SIMOCO SYSTEMS AND INFRASTRUCTURE SOLUTIONS LIMITED,KOLKATA V. ITO WARD 2 (1), KOLKATA

ITA 123/KOL/2024

AI Insights

The case involves Simoco Systems and Infrastructure Solutions Limited, which appealed against the order of the Commissioner of Income Tax (Appeals) confirming the addition of Rs. 4,84,99,218 as undisclosed interest income for the Assessment Year 2018-19. The addition was initially made by the Assessing Officer under sections 143(3) and 144B of the Income Tax Act, 1961, based on the presumption that the company had earned interest on short-term loans and advances. The Tribunal examined the submissions and evidence presented, including the absence of any interest income in the company's financial records and the nature of the advances as business-related transactions without any interest charge.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 470923 (ITAT-KOLKATA)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Appeal Filed On: 19-01-2024
• Other Referred Cases: S.A. Builders Ltd. v. Commissioner of Income-tax (Appeals), Chandigarh, Atherton v. British Insulated & Helsby Cables Ltd., Highways Construction Co. Pvt. Ltd. v CTT, SHIVNANDAN BUILDCON (P) LTD. & ANR. vs. COMMISSIONER OF INCOME TAX ANR, COMMISSIONER OF INCOME TAX vs. DLF UNIVERSAL LTD., COMMISSIONER OF INCOME TAX vs. GIRIRAJ UDYOG (P) LTD.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANKUR GOYAL
• Assessee Lawyers: INDRANIL BANERJEE
• Keywords: Set aside; Proportionate interest; Business expenditure; Question of law; Rule of consistency; Commercial expediency; Assessment record; Notional interest
• Section: 143(3); 142(1); 250; 139(1); 43; 22; 133(6); 69A; 37; 115JB

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH KOLKATA BEFORE SHRI SONJOY SARMA, JUDICIAL MEMBER AND SHRI RAKESH MISHRA, ACCOUNTANT MEMBER ITA No. 123/KOL/2024 Assessment Year: 2018-19 Simoco Systems and Infrastructure Solutions Limited, Kolkata, Godrej Genesis Building, 2nd Floor, Block EP and GP, Sector V, Salt Lake, Kolkata - 700091 (PAN: AAKCS8592A) Vs ITO Ward 2(1), Kolkata, Aaykar Bhavan, Chowringhee Square, Kolkata - 700069 (Appellant) (Respondent) Present for: Appellant by : Indranil Banerjee, AR Respondent by : Ankur Goyal, JCIT, Sr. DR Date of Hearing : 18.09.2024 Date of Pronouncement : 29.11.2024 O R D E R PER RAKESH MISHRA, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, (NFAC), Delhi [hereinafter referred to as “the Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2018-19, dated 20.11.2023, which has been passed against the assessment order u/s 143(3) read with section 144B of the Act, dated 25.09.2021. 2. The grounds of appeal raised by the assessee are reproduced as under: 2 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 “1. On the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law by upholding the addition of Rs 4,84,99,218/- made by Assessing Officer, National Faceless Assessment Centre, as undisclosed interest income on short term Loans and Advances purely on presumption without any factual basis and reference to any section of the Income Tax Act in support of his action, without properly appreciating the fact that no such interest income has been earned by the appellant and without considering various court judgements cited by the appellant before the Ld. CIT (Appeals) in this regard which should be set aside. 2. The appellant craves leave to add, alter or amend any/ all of the grounds of appeal before or during the course of the hearing of the appeal.” 3. Brief facts of the case as culled out from the appellate order of the Ld. CIT(A) and the assessment order of the Ld. AO and the submissions made by the Ld. AR are that the assessee company is engaged in real estate development business, more particularly in developing affordable housing during the previous year 2017-18. The company had e-filed its return of income for AY 2018-19 on 26/09/2018 declaring total income at Rs.NIL. The assessee had shown deemed total income u/s 115JB of the Act at Rs.69,07,501/-. The return was revised on 12/10/2018 showing the same total income as well as the income u/s 115JB. The case of the assessee was selected for Complete Scrutiny under the E- assessment Scheme, 2019 on the issues of (i) Income from Real Estate Business & (ii) Investments/Advances/Loans. In the course of the assessment proceedings, the Ld. Assessing Officer (in short “the Ld. AO”) examined various items, which are stated to have been explained to the satisfaction of the Ld. AO. It is stated that the appellant company, being in the