separate independent entities and they have their own transactions between them. The AO has himself assessed AHS Joint Venture and m/s UHCPL as separate entries. There is no concept of so called “de-facto payment” as has been invented by AO.
Yet another reason because of which the addition of Rs. 1,94,21,420/- made by AO in respect of advances from Amrapali Infrastructure P. Ltd. (AIPL) is that, since there is no case of receipt of any amount by the appellant from AIPL there is no question of any perquisite/benefit accruing to the appellant. As can be seen from the ledger account of appellant in the books of AIPL, the same is on account of journal entries in relation to project contribution to Ultra Home and that too at the end of the year. M/s AIPL & M/s Ultra Home between themselves and also along with the appellant have been doing real estate projects. The individual promoters being, fountain heads of the group, are required to be involved in the projects by the bankers and other stakeholders. Since no money has come into the bank & CO No. 230/D/2015 9 account of assessee, there is no question of any benefit or perquisite being accruing to the appellant.
Another reason because of which the addition of Rs. 19421420/- made by the AO in respect of advances from AIPL is liable to be deleted is that the transaction being commercial transactions, there is no case for applicability of section 2(24)(iv) of the Income Tax Act, 1961. It has been duly explained to AO that the transactions and balance outstanding as advance were in relation to property/project. The AO has however, brushed aside the submission of appellant by merely referring to the book value of properties, ignoring the market value and also the fact that the advances were also for properties/projects to be acquired/developed. In view of the fact that transaction is a commercial transaction, there is no applicability of section 2(24)(iv) of Income Tax Act, 1961. In view of the above, it is submitted that the additions made u/s 2(24)(iv) by the AO, being erroneous on facts and in law, is liable to be deleted.”
10. From vigilant reading of the impugned order of the CIT(A), we note that the first appellate authority granted relief to the assessee with following observations and conclusions: 4.2 “I have considered the assessment order, the submissions made and the documents filed. As regards the amount of Rs. 34,06,230/- received by the appellant from M/s AHS Joint Venture (AHS), it is seen from the ledger account that there is no payment by M/s Ultra Home Construction P. ltd. (UHC) to AHS which can be linked even remotely to the said advance. Therefore, the averment of the revenue that the advance originated from UHC has no factual basis. It is further noted that the provisions of section 2(24)(iv) are not applicable in the case of partnership firm but are applicable only in the case of companies. Thus, the provision is inapplicable in the present case. Regarding the amount of Rs. 1,94,21,420/- received from Amrapali Infrastructure P. Ltd. (AIPL), it is seen from the ledger account that there is no amount actually received but it is only a journal entry passed on 31.03.2010 debiting the appellant’s account by an amount of Rs. 32,40,90,344/- (and correspondingly crediting the UHC account) to enhance the promoters’ contribution in the joint venture project between AIPL and UHC. This book entry was made to facilitate bank finance for the project and does not have any tax implication as such. IN & CO No. 230/D/2015 10 these factual and legal aspects of the matter, the additions made cannot be sustained and are deleted. These grounds of appeal
are allowed and appellant gets relief of Rs. 2,28,27,650/-.”
11. On careful consideration of above rival submissions of both the sides and operative part of the impugned order of the first appellate authority, we note that the AO invoked provisions of section 2(24)(iv) of the and for making two additions first of Rs. 34,06,230/- and second of Rs. 1,94,21,420/-. In regard to first addition the ld. Departmental Representative (DR) pointed out that as per para 5 to 5.3 of the assessment order the assessee enjoyed the benefit of the interest free loan of Rs. 5,67,70,500/- from M/s AHS Joint Venture but de-facto this interest free loan was made by M/s UHCPL which were roated through the partnership firm M/s AHS Joint Venture. Therefore, the AO was right in making addition in this regard by calculating the interest @6% p.a. The contention of the ld. AR is that there was no payment made by M/s UHCPL to M/s AHS Joint Venture which can be linked even remotely to the said advanced amount. Therefore, the provisions of sectin 2(24)(iv) of the Act are not applicable in the case of partnership firm and the same are applicable only in the cases of companies.
