Robust Transportation Pvt. Ltd. Vs ITO (ITAT Mumbai)
The appeal before the Income Tax Appellate Tribunal, Mumbai Bench concerned the addition of notional interest made in the assessment of Assessment Year 2017–18. The assessee challenged the order of the National Faceless Appeal Centre, which had upheld an addition of ₹1,73,68,000 computed as notional interest at 8% on loans and advances aggregating to ₹21,71,00,000.
The assessee-company was incorporated with objects relating to transportation across various modes but had not commenced its principal business activities during the relevant year. For the year under consideration, it filed a return declaring nil income. The case was selected for limited scrutiny, including examination of low returned income vis-à-vis substantial loans and advances reflected in the balance sheet. During assessment, the Assessing Officer noticed that the assessee had advanced interest-free sums to four companies, the bulk being ₹21.68 crore to one entity, with smaller advances to three others.
The Assessing Officer was of the view that such advances should ordinarily yield interest and presumed that they were made out of borrowed funds. Applying the RBI Marginal Cost of Funds Based Lending Rate, he adopted 8% as a reasonable rate and treated ₹1,73,68,000 as interest income deemed to have accrued, despite the admitted position that no interest was charged or received.