real estate business, had advanced money to various parties towards purchase of land and miscellaneous project expenses in the ordinary course of business. As on 31.03.2018, the aggregate outstanding in respect of such advances amounted to Rs 127,79,03,793/- and this amount was properly disclosed on the assets side of the balance sheet under the head ‘Short Term Loans & Advances’ under the broad head of ‘Current Assets’; the corresponding amount as on 31st March, 2017 being 3 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 Rs.103,98,49,292/-. On perusal of the Profit & Loss A/c, it was noted by the Ld. AO that no income by way of interest or any other receipt had been offered on these advances/loans. The corresponding figure for the last year was shown at approximately Rs.104 crores, which meant that these amounts had been outstanding for significant amount of time and yet nothing had been offered on these advances/loans by way of interest. The Ld. AO required the assessee company to provide party wise details of such advances and the details of interest earned on these amounts. The assessee provided the details and submitted that no interest had been received or was receivable against such advances, which were paid purely for business purposes for purchase of land and project expenses. The Ld. AO, thereafter, issued notices under section 133(6) of the Act to the parties to ascertain the genuineness and creditworthiness of the parties and to ascertain whether any interest was paid to the assessee for the loans and advances given by the assessee during the year. The appellant company had been informed by the said parties that they could not respond to the notices under section 133(6) of the department due to technical issues in the new income tax e-filing site, which was informed by them to the department without any result. The parties then sent their replies to the assessee who uploaded such replies being loan confirmation letters and copy of returns for AY 2018-19 in respect of 8 parties namely (1) G.S. Electrocom Pvt. Ltd (2) Modern Mobitech Pvt. Ltd (3) SG Aqua & Garden Fresh Pvt. Ltd (4) S.G. Computech Ltd (s) Samastha Infotainment Pvt. Ltd. (6) Transceivers India Ltd (7) S.G. Retails Pvt. Ltd and (8) Basilica Realcon Pvt Ltd through the e-proceeding portal on 24/09/2021 along with the reply to the show cause notice. These 8 parties together covered about 75% of the short-term Loans & Advances reflected in the balance sheet under the broad head ‘current assets’. However, the Ld. AO has commented in para 11 of the assessment order that the loan confirmation letters and copy of returns of only 3 parties namely (1) Basilica 2) G.S. Electronics and (3) Modem Mobitech Pvt. Ltd had been filed, which as per 4 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 the assessee is not a correct statement of fact. Vide show cause notice dated 23/09/2021, the Ld. AO proposed to add Rs 8,90,29,629/- towards interest income @9% of Short Term Loans and Advances of Rs 10 Lakh or more aggregating to Rs 98,92,18,103/- under section 69A on the ground that: (i) the assessee was paying interest @9% to its creditors (i) the assessee failed to give valid reasons for not charging interest on the loans and advances of more than Rs 10 Lakh given to the parties. It is stated that it is pertinent to note that there is nothing on record to show that the appellant company had paid any interest to its creditors during the previous year 2017-18 relevant to AY 2018-19. In fact, during the AY 2018-19 and AY 2017-18, the appellant did not incur any interest expense since there was no borrowing. Moreover, there is nothing on record to show that the appellant company had earned or had a right to earn any interest income on the said advances which was given in the ordinary course of its real estate business. It is mentioned in the statement of facts filed before the Ld. CIT(A) that though in the show cause notice, the Ld. AO had proposed to add notional interest income by invoking section 69A the Act, however in the final assessment order he chose not to mention any section under which the addition was made. In response to this show cause notice, the assessee submitted sample copies of development agreements in respect of some of the parties to explain the nature of the advances as also balance confirmation letters and copy of Income Tax returns for AY 2018-19 in respect of 8 parties from whom advances were outstanding as on 31 March 2018 and shown in the balance sheet as short-term loans and advance under the broad