SAHARA INFRASTRUCTURE & HOUSING LIMITED,KOLKATA vs. ACIT CENTRAL CIRCLE-1, NEW DELHI

Though the assessee had raised several grounds of appeal before us, the only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the addition made on account of notional interest in the sum of Rs 7,20,000/- in respect of interest free

We have heard the rival submissions and perused the materials available on record. The assessee company is engaged in the business of tour operator as a travel agent, transport agent, arrangement of tours & travel facilities to the tourists. The return of income for the Asst Year 2017-18 was filed by the assessee company on 28.3.2018 u/s 139(4) of the Act declaring total loss of Rs 5,43,97,085/-. The ld. AO observed that the assessee has been incurring loss on one hand but on the other hand, had advanced interest free loans to Sahara India Tourism Development Corporation Limited (SITDCL). Accordingly, the ld. AO proceeded to add notional interest at the rate of 12% on the amount advanced of Rs 60 lakhs and made an addition towards notional interest of Rs 7,20,000/- in the assessment. The assessee submitted that this loan to sister concern was given by the assessee company during the Asst Year 2015-16, during which year, the assessee had shown profits in the return and that there were no borrowed funds during that year. The assessee also submitted that the said interest free loan given to sister concern was in the normal course of business and for the purpose of business only as the said sister concern is also engaged in the same tourism industry. This interest free loan of Rs 60 lakhs given in Asst Year 2015-16 was accepted to be meant for business purposes by the ld. AO in Asst Year 2015-16 and no addition towards notional interest was made by the ld. AO. Since there was a loss during the year under consideration i.e in Asst Year 2017-18, the ld. AO proceeded to add notional interest at the rate of 12% and made addition of Rs 7,20,000/- (60,00,000 * 12%). This action of the ld. AO was upheld by the ld. CIT(A) by stating that the loan given to sister concern was not for business purposes. In our considered opinion, we find that the action of the lower authorities in making addition towards notional interest of Rs 7,20,000/- is completely fallacious in view of the following:-

In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that the addition made towards notional interest in the sum of Rs 7,20,000/- deserves to be deleted. Accordingly, the grounds raised by the assessee are allowed.

In the result, the appeal of the assessee is allowed.