ACIT Vs Solapur Yedeshi Tollway Limited (ITAT Mumbai)
ITAT Mumbai Quashes Reopening & Deletes Rs. 8.46 Cr Notional Interest Addition- No Tax on Hypothetical Income – Tribunal Grants Relief to Solapur Yedeshi Tollway- Reopening Based on Change of Opinion Invalid
Assessee, a special purpose vehicle incorporated by IRB Infrastructure Developers Ltd. for construction of Solapur–Yedeshi section of NH-211 under BOT project, had subcontracted construction to IRB under an EPC contract dated 29.03.2014. As per contract terms, it was obliged to provide interest-free mobilization advance to the EPC contractor, recoverable from bills.
AO, on reopening u/s 147, computed notional interest of Rs. 8.46 crore on such advances, alleging diversion of borrowed funds, & added it as income u/s 37. CIT(A) deleted the addition but declined to adjudicate reopening grounds since Assessee had succeeded on merits.
On further appeal, Tribunal noted that the case had earlier been scrutinized u/s 143(3) without additions. The reopening was based only on change of opinion without new tangible material, hence invalid. On merits, it held that tax cannot be levied on hypothetical or notional income. Advances were contractual obligations, major portion was recovered by 30.09.2017, balance by 01.12.2019, & interest cost was capitalized to project cost, not claimed as revenue expenditure. Accordingly, the addition was unsustainable.