head ‘current assets’. In the final assessment order, the Ld Assessing Officer reduced the outstanding balances of the parties from the above said aggregate amount of Rs 98,92,18,103/- for whom development agreement documents were submitted and assessed the interest income @9 percent on the balance amount of Rs 53,88,80,204/- to arrive at a notional interest income of Rs 4,84,99,218/- and has added the same to the returned income treating it 5 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 as undisclosed interest income. It is stated that it is apparent from the assessment order that the only ground on which the Ld. AO has made the addition is the failure of appellant company to provide documentary evidence to prove that no interest has been earned during the previous year 2017-18 even though the Ld. AO did not possess any material to prove receipt of any interest income by the appellant company and this alleged undisclosed interest income is nothing but an imagination of the Ld. A.O. Evidently, the Ld. AO did not mention under which section of the Income Tax Act such a huge addition has been made. It is stated there is no provision under the Income Tax Act which empowers the Assessing Officer to add notional interest to the income of the appellant. The assessment order is thus unjustified, without any factual or legal basis and the addition of Rs 4,84,99,218/- has been made purely on presumption which is beyond the jurisdiction of the assessing authority. In the computation sheet forming part of the assessment order, while allowing the set off, the Ld. AO did not take note of the facts available from past assessment record of the appellant that aggregate carried forward business loss available for set off against income of AY 2018-19 amounted to Rs 5,94,64,678/- which pertains to AYs 2014-15 & 2015-16. Thus, without prejudice to the appellant's contention as regards the unlawful addition of notional interest, even after considering the addition of Rs 4,84,99,218/- the total income of the appellant would have been nil had the carried forward loss been calculated properly and tax demand would also have been Nil. Aggrieved with the additions, the assessee filed the appeal before the Ld. CIT(A) who confirmed the addition by giving the following findings in Para 5.3 of the impugned appeal order: 5.3 Findings and Decision: I have carefully considered the facts of the case as well as submissions filed by the appellant. I find no force in the arguments of the Appellant. The Assessee has given lengthy arguments but has tried to obfuscate the facts and furnish misleading claims. In the P/L a/c, the other income is shown at Rs.9,03,233/- whereas the 6 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 corresponding figure was Rs.3,77,05,931/. This would have some interest element and it appears that the interest paid has been netted off against this income and it is claimed that no interest is \"debited\" to the P/L account. The details of the interest account is not given and nor are the details of the 'Other Income', thereby implying through subterfuge that no interest has been paid. Similarly, the copy of accounts of the 'loans and advance parties' are given, and no confirmed copies of account of the creditors is furnished. The details of the projects are not given, and as to how the investment made benefits the Assessee company, is not explained. Further, the fundamental reason as to why the interest has not been charged is not explained even in appellate proceedings. In light of the above, the addition of Rs.4,84,99,218/- made by the Assessing Officer is hereby confirmed and the grounds of appeal no. 1, 2, 3, 4 and 5 are dismissed. 3.1 Regarding the set-off of the losses, directions were issued to the Ld. AO to allow the set of the losses if the same was allowable as per the records and the returns of income had been filed by the assessee within the time allowed u/s 139(1) of the Act. 3.2 Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal. 4. Rival contentions were heard and the record and the submissions made were examined. While the Ld. AR submitted that the addition was unjustified, the Ld. DR relied upon the order of the Ld. CIT(A). 