ACIT Vs SIP Infotech Limited (ITAT Mumbai)
Notional Interest, “Paper Company” Theory & Protective Additions All Rejected: ITAT Mumbai Upholds CIT(A) & Dismisses Revenue Appeal
Mumbai ITAT dismissed the Revenue’s appeal and affirmed the order of the CIT(A), granting complete relief to the Assessee-company.
The case arose from reassessment proceedings u/s 147 r.w.s. 143(3), wherein the AO (i) disallowed ₹3.02 lakh of routine statutory & compliance expenses u/s 37(1) by branding the Assessee as a “paper company”, (ii) added ₹29.93 lakh as notional interest @18% on interest-free advances given to the Director, and (iii) proposed a protective addition of ₹38.65 lakh relating to gift of land to a charitable trust.
Upholding the CIT(A), the Tribunal held that statutory audit fees, rent, ROC fees, professional charges and maintenance expenses are allowable u/s 37(1) even if no revenue is earned during the year, as they are necessary to maintain corporate existence. The ITAT rejected the “paper company” label, noting past business activities and ownership of land.
On notional interest, the Tribunal reiterated the real income theory, holding that where advances are made out of interest-free funds (share capital & reserves) and no interest is bargained for, AO cannot compute hypothetical income. Reliance was placed on Shoorji Vallabhdas (SC) and Highway Construction Co. (Gau HC).
On the so-called protective addition, the ITAT held that protective additions cannot survive in the absence of a substantive addition, particularly when the Assessee had already suo-motu disallowed the amount in a subsequent year and accepted the tax position.
Accordingly, the ITAT found no infirmity in the CIT(A)’s order and dismissed the Revenue’s appeal in toto.
