Addon Realty Private Limited vs ITO Delhi

PER KRINWANT SAHAY AM

Appeal in this case has been filed by the assessee against the order dated 25.12.2025 passed by the Ld. CIT(A)/ NFAC, Delhi for the A.Y. 2018-19. Grounds of appeal are as under :-

During proceedings before us the Ld. Counsel of the assessee filed a detailed written submission on different grounds of appeal and argued on the line of written submission which is reproduced as under :-

We have examined relevant details. The tabulation reproduced reconciles precisely with the figures appearing in the balance sheet as on 31.03.2018. In the case of Pawan Impex (P) Ltd., the opening balance of Rs. 15,34,95,056/- reduced by the payment of Rs. 2,88,00,000/-yields exactly the closing balance of Rs. 12,46,95,056/-, with no credit entry intervening. In the case of RS Infrastructure (P) Ltd., the opening balance of Rs. 47,73,46,450/-, Increased by the reversal of Rs. 2,80,32,823/- (being the reversal of a tax deduction entry debited in the preceding year) and reduced by the payment of Rs. 2,00,000/-, yields exactly the closing balance of Rs. 50,51,79,273/-. Once again, no interest was credited. The two closing balances together account for the whole of Rs. 62,98,74,329/-. The obligation to deduct tax under section 194A arises at the time of credit of such income to the account of the payee or at the time of payment, whichever is earlier. Where nothing is credited and nothing is paid by way of interest during the previous year, the occasion for deduction does not arise. A brought-forward balance standing under the head Interest accrued and due on borrowings’ is not a credit made during the year; it is the residue of credits made in earlier years, in respect of which, as the tabulation shows, tax was in fact deducted at the time the credits were made – Rs.17,42,525/- in the case of Pawan Impex (P) Ltd. and Rs.2,80,32,823/- in the case of RS Infrastructure (P) Ltd. The submission of the Ld. SR DR that interest accrues from year to year cannot be answered by assumption; it must be answered from the books; and the books show no accrual entry in the year under consideration. Keeping in view the assessee’s appeal on this issue is allowed.

During proceedings before us, the appellant has filed a written submission which is reproduced as under :-

We have considered the written submission of the assessee and arguments of both the parties. In our considered view the expenditure was not incurred in the previous year under assessment. Section 69C applies "where in any financial year an assessee has incurred any expenditure", and goes on to deem the amount to be "the income of the assessee for such financial year". The financial year contemplated is therefore the financial year relevant to the assessment year in which the deeming is sought to be applied. Here the payments were made in the previous year 2009-10, relevant to assessment year 2010-11. Nothing was paid to Shivalik Ventures (P) Ltd. in the previous year 2017-18; on the contrary, Rs. 39.50 crores came back. A deeming provision must be construed strictly and cannot be stretched to bring within the net of one assessment year a payment demonstrably made eight years earlier. The mere carry-forward of a balance in the balance sheet is not the incurring of expenditure in the year of carry-forward. If it were, every asset appearing in a balance sheet would be liable to be assessed afresh in every succeeding year, which is plainly not the law. It was held in Radhika Creations (supra), where the Hon’ble Delhi High Court observed that the focus of section 69C is on the source of the expenditure and not on the authenticity of the expenditure itself, and approved the finding that where expenditure is accounted for in the regular books the source is obviously explained and there is no unaccounted expenditure. The same view was taken in Imperial Housing Ventures (P) Ltd. (supra), and in Growel Energy Co. Ltd. (supra), where, following Pratap Singh Amar Singh (supra), it was held that when books of account have been maintained and the expenditure and the expenditure recorded with full details, no addition can be made under section 69C. Accordingly, assessee appeal on this ground is allowed.

We are conscious that the real income doctrine is not to be invoked lightly, and that an assessee cannot escape tax merely by choosing not to make an entry in its books. The doctrine applies where the surrounding circumstances, judged objectively and contemporaneously, establish that the income did not result. Here they do, and overwhelmingly so.

The Ld. Counsel of the assessee has submitted as under :-

It was submitted that the Id. Assessing Officer failed to notice the add-back in the computation of income and proceeded to add back Rs. 92,58,00,000/- out of the very same write-off, resulting in the same amount being taxed twice. We have examined the computation of income, the relevant page of Form ITR-6 and the audited accounts. The position asserted by the assessee is borne out. The whole of Rs. 280,07,79,471/-stands added back by the assessee itself in arriving at its business income, under the residuary head of additions under sections 28 to 44DA. The sum of Rs.92,58,00,000/-forms part of that very amount. To add it a second time in the assessment is to tax the same amount twice over. Accordingly, assessee’s appeal on this ground is allowed.