5. The Ld. AR drew our attention to the fact that the assessee was a real estate developer and income from development of properties was shown. It was argued that the allegation that the appellant had paid interest to the creditors is totally absurd, based on conjecture and is contrary to the facts on record since there was no finance cost in the profit and loss account as per Note 14 and there had been Nil finance cost in the preceding year as well. In the return, under the head interest expenses, the amount had been shown as NIL and there was no scope for claiming interest as a deduction for determination of the total income. Except for the Annual Maintenance of Rs.9,03,233/- included in the total revenue 7 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 from operation shown at Rs.97,29,53,734/-, no other income had been earned nor any interest income was, therefore, disclosed. During the year, as is evident from the schedule of other current liabilities vide page 11 of the people amounting to Rs.224,84,38,440/- read with the summary of current liabilities, it would be noticed that there had been substantial receipt of advance from customers (prospective flat buyers) during the years at Rs.91,34,29,504/- and only interest-free advances received from customers had facilitated such interest-free advances which are given in the course of the business. Interest had been alien to either side. It was submitted that the cash flow statement furnished in the course of the hearing would also corroborate the fund availability without interest and the addition of fictional interest in the light of proven facts and the judgements cited in the course of hearing was requested to be deleted in toto. It was submitted that the advances were from interest-free sources, no extraneous interest could be invoked under the law as the Act does not provide for chargeability to tax not founded on ‘real income’. The extract from written submissions filed in the course of the appeal before us is reproduced as under: A. Observations and Outcome of the Assessment Proceeding Vide Sec. 142(1) Notice, (PB 131), the Ld. FAU had, inter alia, requisitioned the details of Sundry Creditors & Sundry Debtors (S1. 13) and Loans and Advances (Sl. 16), besides several particulars and evidence. While in respect of other issues, the Ld. FAU had no adverse or contrary view and conclusion, the issue that had given rise to the controversy and consequently, the agitation in the present appeal, is as under. The issue is concerned with the Interest Free Short Term Loans and Advances amounting to Rs.1277903793/- (Previous Year 1039849292/-) vide the Balance Sheet-PB 9/Note No. 11, PB-14. The Party-wise details are available, vide the Statement, appended vide PB 106 to 113. Page No. of the Assessment Order Requisition conveyed by Compliance made the Ld. FAU Compliance made 7 The Return Copies of such parties, along with the Computation Confirmations had been evidently uploaded for Eight Major parties, vide the Acknowledgement 8 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 generated by the system, PB 138-141. Please refer to the following Tabulation Evidently, the Confirmation from the following Parties, to whom the Advances had been made, had been filed: Name PAN Balance (Rs.) Evidence PB 1. GS Electrocom Pvt. Ltd. AALCA7871M 8553640.00 106/114- Admitted in Order 2. Basilica Realcom Pvt. Ltd. Hexatek AADCH2156E 42077900.00 106 /115- Admitted in Order 3. Modern Mobitech Pvt. Ltd. AAGCMS226K 47516927.00 106/116- Admitted in Order 4. SG Aqua & Garden Fresh Pvt. Ltd AANCS6531Q 90600026.00 107/117 (Not Admitted in Order) 5. SG Computech Ltd. AANCS6123J 157443441.00 109/118 (Not Admitted in Order) 6. Samasth Infotainment Pvt. Ltd. AANCS1174R 158364567.00 111/119 (Not Admitted in Order) 7. Transceivers India Ltd. AAACT3813D 324370680.00 112/120 (Not Admitted in Order) 8. SG Retails Pvt. Ltd. AAMCS8754N 60057921.00 113/121 (Not Admitted in Order) Total 888985102.00 The proof of filing of the confirmation cum ITR Return, could be viewed from the System generated Acknowledgment, vide PB 138-141 (containing the above names). It is also significant to note that while the Total Advance as on the last date had amounted to Rs.1277903793/- (Balance Sheet PB 9, Schedule-PB 14 and Name- wise Details-PB 106-113), the aggregate of advance pertaining to the above eight (8) parties had amounted to Rs888985102.00. It signifies that the Advance due from 9 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 the above eight (8) parties alone, had represented 69.56% of the Total Advance of Rs.1277903793.00 However, most surprisingly, vide First Para of page 12 of the Assessment Order, the FAU had alleged that although Letters/Notices u/s 133(6)had been sent to as many as Eight (8) parties, only three (3) parties had responded. Such three (3) parties are Basilica, G. S. Electronics and