Income Tax Appellate Tribunal on Deletion of Notional Interest Addition: Revenue’s Appeals Dismissed.

Headnote:

The ITAT Delhi dismissed a batch of nine Revenue appeals challenging the CIT(A)’s deletion of additions made on account of notional/ad-hoc interest on alleged undisclosed balances in an HSBC Geneva account. The Tribunal held that no notional interest income can be taxed unless there is material indicating real accrual of income. As the Assessing Officer had assumed a flat 4% interest rate without evidence, the additions lacked factual foundation and legal justification. Consequently, both quantum and penalty appeals of the Revenue were dismissed.

Background:

1. Nine appeals were filed by the Revenue against a common assessee, Sh. Anurag Dalmia.
2. The disputed issue: addition of notional/ad-hoc interest on alleged offshore bank account balances in HSBC Geneva.
3. The AO computed interest at 4% on supposed balances, treating it as undisclosed income under Section 69.
4. The CIT(A) deleted the additions, holding that:
5. The interest rate was arbitrary and notional.
6. There was no evidence that the assessee earned such interest.
7. Notional income cannot be treated as taxable income.
8. Revenue appealed against the deletion for all relevant AYs (2006–07 to 2011–12), including penalty orders under Sections 271(1)(c) and rectification matters under Section 154.

Tribunal’s Observations:

1. No Evidence of Real Income:
2. The AO did not bring any corroborative material to show that the assessee actually earned interest at 4% or at any other rate.
3. The principal balance in the alleged HSBC account was not added, indicating even the main deposit was unverified.
4. Notional Income Cannot Be Taxed:
5. The Tribunal relied on the Supreme Court’s ruling in Chainrup Sampatram v. CIT (1953) 24 ITR 481 (SC), which held that income must have reasonable certainty of accrual to be taxable.
6. Notional or hypothetical income cannot be taxed without proof of real accrual.
7. CIT(A)'s Deletion Upheld:
8. The CIT(A)’s reasoning—that notional interest lacks legal sustainability—was affirmed.
9. AO’s computation was based on mere assumption, not evidence.
10. Penalty Appeals Also Fail:
11. Since the quantum additions were deleted, penalty proceedings for concealment (under Section 271(1)(c)) automatically collapsed.

Final Decision:

1. All nine Revenue appeals (ITA Nos. 6516 to 6521 & 6539 to 6541/Del/2017) were dismissed.
2. The Tribunal held that no addition of notional or ad-hoc interest was permissible in absence of any evidence of real accrual.
3. The common order was directed to be placed in all respective case files.

Case: DCIT, Central Circle-26, New Delhi v. Sh. Anurag Dalmia

Court: Income Tax Appellate Tribunal, Delhi Bench “A”, New Delhi

Coram: Shri Satbeer Singh Godara (Judicial Member) & Shri S. Rifaur Rahman (Accountant Member)

Date of Decision: 20 November 2025

ITA Nos.: 6516–6521/Del/2017 & 6539–6541/Del/2017

Assessment Years: 2006–07 to 2011–12