GROUND NO. 9 addition under section 69C of Rs. 27,76,14,992/- on account of notional interest. The Id. Assessing Officer brought to tax a sum of Rs. 27,76,14,992/- described as interest income, invoking section 69C of the Act. The Id. counsel submitted, first, that section 69C deals with unexplained expenditure and has no application whatever to the taxation of a receipt or an accrual, and secondly that no interest income in fact accrued or arose to the assessee during the previous year 2017-18. On the facts, it was submitted that the assessee had advanced interest-bearing loan aggregating Rs. 2,10,92,35,247/- to six parties, on which interest of Rs. 28,12,37,966/- accounted for as income in the previous year 2016-17, credited to the profit and lo account of that year and offered to tax in assessment year 2017-18. During the previous year 2017-18, however the borrowers became embroiled in the litigation. By judgment dated 31.01.2018 in OMP(EFA) (COMM) 6/2016 the Hon'ble High Court of Delhi affirmed the award dated 29.04.2016. whereafter execution proceedings were taken out against the borrowers named above. Garnishee orders dated 23.10.2018 and 28.05.2019 came to be issued restraining those parties from dealing with their properties without the orders of the Court. Each of the borrowers informed the assessee of its financial distress and of its 1 Inability to repay the principal or to service the interest. Four of the six borrowers were thereafter admitted into the corporate insolvency resolution process, and resolution plans came to be approved in favour of their lenders, with the result that no part of the amounts due to the assessee has been recovered to date: interest in favour of the assessee during the previous year 2017-18, as is corroborated by the fact that Form 26AS of the assessee for assessment year 2018-19 carries no entry of tax deducted at source referable to interest from any of them, save an amount of Rs. 36,23,474/-, which the assessee has itself duly offered to tax in its return. The books of account for the year were audited and finalised on 05.11.2019, by which date the garnishee orders were in force and four of the borrowers stood admitted into insolvency. Reliance was placed upon Dy. CIT vs. Garish R. Tanti, ITA No. 112/Rjt/2018 (ITAT, Rajkot), order dated 31.10.2022, and upon Dy. CIT vs. Intercontinental India, ITA Nos. 2033/Ahd/2007 and 600 & 601/Ahd/2009 (ITAT, Ahmedabad), order dated 22.10.2010, the latter holding in terms that the mere fact that interest was charged in an earlier year is no ground for making an addition in the year under appeal, and both applying the principle laid down by the Hon'ble Supreme Court in CIT vs. Shoorji Vallabhdas & Co., (1962) 46 ITR 144, and Godhra Electricity Co. Ltd. vs. CIT, (1997) 225 ITR 746. Reference was also made to CIT vs. Asian Hotels Ltd., (2010) 323 ITR 490 (Del), where the taxation of notional interest was declined in the absence of a specific provision.

The Id. Sr. DR submitted that the assessee maintains its accounts on the mercantile basis; that interest on a loan accrues from day to day irrespective of receipt; that having charged interest in the immediately preceding year the assessee could not unilaterally cease to charge it.

The Ld. CIT(A) has further confirmed the disallowance is thirty per cent of Rs.3,74,36,712/- being the interest debited during the previous year 2017-18 to the ‘Capital Work in Progress- Cost to Project, Mumbai account referred to under Ground No.10 above. The Ld. Assessing Officer proceeded on the basis that tax had not been deducted at source on that interest. We have examined the interest paid account, the profit and loss account and the computation of income. The factual premise of the disallowance does not survive scrutiny. Tax was deducted on each of the three payments, aggregating Rs.3,77,326/-. It was deposited on 06.06.2017 and 28.12.2017, that is within the previous year itself and long before the due date specified in section 139(1) for assessment year 2018-19. So the assessee’s appeal on this ground is also allowed.

In the result, the appeal filed by the assessee is allowed.

Since we have given our findings on the merit on different grounds of appeal, therefore, appeal filed on legal grounds are just academic in nature, therefore, we are not inclined to give any finding on this jurisdictional issues.