Modern Mobitech Pvt. Ltd. As a result, it had accused the Appellant of not furnishing the details of the rest of the parties. But it is fully evident that all the Eight (8) Major Parties had duly furnished their Confirmations and ITR copies, through the Appellant, as some of them had found it difficult to directly mail their respective documents to the FAU. So, the allegation that barring the three abovementioned Parties (Basilica, G. S Electronics and Modern Mobitech Pvt. Ltd.) no other confirmation from rest of the parties had been received at the end of FAU, is contrary to facts and thus, untrue. The system generated Acknowledgment, vide PB 138-141, showing the names of all the eight parties, read with the confirmatory letters, so presented (PB 114-121) would refute such assertion of non-filing. It had been repeatedly and strenuously asserted that neither any receipt nor accrual on account of Interest had taken place. This had been irrefutably corroborated as under- Interest Payment/Expenditure/Debit a) There had been NIL Finance Cost (Note 14) in the Profit and Loss Account-PB 10. There had been NIL. Finance Cost in the preceding year either. b) Vide Note/Schedule 14 being the Schedule of aforesaid Finance Cost (PB 10), there had been no Interest Payment either in the current year of in the preceding year (PB 14). c) Accordingly, in the Return, vide PB 61/SI. No 43 being the Box earmarked for Interest Expenses, the amount had been NIL d) In conclusion, there had been no debit, whatsoever, on account of any interest anywhere. e) Accordingly, there had remained no scope for claiming Interest as a deduction, for the determination of Total Income. Interest Income - Credit a) Vide Profit and Loss Account, PB 10, Total Revenue from Operation had been Rs.972953734.00 (P.Y 383613837.00). b) Vide Schedule 12 (PB 14) showing the Break-up of above figure of Gross Revenue, besides core business Revenue of Rs.972050501.00 (Ρ.Υ 345907906,00), only Rs.903233.00 had been earned as other income. c) From the Break Up of other Income, vide PB 105, it is fully and unmistakably evident that excepting the Annual Maintenance of Rs.903233.00, no other income of interest had at all or ever been earned. Even the prior year's figure of Rs.37705931.00 had never included interest. d) Vide Income Tax Return, PB 52, SL. No 2, it is evident that in the absence of any interest income, as evidenced above, no interest income had, likewise, been disclosed. Accordingly, Interest income or expenditure for being a non-existent item for the assessee, the Ld. Assessment Unit, should not have proceeded to conjecture that Interest had been received by the Appellant and it had failed to disclose the same as income. As a result, it should not have most arbitrarily assume accrual of interest 10 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 on a part of the Advance of Rs.538880204.00 and applied Interest Rate of 9% thereon notionally, and accordingly add Rs.48499218.00. Such addition for being bereft of any factual or legal merit, would call for total deletion. In this connection, it would be fully pertinent to highlight that the nature of activity for remaining same as earlier year and the Book Results for being accepted in the earlier year's scrutiny order, vide PB 132-134, it would call for consistent treatment, rather than deviation from the same merely on some imputation and allegation. The Ld. CIT(A), instead of applying his own mind and verifying the facts independently, has simply and superficially reiterated the observation of the FAU and accordingly, upheld the addition The addition for being devoid of any merit and fully based on conjecture and mere allegation and wrongful attribution of onus to the Appellant, would call for total deletion. 6. We have gone through the written submissions and the facts of the case. In the course of the appeal the assessee submitted that neither any interest was debited nor any interest was credited, therefore, there was no question of charging any interest on the advances on presumptive basis. Even in the past years, no such addition was ever made. It was also submitted that the assessee had sufficient interest free funds which were shown under the head ‘other current liabilities’ and in which the ‘advance from customers’ were shown at Rs.2,03,93,41,274/- as the opening balance to which addition of Rs.91,34,29,504/- was made and after making adjustment of Rs.83,17,70,790/- during the year, the closing balance remained with the assessee at Rs.2,12,09,99,998/-. The Opening balance