The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) while granting relief to Laxmi Narayan mandir trust held that Section 13(2)(a) of the Income Tax Act, 1961 doesn’t authorize the revenue to compute the notional interest when no such interest is charged by the trust.
The assessee is a religious and charity trust and maintains Laxminarayan Mandir at Vile Parle, Mumbai. The assessee is registered under Section 12A of the Income Tax Act. The assessee filed its return of income declaring total income at Rs. Nil. The return filed by the assessee was selected for scrutiny and statutory notices under Section 143(2) as well as Section 142(1) of the Income Tax Act were issued and served on the assessee.
During the assessment proceedings, it was observed that the assessee has undertaken the redevelopment of the property of the trust, i.e. Mandir and adjustment chawls and the assessee has given Rs. 15,88,36,661 to M/s Ramgopal Ganpatrai & Co. Pvt. Ltd in which the trustees of the assessee were directors.
The Assessing Officer computed the interest at the rate of 10.5% on the basis of interest income of Rs. 66,62,810 declared in the assessment year 2011-12. Since the advance till 31/03/2013 was at Rs. 15,88,36,661, the Assessing Officer computed the notional interest income of the assessee at Rs. 1,66,77,849 being 10.50% of the aforesaid advance and added the same to the total income of the assessee.
The Commissioner of Income Tax (Appeal) [CIT(A)] upheld the addition of Rs. 1,66,77,849 being the notional interest not charged on the loan given by the assessee to M/s Ramgopal Ganpatrai & Co. Pvt. Ltd. in the year under consideration.
The Two-member bench comprising of B.R. Baskaran (Accountant member) and Sandeep Singh Karhail (Judicial member) held that the only consequence of the case which falls within the four corners of Section 13 of the Income Tax Act was the denial of exemption under Section 11 of the Income Tax Act. Section 13(2)(a) of the Income Tax Act also does not authorize the Revenue to compute the notional interest, in case no such interest is charged by the trust.
Thus, in a case when no real interest was accrued or received nor the same was recorded by the assessee in its books of accounts, there were no merits in the findings of the CIT(A) in upholding the addition made by the Assessing Officer by computing the notional interest and adding the same to the total income of the assessee. Accordingly, the Assessing Officer was directed to delete the addition of Rs. 1,66,77,849 on account of notional interest income. As a result, the appeal of the assessee was allowed.
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