1.   M/s Shivnandan Buildcon Pvt. Ltd. & M/s Omshiv Buildtech Pvt. Ltd. Vs. CIT, W.P.(C) 6265/2013, Date of Decision: 30.04.2015, Delhi High Court

Whether AO is justified in making addition on account of ‘notional interest’ on loan given by assessee, where interest has not actually received by the assessee?

Held_ No

Brief Facts:
The assessee had filed his return of income for AY 2009-10 declaring a loss of income of Rs.32,934/- on 25.09.2009.The assessee had given an advance of Rs.l,61,00,000/- to M/s Smart Tourist Pvt. Ltd during F.Y. 2007-08 for purchase of land which was outstanding as on 31.03.2009. The AO completed assessment u/s 143(3) at an income of Rs.18,99,070/- as against the above mentioned loss by making an addition of Rs.19,32,000/- on account of notional interest earned on advances given to M/s. Smart Tourist Pvt. Ltd. The AO has contended that in the absence of any explanation as to why the assessee has given loan to the above concern out of its funds and no interest has been charged for this loan and evidence regarding identities of the parties, notional interest at 12% per annum being charged on the loan amount given. The CIT(A) upheld the order of AO. Aggrieved assessee filed writ before Hon’ble High Court.

Held:
On going through the decision on ‘B and A Plantations and Industries Ltd. v Commissioner of Income –Tax: 242 ITR 22’, it can be discerned that there was nothing to show that the assessee had, in fact, received interest or that the company to whom the loan was given had, in fact, paid interest to the assessee. There was also nothing on record to show that the alleged interest was not reflected in the accounts. The only finding recorded was that the assessee “ought to” have charged interest. It was, therefore, held that unless and until there was a concrete finding that something was received by the assessee from the M/s Smart Tourist Private Limited, nothing can be added by way of notional income. However, Ld DR point out Section 144 of the Income Tax Act, whereunder such “notional” interest could  be made the subject matter of tax. The court held that Section 144 does not at all apply to the present proceedings because the present proceedings originate from an assessment u/s 143(3). In the absence of any specific provision under which the so called notional income on advances could be brought to tax, the impugned orders passed by the CIT cannot be sustained. Consequently, we allow these writ petitions.

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2.  M/s. PCI Ltd. Vs. ACIT, I.T.A. No.: 5937/Del/2012, Date of Pronouncement: 05.05.2015, ITAT -  Delhi

Issue:
Whether reopening of the assessment u/s 147/148 is justified, where reasons for reopening were based only on the information received from the Investigation Wing of the department and no other material was put on record by revenue to believe that the income had escaped assessment?

Held_No

Brief Facts:
The assessee was assessed u/s 143(3) for AY 2005-06 & 2006-07.The AO received information from the Directorate of Investigation that search and seizure operation was carried out against Sh. S.K. Gupta group, who has floated paper entities, which were indulging in giving accommodation entries of different natures to number of interested persons. Therefore, on the basis of such information, AO issued notice u/s 148 for reopening of assessment of the assessee. The AO has made addition of Rs. 3 lakh and Rs. 6 Lakh in respect of payment made to M/s Globtex Tech India Ltd and M/s BT Technet Ltd respectively for A.Y. 2005-06 and 2006-07. Being aggrieved, the assessee appealed before Ld. CIT(A). The CIT(A) directed the AO to verify the sworn statements of Shri S.K. Gupta and intimate, whether there is any reference to the transactions with M/s. PCI Ltd.(the assessee) as he was unable to find any reference to the transaction with the assessee in the copy of the sworn statement of Sh. S.K. Gupta. The AO filed a detailed remand report admitting that the action u/s 147 of the Act was taken on the basis of information received from the investigation wing. Also the copy of statement of Shri S.K. Gupta is presently not available in this office record. The AO also submitted that the total of such entries / recipients parties was running into thousands and therefore it was certainly not possible for Sh. S.K. Gupta to name each such recipients / transactions in his statement. The CIT (A) upheld the order.

Held:
“We find that the CIT(A) has categorically recorded in his direction u/s 250 (4) dated 27.2.2012 that he was unable to find any reference to the transaction with M/s. PCI Ltd ( the appellant) in the copy of the sworn statement supplied to this office. This finding of the CIT(A) recorded in his direction u/s 250(4) dated 27.2.2012 could not be controverted by the revenue. The AO in his remand report dated 4.7.2012 has admitted that the statement of Shri S.K. Gupta as recorded by the investigation wing was presently not available in his office record. In these facts of the case, we are unable to uphold the action of the AO in reopening the assessment by issuance of notice u/s 148 as the department has failed to connect the name of the appellant before us with the statements of the so called entry provider Shri S.K. Gupta. Accordingly, the reasons recorded by the AO for reopening the assessment u/s 148 were based on no material and are clearly unsustainable. In view of our decision holding that reopening of assessment in both the assessment years was void, we are not adjudicating the other grounds of appeal on merits of the additions made by the AO.”

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