2011 (10) TMI 632 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 58,40,226/- out of interest of Rs. 60,92,226/- made by the Assessing Officer on account of loan given without interest.
2. Deletion of addition of Rs. 1,74,27,588/- made by the Assessing Officer on account of deemed dividend u/s 2(22)(e).
3. Acceptance of additional evidence during the appellate proceedings in violation of Rule 46A of Income Tax rules, 1962.

Summary:

Issue 1: Deletion of Addition of Rs. 58,40,226/- Out of Interest of Rs. 60,92,226/-
The Assessing Officer (AO) disallowed interest amounting to Rs. 60,92,226/- out of the interest expenses claimed at Rs. 13,11,79,033/- on the grounds that the assessee had given interest-free loans and advances totaling Rs. 35,32,26,710/- which were not for business purposes. The CIT(A) deleted the addition to the extent of Rs. 58,40,226/- after observing that the appellant had charged interest on loans and advances from certain parties and disclosed the same in the books of account. The CIT(A) found that advances to Kopran Pharmaceuticals and Cargo Co. Ltd. were justified and interest was accounted for in the subsequent year. However, for Shri Bhartiya Sanskriti Sansthan, the nature and purpose of the loan were not specified, leading to a partial disallowance of Rs. 2,52,000/-. The Tribunal upheld the CIT(A)'s decision, finding no violation of Rule 46A and confirming that the assessee had duly received interest on the advances.

Issue 2: Deletion of Addition of Rs. 1,74,27,588/- as Deemed Dividend u/s 2(22)(e)
The AO added Rs. 1,74,27,588/- to the total income of the assessee as deemed dividend u/s 2(22)(e), based on the unsecured loans from Bhaskar Multinet Ltd., where a common shareholder held substantial interest in both companies. The CIT(A) deleted the addition, stating that the entries were not actual loans but transfer entries due to a proposed demerger, and there was no actual flow of funds. The CIT(A) also noted that the assessee company was not a shareholder in Bhaskar Multinet Ltd., and thus, the provisions of Section 2(22)(e) were not applicable. The Tribunal agreed with the CIT(A), emphasizing that the credit balance was due to adjustment entries and not actual loans or advances, and upheld the deletion of the addition.

Issue 3: Acceptance of Additional Evidence in Violation of Rule 46A
The Tribunal found no evidence that the CIT(A) had accepted any additional documents in violation of Rule 46A while deleting the disallowance of interest. The Tribunal confirmed that the CIT(A) had appropriately considered the advances and the interest received, and there was no procedural violation.

Conclusion:
The appeal of the Revenue was dismissed, and the Tribunal upheld the CIT(A)'s order for both the deletion of the interest disallowance and the deemed dividend addition. The judgment was pronounced in the open court on 21st October, 2011.