Notional interest on loans-advances when no such agreement – It is not necessary to pay interest in absence of such arrangement. Additions deleted by ITAT

Notional interest on loans-advances when no such agreement – It is not necessary to pay interest in the absence of such arrangement. Additions made deleted by ITAT

Notional interest on loans-advance

ABCAUS Case Law Citation:

988 2016 (08) ITAT
Assessment year: 2010-11
Date/Month of Judgment/Order: August, 2016

Brief Facts of the Case:

The return of the assessee was scrutinized and the assessment was completed by the Assessing Officer (AO) making addition among other things, on account of notional interest @ 15% per annum on loan and advances given to various persons.

Aggrieved by this, the assessee filed appeal before the CIT(A) who deleted the additions.

The Revenue aggrieved by the order of the CIT Appeals agitated the matter before the Tribunal.

Contentions of the Assessee:

The assessee submitted that when he had secured interest free loans and advances and while returning the same he was not under any obligation to pay interest thereon.

Observations made by ITAT:

The Tribunal observed that when the party takes a loan or advances without any interest only the principal amount has to be repaid at the estimated time. It is not necessary to pay interest when there is no such arrangement as such. 

Notional interest on loans-advances

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