No addition can be made on basis of Notional Interest due to failure to Receive Interest for loan Advances  by assessee Finance Company: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Kolkata  Bench held that no addition could be made on basis of notional interest  due to failure to receive Interest for the loan advanced by the assessee finance company.

Assessee,  Panchiram Nahata, is a firm engaged in the business of finance as a commission agent, trading in shares and investment in Mutual Funds.

During the scrutiny assessment, the Assessing Officer has observed that the firm has debited interest expenditure of Rs.3,20,38,862/- against unsecured loan taken. Further it was found that the assessee has shown interest income of Rs.2,38,36,768/- against loan advanced by it.

Afterwards AO has construed earning of notional interest and worked out an interest income of Rs.10,38,950/-

Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) {CIT(A)}, who dismissed the appeal . Accordingly, against the order the assessee filed an appeal before the tribunal.

During the proceedings Ravi Tulsiyan , the counsel for the assessee submitted that the assessee was given loan to eight entities and it was given from28.10.2010 upto 31.03.2014.

According to the assessee, the entities who has been paying interest has stopped paying interest all of a sudden and the assessee has pressed upon it.

The entities has issued a cheque for a sum of Rs.15,00,000/- but the cheque was bounced. Hence, a legal notice was issued under section 138(b) of the Negotiable Instruments Act, 1881.

Therefore so many similar cases happened during the repayment of loan. There could be a certain situation, where it failed to receive interest from all its loans.

Prakash Choughule, Counsel for Revenue, supported the decision of lower authorities.

The tribunal after reviewing the facts and submissions of the both partiesz the two member bench of Rajpal Yadav, (Vice-President)  and Rajesh Kumar,,  (Accountant Member)  observed that It is just a normal business incident and in the absence of any interest income,  the notional interest income could not  be estimated for making the disallowance out of interest expenditure.

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