|The Tax Publishers2021 TaxPub(DT) 0433 (Mum-Trib)
INCOME TAX ACT, 1961
Where assessee made investment with portfolio management person on the assurance that 20% of assured income by the investment would be paid to the assessee, however; there was lapse on the part of portfolio management person and no interest or dividend income was received by the assessee; the AO was not justified in making addition on account of accrued interest on such investment.
Income - Chargeability - Notional income -
Assessee-company was engaged in business of dealing in shares, securities, commodity trading, futures and options. AO found that the assessee made an investment with portfolio management person, where 20% assured income was guaranteed by the recipient of the amount. Therefore, the AO wanted to tax estimated interest on such investment. However, the assessee submitted that it did not receive any money by way of interest or dividend nor the investment amount was returned. Further, the assessee initiated legal proceedings in the court of law and filed complaint with Economic Offence Wing against the party for return of principal amount, interest and for bouncing of cheques. Further, the assessee also furnished the copy of the complaint filed with the Economic Offence Wing and affidavits filed before the High Court. But, the AO considered the fact that such investments were also made in earlier years and the interest income had to be taxed and calculated interest @24% per annum and accordingly, he made addition on account of accrued interest. Held: Assessee made the investment on the assurance that 20% of assured income by the investment would be paid to the assessee, however; there was lapse on the part of the portfolio management person and no interest or dividend income was received by the assessee. Further, on perusal of the financial statement, it was also clear the assessee had not received any income nor any dividend income on investments had accrued. Therefore, the assessee initiated legal proceedings against the loan creditor and yet to recover the amount. Further, the AO had not disputed the fact of filing of complaint and legal proceedings and also there was no real income accrued to the assessee. Accordingly, the estimation of interest income was not tenable and the notional income could not be hypothetical basis for making an addition by the AO. Hence, the addition made on account of accrued interest was deleted.
FAVOUR : In assessee's favour.
INCOME TAX ACT, 1961
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