of Other Current Liabilities was Rs.2,18,81,00,934/- while the closing balance was Rs.2,24,84,38,440/-. The opening cash balance was Rs.27,56,401/- while the closing cash balance was Rs.24,99,311/-. Thus, it was submitted that the assessee had sufficient advance from customers which was given as interest- free advances to the business associates and no interest was 11 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 charged nor the same was chargeable. Our attention was also drawn to the decision of Hon’ble Supreme Court in the case of S.A. Builders Ltd. v. Commissioner of Income-tax (Appeals), Chandigarh [2007] [2007] 158 Taxman 74 (SC)/[2007] 288 ITR 1 (SC)in which it has been held that: The High Court in the impugned judgment as well as the Tribunal and the income- tax authorities had approached the matter from an erroneous angle. In the instant case, the assessee borrowed the fund from the bank and lent part of it to its sister concern (a subsidiary) as interest-free loan. The test in such a case was really whether this was done as a measure of commercial expediency. [Para 21] The decisions relating to section 37 will also be applicable to section 36(1)(iii) be- cause in section 37 also the expression used is 'for the purpose of business'. It has been consistently held in decisions relating to section 37 that the expression 'for the purpose of business' includes expenditure voluntarily incurred for commercial expe- diency, and it is immaterial if a third party also benefits thereby. [Para 22] In Atherton v. British Insulated & Helsby Cables Ltd. [1925] 10 TC 155, it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on of the business. [Para 23] The High Court as well as the Tribunal and other income-tax authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have en- quired as to whether the interest-free loan was given to the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed. [Para 24] The expression 'commercial expediency' is an expression of wide import and in- cludes such expenditure as a prudent businessman incurs for the purpose of busi- ness. The expenditure may not have been incurred under any legal obligation, yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. [Para 25] No doubt as held in Madhav Prasad Jatia's case (supra), if the borrowed amount was donated for some sentimental or personal reasons and not on the ground of commercial expediency, the interest thereon could not have been allowed under sec- tion 36(1)(iii). [Para 26] Thus, the ratio of Madhav Prasad Jatia (supra), is that the borrowed fund advanced to a third party should be for commercial expediency, if it is sought to be allowed under section 36(1)(iii). [Para 27] In the instant case, neither the High Court nor the Tribunal and other authorities had examined whether the amount advanced to the sister concern was by way of commercial expediency. [Para 28] The High Court and other authorities should have examined the purpose for which the assessee advanced the money to its sister concern, and what the sister concern did with the money, in order to decide whether it was for commercial expediency, but that had not been done. [Para 30] 12 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 It is not in every case that interest on borrowed loan has to be allowed if the as- sessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial ex- pediency in many other circumstances. Where holding company, has a deep interest in its subsidiary, and the holding company advances borrowed money to a subsid- iary and the same is used by the subsidiary for some business purposes, the hold- ing company would ordinarily be entitled to deduction of interest on its borrowed loans. [Para 35] In view of the above, the appeals were to be allowed and the impugned judgments of the High Court, the Tribunals and other authorities were to be set aside and the matter was to be remanded to the Tribunal for afresh decision, in accordance with law and in the light of the observations made above. It was submitted that the assessee’s case was on a better footing as it had not advanced out of interest-bearing funds but from interest-free funds and the Ld. AO could not sit in the chair of the business man. Reliance was also placed on the decisions in the case of Commissioner of Income-tax v. Giriraj Udyog (P.) Ltd. [2006] 151 TAXMAN 75 (ALL.) and Shivnandan Buildcon (P.) Ltd. v. Commissioner of Income-tax [2015] 60 taxmann.com 347 (Delhi) in support of the relief claimed. 