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2022 (11) TMI 243 - AT - Income TaxAccrual of income - Addition of notional interest @ 10 % on deposit made - AO computed notional interest at the rate of 10% on deposits held by the assessee with M/s Sanman Holdings Private Limited on the ground that the same was not offered to tax all the assessee is following accrual system of accounting and added the same to the assessee’s total income - HELD THAT:- The assessee has placed on record before us copy of letter by M/s Sanman Holdings Private Limited to the assessee intimating its inability to pay interest due to financial crisis. The assessee has also placed on record copy of letter dated 30-09- 2011 of M/s Tanti Holdings Private Limited in which it stated that the company M/s Sanman Holdings Private Limited amalgamated into it with effect from 01-04-2010 and also acknowledging the liability to pay unsecured loan of ₹ 350 crores taken by M/s Sanman Holdings Private Limited to the assessee. CIT(Appeals) also observed that the assessee did not utilise any interest-bearing loans to advance the sum of ₹ 350 crores to M/s Sanman Holdings Private Limited. Therefore, the Department has not brought on anything on record to demonstrate that the interest income sought to taxed had accrued to the assessee nor has the Revenue brought anything on record that any interest income was in fact received by the assessee. It is a well-settled principle of law that income cannot be taxed in the hands of the assessee, on purely “notional” basis. Either the income should accrue to the assessee, as per terms of agreement or otherwise, or else the same should have been received by the assessee. In the instant facts, as per terms of Agreement, on amalgamation of M/s Sanman Holdings Private Limited into M/s Tanti Holdings Private Limited by way of Orders of High Court of Mumbai and Gujarat, there is no obligation for M/s Sanman Holdings Private Limited to pay any interest to the assessee. In the case of Asian Hotels [2007 (12) TMI 274 - DELHI HIGH COURT]considered the issue of notional income from interest free loans received by the petitioner in respect of shops given on rent. AO computed tax of 18 percent per annum on the notional interest on the basis that they resulted in benefit to the petitioner. Rejecting this contention, the Court held that the notional income from the interest free loans is not taxable in the absence of a specific provision in the Income Tax Act - interest having neither been accrued to the assessee (as per specific terms of the Agreement placed on record before us) and neither any interest having being received by the assessee, such interest cannot be subject to tax in the hands of the assessee on purely “notional basis”. Accordingly, we find no infirmity in the order of Ld. CIT(Appeals), who in the instant set of facts, deleted the interest sought to be taxed in the hands of the assessee on notional basis. Appeal of the Department is dismissed.
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