ORDER
Prabhash Shankar Accountant Member.- The present appeal emanating from the appellate order dated 13.11.2025 is preferred by the Revenue against the order passed by the Learned Commissioner of Income-tax, Appeal, CIT(A) 52 Mumbai [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 25.03.2025 for the Assessment Year [A.Y.] 2023-24.
2. The grounds of appeal are as under:-
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On facts and in law, the Ld. CIT(A) has erred in deleting the addition made on account of notional interest @ 9% on loans and advances given to the subsidiary company, without properly appreciating the facts of the case and the findings recorded by the Assessing Officer. |
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The Ld. CIT(A) has erred in holding that no income by way of interest had accrued to the assessee, despite the existence of a binding agreement providing for charging of interest, thereby ignoring the principle of accrual of income. |
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The Ld. CIT(A) has erred in applying the doctrine of real income, without considering the tests laid down by the Hon’ble Supreme Court in Excel Industries Ltd. v. CIT (SC)/[2013] 358 ITR 295 (SC)) relating to accrual and realizability of income. |
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The Ld. CIT(A) has failed to appreciate that the subsidiary had a corresponding liability to pay interest, and that a unilateral resolution passed by the subsidiary for non-payment of interest cannot override contractual obligations. |
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The Ld. CIT(A) has erred in deleting the addition solely by following earlier ITAT orders in the assessee’s own case, without independently examining the facts of the year under consideration, especially when the Revenue has challenged similar orders before the Hon’ble High Court. |
3. Briefly stated facts of the case are that in this case, the return of income was filed declaring total income of Rs. Nil. Subsequently, the return of income was selected for scrutiny under CASS. Accordingly, the AO passed an order under section 143(3) of the Act. In the said assessment order, the AO made a disallowance under section 5 of the Act, on account of notional interest income from its subsidiary, Gateway Multichannel Retail (India) Limited, and assessed the income observing that from the perusal of notes to financial statement, the assessee had shown Long Term Loans and Advances wherein it had provided interest free loans amounting to Rs.2329.10 lacs to its subsidiary. During assessment proceedings, the assessee was asked to explain as to why the notional interest should not be added to its income. In response to which, the assessee submitted that similar addition of interest paid to Gateway Multichannel Retail (India) Limited made in AY 2020-21 and AY 2021-22,the ld.CIT(A) deleted the addition in assessee’s own case for AY 2011-12 to AY 2018-19, AY 2020- 21 and AY 2021-22 holding that the addition was unwarranted. Thus, the impugned addition is already a covered matter. Further, the Hon’ble Mumbai Tribunal ordered the matter in favour of the assessee for AY 2009-10, AY 2010-11, AY 201213, AY 2013-14, AY 2014-15, AY 2016-17, AY 2017-18 and AY 2018-19. Thus, it was clear that the matter being in favour of the assessee did not warrant for any further discussion. The relevant extracts of ITAT order for AY 2013- 14 wherein the tribunal had adjudicated the matter in favour of the assessee was reproduced as under:
“14. We have considered the submission of both the parties and gone through the order of lower authorities. The Assessing Officer made addition on account of presumptive basis under section 5 on advances made by assessee to its subsidiaries. The Assessing Officer computed the disallowance/addition of Rs. 2.86 crore. We have noted that the assessee advanced the money to its subsidiary, which falls under the business expediency. Therefore, in the present case that the assessee advances to its subsidiary for business requirements, which may have impact on the objectives of the assessee for earning future revenue to the assessee. When it made in relation to advances. Though, it is another fact that the business of such nature did not materialized in positive outcome and the subsidiary had to close such business operation. The Hon’ble Supreme Court in S.A. Builders (
288 ITR 1 SC) held that whether expenditure may not have been incurred under any legal obligation, yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. The case of the assessee is that the assessee has made advances to its subsidiary for business expediency. Therefore, considering the decision of Hon’ble Supreme Court in SABuilder (
supra), we do not find any infirmity in the order passed by ld. CIT(A). Even otherwise the then Ld. CIT(A) deleted the entire addition by following the decision of his predecessor in appeal for A.Y. 2010-11 & 2012-13. No contrary fact or law to take other view is brought to our notice to take other view, nor any variations in facts brought to our notice. Therefore, we do not find any merit in the grounds of appeal raised by revenue.”