7. It was reiterated that the assessee had ample interest-free funds and had not debited any interest in its books of accounts, therefore, there was no question of charging any interest on the amounts which were advanced for business purposes as the assessee had a project under construction named as “SANHITA”. Reliance was also placed on several other judicial pronouncements, the relevant extracts of the findings of which are as under: 1. Highways Construction Co. Pvt. Ltd. v CTT [1993] 199 ITR 702 (Gauhati HC): \"There is no finding of fact to the effect that actually the loan had been granted to the managing director or any other person on interest, or that interest had actually been collected and the collection of the interest was not reflected in the accounts. The finding of the Income Tax Officer is that the assessee ought to have 13 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 collected interest. In other words, the view of the Income Tax Officer, which has been accepted by the Tribunal, was that the assessee, as a good business concern, should not have granted interest-free loan, or should have insisted on payment of interest. If the assessee had not bargained for interest, or had not collected interest, we fail to see how the Income Tax authorities can fix a notional interest as due, or collected by the assessee. Our attention has not been invited to any provision of the Income Tax Act empowering the Income Tax authorities to include in the income, interest which was not due or not collected. In this view, we answer question No. (ii) in the negative, that is, in favour of the assessee and against the Revenue.\" 2. SHIVNANDAN BUILDCON (P) LTD. & ANR. vs. COMMISSIONER OF INCOME TAX ANR- (2015) 233 Taxman 297 (Delhi): Income-Accrual-Notional interest-No notional interest can be added to the income of assessee qua interest-free advance given by assessee There is no provision under the IT Act permitting such addition Assessee. 144 has no application since assessment was made under s. 143(3)-B & A Plantations & Industries Ltd. vs. CIT (2000) 242 ITR 22 (Gau) relied on (Para 6 to 8) Conclusion: No notional interest can be added to the income of assessee qua interest-free advance given by assessee. 3. COMMISSIONER OF INCOME TAX vs. DLF UNIVERSAL LTD. HIGH COURT OF DELHI: 378 ITR 197 (Del): \"5. The AO added back the sum of Rs.47,85,650 during the assessment year on the ground that the assessee had not claimed any interest towards the advance of Rs.2,65,86,781 to its subsidiary companies. The AO had inter alia also considered certain amounts paid towards the income-tax liabilities of such subsidiaries companies. The assessee's appeal was accepted by the CIT(A) who noticed that for all previous years commencing from asst. y Rs.1984- 85 to 1991-92, such advances had been accepted and additions not made. The CIT(A) also recorded as follows: \"However, the appellant has placed before me copies of relevant bank accounts to show that these advances have not been made out of borrowed funds. There is no nexus between the borrowed funds on which the interest is being paid by the appellant and the moneys advanced to the subsidiaries. There cannot be any ground for charging any notional income to tax. However, the proportionate interest could be disallowed if the borrowed funds had been diverted for non- business purposes. This is not the case. The fact that even day-to-day expenses of these subsidiaries including their tax liabilities are met by the appellant company only shows the unity of control and management and interlacing of funds.\" The CIT(A)'s order was confirmed by the Tribunal in the impugned order. 6. Learned counsel for the Revenue urges that no material was placed before the AO to support the contention that the advances were made from the assessee's own funds and that in these circumstances, the CIT(A) fell into error in considering fresh materials. The submissions appear to be attractive considering that the CIT(A) has stated that the appellant placed before him copies of the relevant bank accounts. However, this Court 14 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 sitting in second appeal against the decision of the lower authorities has to be circumspect in such matte Rs.This ground does not appear to have been urged before the Tribunal articulating that the CIT(A) omitted to give any opportunity to it to re-examine such materials. Such ground also does not appear to have been urged during the hearing. Furthermore, this has not been raised as a ground of appeal before this Court. In the circumstances, we see no reason to de part from the rule of consistency which is also accepted in all the previous yea Rs.7. The question of law is, therefore, answered in favour of the assessee and against the Revenue\". 