DCIT Vs Maruti Securities Limited (ITAT Hyderabad)
The Assessing Officer was of the view that the company has entered into an agreement for receipt of interest from the above companies @ 8% per annum during the previous year relevant to the A.Y. 2009-10. At the end of the years, the assessee-company has again entered into agreements for not charging interest or waiver of the interest stating that all the three parties suffered losses. The practice of entering and cancellation of agreements, is not acceptable according to the AO, since the assessee-company is following mercantile system of accounting. Therefore, A.O. was of the view that since the assessee-company is consistently following the mercantile system of accounting, according to which the interest accrues and subsequent relinquishment of interest after expiry of the accounting year is of no consequence. Accordingly, the A.O. held that the interest is not a notional interest and it constitutes interest income not offered to tax and hence computed the rate of interest @ 8% on amounts advanced by the assessee-company during the FY under consideration and brought to tax the same which amounts to Rs.1,26,86,509/-.
CIT(A) following the order of the ITAT, Hyderabad Benches in the assessee’s own case for the AYs 2005-06 to 2006-07 and 2008-09 to 2011-12 held that the interest is a notional interest and no notional income can be brought to tax on loans and advances. Accordingly, Ld. CIT(A) deleted the addition and directed the A.O. to verify whether the interest has been actually received by the assessee and tax the same on receipt basis.
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