12. On a careful consideration of above submissions from the bare reading of the ledger account of assessee Shri Anil Kumar Sharma in the books of AHS Joint Venture from 01/04/2009 to 31/03/2010 it is apparent that there was no transaction during the financial period and the amount of opening balance at the beginning of the year remained same at the end of the financial period which has been shown as closing balance. From the ledger account of UHCPL in the books of AHS Joint Venture for the same financial period, we are unable to see any entry which could lead us to an inference that the UHCPL advanced interest free loans to the assessee through AHS Joint & CO No. 230/D/2015 11 Venture. Therefore, we are in agreement with the conclusion of the CIT(A) that from the ledger accounts of the assessee and M/s UHCPL in the books of AHS Joint Venture there is no payment from UHCPL to AHS Joint Venture which could be linked even remotely to the said interest free loan to the assessee. Undisputedly and admittedly AHS Joint Venture is a partnership firm and provisions of section 2(24)(iv) of the Act are only applicable in the case of companies and the same is not applicable in the case of partnership firm, thus, conclusion of the CIT(A) in this regard is correct and we uphold the same.
13. Coming to the next limb of the issue regarding addition of Rs. 1,94,21,420/- the ld. DR pointed out para no. 6 to 6.3 of the assessment order and submitted that the interest free loan amount received by the assessee from M/s AIPL directly attracts provisions of section 2(24)(iv) of the Act because interest free advance received by the Directors should be treated as benefit/perquisite received by the director as they are person who control the affairs of the assessee company and the group companies and advancing interest free loans to themselves without charging any interest is a self serving arrangement to avoid the tax. The ld. DR supporting the action of the AO submitted that the AO by taking a balancing and conservative and reasonable estimate determined the value of the benefit by taking the rate of interest of 6% p.a. and made the addition on correct and justified basis. The ld. DR vehemently pointed out that the CIT(A) granted relief to the assessee without any basis and, therefore, impugned order may be set aside by restoring that of the AO on this issue.
Replying to the above, the ld. AR submitted that the assessee did not actually receive any interest free loan or advance but it was only a journal entry passed on 31/03/2010 debiting the assessee’s account by an amount of Rs. 32,40,90,344/- and correspondingly & CO No. 230/D/2015 12 crediting the UHCPL account to enhance the promoters contribution in the joint venture project between AIPL and UHCPL. The ld. AR further pointed out that the said journal entry was made to facilitate bank finance for the project and does not have any tax implication as wrongly noted by the AO.
On careful consideration of above submission and facts and circumstances of the present case, we observe that section 2(24)(iv) of the Act deals with any “benefit” or “perquisite”, whether convertible into money or not. Therefore, obviously and necessarily there must be some cost/loss incurred/suffered by the company. In the present case the AO has himself admitted in para 6.2 of the assessment order that the interest free funds advance shown from the company to the assessee apparently do not fetch interest cost. At the same time, we also observe that from the copy of the ledger account of Shri Anil Kumar Sharma in the books of AIPL for the period of 31/03/2010 to 31/03/2011 it is amply clear that there was a general debit entry on 31/03/2010 amounting to Rs. 32,40,10,344/- and there was no actual transfer of any funds/advance/loans.
