ITAT also held that Loss born out of compensation from Land Acquisition can be deducted in the AY in which compensation was awarded.
Last Tuesday, the Income Tax Appellate Tribunal (ITAT) Delhi, while disposing off an appeal in favour of DLF Ltd., held that notional interest need not be charged by assessing officers on amount received by a firm from its holding company if it is so received for business purpose.
Here, in this case, M/s Nilgiri Cultivations Ltd. (a former subsidiary company of DLF Ltd.) received an unsecured loan of Rs.11.70 Crores @ an interest of 6.5% p.a. from its holding company. Subsequently, the holding company received Rs. 7,63,972 as interest in the assessing year 2007-08 which was added to the total taxable income by the assessing officer. This was challenged before the Commissioner of income tax (appeals) (CIT(A)) by the assesse initially and was held in favour of them. This order was challenged by the Deputy Commissioner of income tax before the ITAT.
The ‘B’ bench of ITAT consisting of Accountant Member Prashant Maharishi and Judicial Member Bhavnesh Saini were quoted, “The Ld. CIT(A) has recorded the findings of fact that these advances were given purely for the purpose of business i.e., for acquisition of land and cannot be termed as interest bearing advance. The A.O. did not charge any notional interest in earlier year. Therefore, no income accrued to the assessee- company as was held by the A.O. The Ld. CIT(A) on proper appreciation of the facts and material on record, correctly deleted the addition. The ground raised by the Department has no merit and is accordingly dismissed.”
In the same appeal, the Bench provided further relief to DLF ltd. when they were allowed deduction for the loss born out of a land acquisition by the Haryana Govt. Though the land acquisition happened in the assessing year 2001-2002, they were handed over the compensation only in 2007. The assessing officer did not accept the deduction of loss so incurred by the land acquisition for the same assessing year. An appeal against it was later accepted by the CIT(A) through an order and allowed deduction through an order. This order was now being appealed against before this bench.
While disposing off the appeal, the bench quoted, “. . . .the assesse-company rightly claimed the loss in assessment year under appeal because the assesse-company has accounted for the compensation on the basis of crystallization of the claim during assessment year under appeal and the cost of the same has been written-off in the assessment year under appeal. The Ld. CIT(A) therefore, on proper appreciation of facts and material on record, correctly deleted the addition. No interference is called for in the matter. This ground of appeal of the Revenue is dismissed.”
Read the full text of the Order below.
