TMI Blog2020 (12) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the assessee, the notional interest of Rs.@14% on such average account, the assessee must have earned ₹ 70 lakhs and thereby added ₹ 70 lakhs. Assessee vehemently submitted that there is no concept of notional income and that no addition can be made or no presumption basis that assessee would have earned notional interest on surplus available with them. If interest free funds are available, it is the choice of businessman/assessee to arrange his business affairs. The Hon'ble Gujarat High Court in CIT Vs. Arihant Avenue Credit Ltd. [ 2014 (10) TMI 790 - GUJARAT HIGH COURT] held that no addition on account of notional interest is warranted. Similarly, the Hon'ble Delhi High Court in Shivnandan Buildcon (P.) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n confirming the part of disallowance on a new ground which was not even briefed in assessment order. 2. On the facts and circumstances of the case as well as law on the subject, the Learned Commissioner of Income Tax (appeals) has erred in confirming the disallowance of interest expense to the extent of ₹ 70,00,000/-. 3. It is prayed that above additions/disallowances made by Assessing Officer and confirmed by Commissioner of Income-tax (Appeals) may please be deleted. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal. 3. Brief facts of the case are that the assessee is a firm engaged in the business of builders and developers. A search was carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are afterthought. 4. The AO issued show cause notice as to why the interest claimed should not be disallowed. The AO noted that the reply was furnished by the assessee in response to show cause notice, however, the contents of reply is not referred in the assessment order. The AO simply recorded that the reply of assessee is considered and is not acceptable and disallowed the entire interest expenses of ₹ 90,11,978/-. 5. Aggrieved by the disallowance of Interest expenses, the assessee filed appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee filed detail written submissions, which are recorded on page 3, para 6 of the impugned order. In its written submission, the assessee submitted that assessee utilised unsecured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilizing unaccounted income to earn interest. The ld.CIT(A) recorded that no replies were filed by the assessee on these issues. The ld. CIT(A) took his view that during search assessee disclosed income of ₹ 10 crore, out of its books of account. This amount was available to assessee for used in the project and interest income is claimed in the books only because income was kept unaccounted. The ld.CIT(A) further held that even if the average unaccounted income is held to be available in previous year, the amount of ₹ 5 crore was available with the assessee. On the basis of aforesaid observation, the Ld.CIT(A) worked out a notional interest @ 14% on such ₹ 5 crore, allegedly available with the assessee and thereby adde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal the Ld. CIT(A) accepted the contention that interest expenses were paid during the course of business and TDS was made on interest payment and accordingly allowable. 10. The Ld.CIT(A) made addition of interest income on notional basis on different aspects holding that if undisclosed income declared by assessee would have been available in the books of accounts of assessee, notional interest of approximately 14% of average interest rate of such available unaccounted on money , the assessee would have been earned interest, accordingly, the Ld.CIT(A) made addition of ₹ 70 lakhs. The Ld.AR for assessee submits that the interest disallowance made by the Ld. CIT(A) is arbitrarily and uncalled for. There is no concept of notional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disclosed during the search action. The assessee in its Profit and Loss Account filed with the Return of Income, in response to notice under section 153A, claimed interest expenses of ₹ 90,11,978/-. The A.O. made disallowance of entire interest expenses by taking view that interest expenses ind claimed to reduce the income and is afterthought. However, on appeal before the Ld.CIT(A), the Ld.CIT(A) held that the AO has not pointed out that the expenses claimed by the assessee is not wholly and exclusively for the purpose of business and that expenses are not recorded in the books of accounts. The observation of AO that interest expenses is an afterthought has no legal or logical backing, thus, the contention of the assessee was ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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