4. COMMISSIONER OF INCOME TAX vs. GIRIRAJ UDYOG (P) LTD. - Allahabad HC 273 ITR 495: Income-Accrual of income-Assessability-Notional interest on advances Interest not charged or accrued Assessee engaged in maintaining cold storage unit rented out to mostly agriculturists for storing potatoes etc. Assessee advancing moneys on promotes to the stores-No interest was actually debited on the moneys advanced during the year In the absence of actual charging of interest and as it has not been charged due business expediency, interest cannot assessed on notional basis. Lastly, it is a settled law, vide CIT vs. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC), Morvi Industries Ltd. vs. CIT 1974 CTR (SC) 149: (1971) 82 ITR 835 (SC), Godhra Electricity Co. Ltd. vs. CIT (1997) 139 CTR (SC) 564: (1997) 225 ITR 746 (SC) and State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290: (1986) 158 ITR 102 (SC) that Income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. Even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, there was no correspondi ng liability on the customs authorities to pass on the benefit of duty -free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not material ise and its money value is therefore not the income of the assessee. Thus, the Onus of substantiating real and factual earning of income by the Appellant, not having been discharged by the Ld. Lower Authorities, no Income on account of Interest could be f ictionally or arbitrarily added in the hands of the Appellant. 8. On appreciation of the facts of the case, in our view, there was no justification for adding any notional interest on the interest free advances as the assessee had ample interest free funds out of which such advances were made for business purposes. In the case of S.A. Builders (supra), even interest 15 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 paid on borrowings was allowed as a deduction if the same were advanced for business purposes. There is merit in the arguments of the assessee that only real income which had accrued to it could be assessed and no income could be presumed to have been earned in the absence of any evidence. Even in the case of the three debtors whose replies have been considered by the Ld. AO, no evidence could be ascertained by him that any interest was payable or paid by them to the assessee and the amounts had been reduced from the total advances for calculating the notional interest. The observation of the Ld. AO confirmed by the Ld. CIT(A) that the assessee had paid 9% interest on the funds borrowed is also not borne out of analysis of the facts of the case as reported in the balance sheet and audited accounts and no interest was debited during the year while calculating its income. Hence, there was no justification for presuming notional interest on the amounts advanced merely because replies were not received from the debtors, though the assessee counters that argument by stating that confirmations/replies from eight of the debtors comprising 69.56% of the total advances in value were uploaded. Hence no income could be presumed nor any disallowance out of interest debited could be made when the assessee had not claimed any interest as a deduction. Hence, Ground No. 1 is allowed and the addition of Rs. 4,84,99,218/- confirmed by the Ld. CIT(A) is hereby deleted. 9. Ground No. 2 is general in nature and does not require any separate adjudication. 10.In the result, the appeal filed by the assessee is allowed. 16 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 Order pronounced in the open court on 29th November, 2024. Sd/- Sd/- (Sonjoy Sarma) (Rakesh Mishra) Judicial Member Accountant Member Dated: 29th November, 2024 AK, P.S. 17 ITA No. 123/Kol/2024 Simoco Systems and Infrastructure Solutions Limited AY: 2018-19 Copy to: 1. The Appellant: 2. The Respondent. 3. CIT(A) 4. The CIT, 5. DR, ITAT, Kolkata Bench, Kolkata //True Copy// By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata 1. Date of Dictation………………………………………. 2. Date on which the typed order is placed before the dictating Member and other Mem- ber…………………………………………….. 3. Date on which the order came back to Sr. PS…………………………………… 4. Date on which the file goes to the Bench Clerk………………………………… 5. Date on which the file goes to the O.S………………………………… 6. Date on dispatch of the order……………………………………… "