When we consider the ratio of the judgment of Hon’ble Punjab & Haryana High Court in the case of CIT vs. Madhu Gupta (supra), we note that their lordships held that interest on interest free loans availed by the assessee from a company in which she was a director, could not be treated as deemed income u/s 2(24)(iv) of the Act. The relevant operative part of this order at paras 9 to 11 reads as under: “9. Ld. Counsel for the assessee pointed out that the judgments of Calcutta High Court as also of Madras High Court referred to by the counsel for the Revenue have been considered by the Hon’ble Supreme Court in V.M. Salgaocar & Bros. (P) Ltd. vs. CIT [2000] 243 ITR 383/110 Taxman 67 (SC). The Hon’ble Supreme Court has approved the view of Calcutta High Court and also noticed that the judgments of Madras High Court are & CO No. 230/D/2015 13 prior to amendment carried out by the Taxation Laws (Amendment) Act, 1984 and consequent repeal by the Financial Act, 1985. Such intervention makes the intention of the Legislature clear that had the existing provisions been sufficient to treat the benefit of interest free loan, as deemed income, the same would not have been incorporated by way of amendment and subsequent repealed. In the aforesaid case, the assessee was in appeal aggrieved against the judgment of Karnataka High Court, wherein reliance was placed upon judgments of Madras High Court, as mentioned above. The Hon’ble Supreme Court has also quoted with approval, the passage from the judgment of P.R.S. Oberoi’s case (supra). It observed: “The amendment made by the 1984 Amending Act was both to Section 17(2) and Section 40A(5). In the impugned judgment reference in fact had been made to inclusion of Sub Clause (vi) in Clause (2) of section 17. Moreover, the High Court in the impugned judgment did not consider the amendments made by the Amending Act, 1984 on the ground “it is difficult to see how this amendment can have any bearing upon the interpretation of the then existing provisions of the Act.” We do not think this approach was also correct. An amending provision can certainly give guidance to interpretation of the existing provisions. The judgments of the Madras High Court which were relied upon by the High Court in the impugned judgment were for the period prior to the 1984 amendment and the Madras High Court had no occasion to consider the impact of the amendments to section 17(2) and section 40A(5) of the Act. ****** The High Court in the impugned judgment could not have brushed aside the consideration of the Amending Act, 1984 and its subsequent repeal by the Finance Act 1985, by terming them of no consequence Act.”
At this stage, we may notice that section 17 falling in Chapter IV deals computation of income under the & CO No. 230/D/2015 14 head ‘salary’. Section 17(2) defines ‘perquisite’ for the purposes of sections 15 & 16 and for the purposes of section 17, whereas section 40A contemplates that the computation of income under the head “Profits and gains of business or profession”. Section 2(24)(iv) does not define the expression “any benefit or perquisite”. The ‘perquisite’ has been defined in section 17(2) and also were defined in Section 40A(5) prior to its omission by Direct Tax Laws (Amendment) Act, 1987. The provisions of section 40A(5) prior to its omission, deal with expenditure resulting directly or indirectly in the provision of any perquisite whether convertible into money or not i.e. the converse of section 2(24)(iv). Therefore, the interpretation in V.M. Salgaocar and Bros. P. Ltd.’s case (supra) interpreting section 17(2) and effect of amendment in section 40A(5) would be applicable to the expression ‘benefit and perquisite’ appearing in section 2(24)(iv) as well as is observed by Calcutta High Court. The judgment of Calcutta High Court in P.R.S. Oberoi’s case (supra) considering the benefit of perquisite appearing in section 2(24)(iv) of the Act, has been approved by the Hon’ble Supreme Court.
In view of the aforesaid judgments, we are of the opinion that interest on interest free loans advanced to the assessee by the company cannot be treated as deemed income in terms of section 2(24)(iv) of the Act.”
