Case Law Details
ACIT Vs. Satyam Properties & Finance Limited (ITAT Delhi)
AO cannot add notional interest for Inter Corporate Deposit (ICD) made at Bank FD Rate
The aforesaid appeal has been filed by the revenue against impugned order dated 2.9.2014, passed by Ld. CIT (Appeals) X Delhi for the quantum of assessment passed u/s 143(3) for the assessment year 2010-11. The sole ground raised by the revenue is regarding deletion of addition of Rs. 6,77,97,413/-.
2. The brief facts of the case are that the assessee company is Non Banking Finance Company registered with Reserve Bank of India and is wholly owned subsidiary of Bennett, Coleman & Co. Ltd. (BCCL). During the year under consideration the assessee has earned interest on Inter Corporate Deposit (ICD) given to BCCL. The assessee had extended ICD amounting to Rs. 147 lacs to BCCL which is 100% holding company, initially @ 10% per annum for three years vide agreement dated 17.6.2009. However in the late of the year 2009, BCCL proposed for reduction in the rate of interest to 7.25% per annum based on the then prevailing market rates. The assessee agreed to this reduction of rates, w.e.f., 1.1.2010 as it was not possible to obtain a better rate of interest from any safe source such as leading banks. The AO required the assessee to justify the reduction of rate of interest on the ICD from 10% to 7.25% per annum. In response to which, the assessee filed detailed reasons along with documents in support justifying the reduction of rate of interest on ICD. However the Ld. AO did not accept the assessee’s explanation and observed that rate of interest should be adopted at 15% on loans to BCCL as the charging of interest is not on arm’s length. Accordingly, he proceeded to compute the interest @ 15% per annum at Rs. 17,39,83,561/- thus making an addition of Rs. 6,77,97,413/-.
3. Before Ld. CIT (A), assessee made detailed submissions which has been incorporated from pages 6 to 9 of the appellate order, the sum and substance for which are that, income can only be said to have been accrued once the assessee has acquired a right to receive the same or there is a debt created in favor of the person by somebody. Till then it cannot be said that he has acquired a right to receive the income or that income has accrued to him. In support reliance was placed on the judgment of Hon’ble Supreme Court in the case of CIT vs. Shoorji Vallabhdas and Co. (1962)46 ITR 144 (SC) and Godhra Electricity Co. Ltd. vs. CIT 225 ITR 746 (SC). Secondly, it was submitted that ICD was actually a risk free and the same was given to the 100% holding company and hence the risk factor was very low and the rate of interest was higher than the prevailing rate of interest offered by the bank on their fixed deposits at that point of time. Further the provision of section 40A(2)(b) would not be applicable, because interest earned on ICD extended to BCCL was the income of the assessee and not the expense and therefore, such interest income cannot be enhanced by the AO by invoking section 40(a)(2)(b) or by applying arms length principle as appearing in section 92 as it will not apply in assessee’s case during the year under consideration. Ld. CIT (A), duly accepted the assessee’s contention and held that AO was not justified in enhancing the rate of interest charged by the assessee from 7.25% to 15% and accordingly, the addition made by the AO was deleted.
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