Deposit made by Subscriber of Inter Corporate Deposit, issued by Company on Fixed Rate of Interest, cannot be treated as Loan: ITAT [Read Order]

The New Delhi bench of the Income Tax Appellate Tribunal recently declared that deposit made by subscriber of Inter Corporate Deposit, issued by company on fixed rate of interest, cannot be treated as loan.

A division bench of tribunal including Judicial Member Amit Shukla and Accountant Member Prashant Maharishi were held so while considering the revenues appeal against the order of the first appellate authority.

The assesse in the instant appeal is an NBFC registered with RBI and is wholly owned subsidiary of Bennett, Coleman & Co. Ltd. (BCCL). The assesse had earned interest initially at 10% for three years later reduced to 7.25% per annum on Inter Corporate Deposit (ICD) given to BCCL. The AO required the assessee to justify the reduction of rate of interest on the ICD from 10% to 7.25% per annum.

However AO did not satisfied with the explanation of assessee and adopted 15% on loans to BCCL as the charging of interest and computed and additions were made.

The issues raised in the present appeal were regarding the deletion of addition made by AO.  Accordingly 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%.

Aggrieved, assessee preferred the appeal before the tribunal and they perused the documents submitted by AO. The bench found that the issue raised by the revenue is, whether the rate of interest by the assessee on the ICD @ 7.5% per annum could have been enhanced by the AO or not.

The Tribunal checked the reliability of statement provided by assessee regarding the interest reduction that this was the better and possible option to obtain a better rate of interest from any safe source such as leading banks.

The tribunal clearly stated that AO incorrectly treated the subscription of ICD as a loan and also added for understanding it is not a correct way to interpret an ICD, because it is a deposit made by the subscriber of the ICD issued by a company on a fixed rate of interest and hence it cannot be treated as a loan.

Finally the bench declared that such notional income cannot be appreciated, because the AO cannot step into the shoes of the businessman to hold that he should have maximum profit from the transaction and also restored the decision of CIT (A).