2012 (8) TMI 995 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made u/s 2(22)(e) of the Income Tax Act.
2. Restriction of disallowance of expenses.

Summary:

Issue 1: Deletion of Addition Made u/s 2(22)(e) of the Income Tax Act

The Revenue's appeal contested the deletion of an addition of Rs. 6,50,000/- made u/s 2(22)(e) of the Act, which was treated as deemed dividend. The AO noted that the assessee company received an unsecured loan from M/s Giriraj Developers Pvt. Ltd., where common directors held substantial shares in both companies. The AO added Rs. 6,50,000/- to the income of the assessee company, citing the provisions of section 2(22)(e). However, the CIT(A) deleted this addition, relying on the decision of the Special Bench in Bhaumik Colour Pvt. Ltd., which held that deemed dividend can only be assessed in the hands of a person who is both a beneficial and registered shareholder of the lender company. Since the assessee company was not a shareholder in GDPL, the provisions of sec 2(22)(e) were not applicable. The Tribunal upheld the CIT(A)'s decision, referencing the Gujarat High Court's ruling in CIT vs. Daisy Packers Pvt. Ltd., which supported the non-applicability of sec 2(22)(e) when the recipient is not a shareholder in the lender company.

Issue 2: Restriction of Disallowance of Expenses

The AO disallowed 20% of mess expenses, labour charges, and leveling & loading expenses, totaling Rs. 1,03,908/-, due to the inability to verify these expenses as exclusively for business purposes. The CIT(A) restricted this disallowance to 10%, reducing the disallowed amount to Rs. 50,000/-, considering that the accounts were audited and some expenses were supported by self-generated vouchers. The Tribunal found no infirmity in the CIT(A)'s decision and upheld the restriction of the disallowance to Rs. 50,000/-, dismissing the Revenue's appeal on this ground.

Conclusion:

In both appeals, the Tribunal upheld the orders of the CIT(A), confirming the deletion of the addition made u/s 2(22)(e) and the restriction of the disallowance of expenses. Consequently, both appeals filed by the Revenue were dismissed.

Order pronounced in open Court on 08.08.2012.