On similar issue the Hon’ble Jurisdictional High Court of Delhi, following the law laid down by the Hon’ble Apex Court in the case of V.M. Salgaoncan and Bros. Pvt. Ltd. vs. CIT (2000) 243 ITR 383 (SC), in the judgment in the case of Sohan Singh vs. CIT (2002) 253 ITR 331 (Delhi) held that in view of insertion of section 17(2)(vi) of the Act and the amendment of section 40A(5) of the Act by the Taxation Laws (Amendment) Act, 1984 and their subsequent deletion w.e.f. 1.4.1985 by the Finance Act, 1985, as a measure of relief to the salaried taxpayers, and the circular dated 12.6.1985 of CBDT relating thereto, the interest not charged could not be treated as assessees’ income u/s 2(24)(iv) of the Act. The relevant operative part of the order of the Hon’ble High Court at page 332-333 is being respectfully reproduced as follows:
ITA No. 6204/D/2013 & CO No. 230/D/2015 15 “The apex court had an occasion to consider a similar questin in V.M. Salgaocar and Bros. Pvt. Ltd. vs. CIT [2000] 243 ITR 383. It was, inter alia, held as follows (headnote): “Sections 17(2) and 40A of the Income Tax Act, 1961, were amended by the Taxation Laws (Amendment) Act, 1984. Sub-clause (vi) of clause (2) of sectin 17 of the Act, as inserted by the Amendment Act of 1984, provided that where the employer has advanced any loan to the employee and either no interest is charged by the employer on the amount of such loan or interest is charged at a rate lower than the rate of interest which the Central Government may specify, then, (a) where the loan is advanced without charging any interest, the interest calculated in the prescribed manner on such loan at the rate so specified, and (b) where the loan is advanced by charging interest at a rate lower than the rate so specified, the difference between the rate of interest calculated in the prescribed manner on such loan at the rate so specified and the interest charged by the employer, shall be deemed to be a perquisite. An amendment on similar lines was made in section 40A of the Act to provide that the amount of interest referred to an item (a) or item (b), as the case may be of sub-clause (vi) of section 17(2) of the Act, shall be regarded as perquisite provided by the assessee to his employee for the purposes of section 40A(5) of the Act. These amendments were intended to take effect from April 1, 1985. However, subsequently, the Finance Act, 1985, sought to omit both the aforesaid provisions with effect from the date of their insertion, namely, April 1, 1985. Clause 20 of the memorandum explaining the provisions of the Finance Bill, 1985 [152 ITR (St.) 91], stated that as a measure of relief to salaried taxpayers, the Bill sought to omit the aforesaid provision with effect from the date of its proposed insertion, namely, April 1, & CO No. 230/D/2015 16 1985. The Central Board of Direct Taxes issued a circular dated June 12, 1985, incorporating the objectives sought to be achieved by omission of clause (vi). Earlier, the Central Board of Direct Taxes had issued a circular explaining the objectives in inserting clause (vi). By the 1984 Amendment Act, Parliament wanted to carve out a particular exception from the otherwise exclusionary clauses for the purposes of computation of income-tax. This provides a clear direction to interpret the provisions of sections 17(2) and 40A(5) before insertion of clause (vi). The circulars of the Central Board of Direct Taxes also provide as to how the Revenue itself understood the effect of the amendment and what was the law before the Amending Act, 1984.” The above being the law laid down by the apex court, the Tribunal’s view cannot maintain. The questions referred, therefore, have to be answered in the negative, in favour of the assessee and against the Revenue.”
In view of foregoing discussion, we are inclined to agree with the conclusion of the CIT(A) that no amount of loan/advance was actually received by the assessee from AIPL but it was only a journal entry passed on 31/03/2010 debiting the assessee’s account and correspondingly crediting the UHCPL account to enhance the promoters contribution in the Joint Venture object between AIPL and UHCPL. Hence, estimated notional addition made by the AO u/s 2(24)(iv) of the Act on both the count could not be held as sustainable and the same was rightly deleted by the CIT(A). The said conclusion also gets support and strength from the ratio of the order of Hon’ble Jurisdictional High Court of Delhi in the case of Sohan Singh vs. CIT (supra). We also hold that the interest free advance/loan to assessee from AHS also does not attract provisions of section 2(24)(iv) of the Act because this provision is only applicable to the cases wherein a & CO No. 230/D/2015 17 company provides benefits/perquisites and this provision is not applicable in the case of partnership firm such as AHS. We are unable to see any infirmity or perversity or any other valid reason to interfere with the order of the first appellate authority and we uphold the same. Accordingly sole ground of the Revenue being devoid of merits on both the limbs of the issue is dismissed.
Cross Objection No. 230/D/2015: The ld. AR of the assessee filed an application and submitted that the assessee wishes to withdraw the cross objection and the assessee may kindly be allowed to withdraw the same. The assessee’s submissions are accepted and cross objection of the assessee is dismissed as not pressed.