TMI Blog2017 (1) TMI 897X X X X Extracts X X X X X X X X Extracts X X X X ..... wing advances and deposit were given purely for business of property development and thus no interest can be charged on the same. We also found that the Assessing Officer has wrongly in calculating average rate of interest on the balance amount outstanding as at 31.03.2010 instead of taking average balance during the year. This would have clearly shown that the average rate of interest on loan taken is same as that of average rate of interest on loan given. We attach herewith a statement showing average rate of interest on of loan taken and given. As per this statement the average rate of interest on loan taken is 11.28% and average rate of interest on loan given is 11.20%. Thus advances were given out of owned funds and for business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to why this addition should not be made. On receiving the assessee's reply the AO computed the interest that the assessee should have received only in respect of deposit and others and excluded the sundry debtors and advances for properties. Based on this computation, he arrived at average rate of interest on interest received at 5.22% He therefore, computed the interest not charged at ₹ 6.90 crores. This amount was added to the income of the assessee. 6. By the impugned order CIT(A) deleted the addition after observing as under:- Ground of appeal no. 1 is general. Ground of appeal no. 2 3 is in respect of addition of Notional income of ₹ 6.90 crores. Before me the appellant has assailed the action of the AO sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on loan taken is 11.28% as compared with the average rate of interest on loan given at 11.20%. The appellant has also relied upon the judgment in the following cases: CIT vs Reliance Utilities and Power Ltd (2009) 313 ITR 340 Woolcombens of India Ltd Vs. CIT(1982) 134 ITR 209(Cal) East India Pharmaceutical. Works Ltd vs. CIT (1997) 224 ITR 627 S.A.Builders vs. CIT(A) (2007) 288 ITR 1 (SC) CIT vs Banswara Fabrics Ltd (2004) 267 ITR 398 (Raj) UCO Bank vs CIT (1999) 237 ITR 889 (SC) CIT vs Asian Hotels Ltd (2010) 323 ITR 490 (Delhi) 5.3.2. I find merit in the submission of the appellant that the no additions can be made on Notional income on the basis that the income should have been earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsecured loans it is seen that the interest rate varies from 9% to 18% with bulk of the loans being @ of 12%. The details of loans and deposits considered by the AO is 'tabulated below: A perusal of the above table shows that out of a total of advances of ₹ 182 crores, ₹ 120 crores is inter corporate deposit with Parinee Developers Pvt. Ltd. and 3.8 crores with IENZ Infotech Pvt. Ltd from whom interest has been charged @ of 12%. The other advances are business advances. Therefore, there are only two advances which are to wholly owned subsidiaries on which no interest has been charged. These are ILDE Pvt. Ltd and Parinee Development and Projects Pvt. Ltd. to whom the closing balance of advances were ₹ 29,00, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advances and deposit were given purely for business of property development and thus no interest can be charged on the same. Name of the Party Amount in Rs. Purpose Adwaits Holding Pvt. Ltd., 25,00,00,000 For property Deposit for Alternate Accom(AV) 26,21,200 For property Deposit MCGM/REL 36,038 Electricity MAN Infra Projects Pvt. Ltd., 1,36,00,000 For property Bela Vipul Shah 64,00,000 For Redevelopment of property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Parini Developers Ltd., and ₹ 3.80 crores with INEZ Infotech Pvt. Ltd., from whom interest has been charged by assessee @12%. The CIT(A) has also observed that other advances were also for business. The other two advances were found to be given to wholly owned subsidiaries. As against these advances, increase in reserve and surplus was of ₹ 9.35 crores. Thus, it was found that not only advance was for the purpose of business but also there was sufficient owned funds available which was more than the amount advanced to the subsidiaries. A finding of fact has also been recorded by the CIT(A) to the effect that there is no incremental advances to these subsidiaries during the current year and balance actually came down during ..... X X X X Extracts X X X X X X X X Extracts X X X X
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