3.1 Also, the relevant extract of ITAT order for AY 2016-17 to AY 2018-19 where the tribunal had adjudicated the matter in favour of the assessee was also reproduced as under –
“7. We have heard rival submissions of the parties on the issue-in-dispute and perused the relevant material on record. We note that the then Ld. CIT(A) has adjudicated the issue following the binding precedent on the issue-in-dispute and therefore we do not find any error in the order of the then Ld. CIT(A) on the issue-in-dispute in all the three assessment years involved”17. Thus, the then Ld. AO failed to appreciate the assessee’s own case where such addition have been deleted by Hon’ble CIT(A) as well as Hon’ble Mumbai Tribunal. This leads to breach of the principle of judicial discipline.
3.2 However, while passing order under section 143(3) of the Act for the year under consideration, the AO ignored assessee’s own case for earlier years and added such a notional interest income mechanically without appreciating the fact that there was no difference in any facts of AY 2012-13 and in the year under consideration.
4. In the subsequent appeal, the ld.CIT(A) took note of the past orders stating that his predecessors had also deleted addition of earlier yearson the identical issues. During the appellate proceedings for the AY 2021-22,predecessor CIT(A) deleted the addition following the judgment of Hon’ble ITAT Mumbai in appellant’s own case, decided in favour of appellant vide DCIT v. SHOPPERS STOP LTD. [IT Appeal No. 6550(Mum) of 2017, dated 14-2-2020]. Respectfully following the decision of Hon’ble ITAT, the addition of Rs. 2,09,61,935/-was accordingly deleted in line with the earlier decision of the Hon’ble Tribunal.
5. Before us, the ld.DR has relied on the assessment order and the grounds of appeal. It is also admitted that in the earlier years on the same issue, the Revenue had filed appeal u/s 260A of the Act before the hon’ble Bombay High Court which was stated to be pending. The ld.AR on the other hand, relied on the appellate order.
6. We have carefully considered all the relevant facts of the case and perused the records as also the contents of the assessment and appellate orders which reveal that the assessee had investment and loans and advances in relation to Gateway Multichannel Retail (India) Limited (Gateway), a subsidiary company, aggregating to Rs. 23.31 cr. as on 31.03.2021. The Board of Directors of Gateway in January 2009, decided to discontinue its catalogue retailing operations as the business did not meet the planned performance levels to support the investments required in the current economic climate. Hence, provision for impairment was considered in books of accounts of the Company. During the course of the assessment proceedings, the AO observed that the company had not earned interest income from Gateway and required the assessee to explain as to why no notional income be added to the total income of the assessee. Accordingly, it made submission stating that respective board resolutions were passed by Shoppers Stop Limited and Gateway Multichannel Retail (India) Limited towards not providing interest on outstanding Inter Corporate Deposits. Also, it was submitted that several courts had held that what can be taxed in the hands of an assessee is only real income; i.e. to say that income which had not even accrued to an assessee could not be taxed in the hands of the assessee. The appellant had even submitted that the same addition has been deleted by the appellate authorities in the appellant’s own case in the previous years. However, the AO rejected the submission of the appellant due to the reasons mentioned below and disallowed a sum of Rs. 2,09,61,935/- under section 5 of the Act.
6.1 It is evident from the foregoing discussion that the issue involving identical facts has been a mater of dispute between the Revenue and the assessee. However, in all these years, the issue has been consistently decided in favour of the assessee by the first appellate authority as also the coordinate bench of ITAT, Mumbai in its own case and against such order Revenues appeal is pending before the High Court. In such a situation, we do not find any infirmity in the order passed by the ld.CIT(A) who has followed the past precedents in allowing relief to the assessee by deleting the addition made on account of notional interest. Accordingly, we uphold the appellate order and consequently dismiss the grounds of the Revenue.
7. In the result, the appeal of the Revenue is dismissed.
