2015 (2) TMI 858 - HC - Income Tax

Disallowance of interest - ITAT deleted the addition - Held that - Revenue was unable to point out any mistake in the reasoning of the CIT which was approved by the learned Tribunal. Whether the payment of interest was allowable is basically a question of fact or at any rate a mixed question of law and fact. The learned Tribunal has for appropriate reasons upheld the views expressed by the CIT (Appeal) as A.O. himself has computed the interest income under the head Business Income and has disallowed the claim of interest payment of ₹ 7,43,926/-. If there is a temporary lull in the business activities, it does not mean that the appellant has closed its business and even if the A.O s contention is acepted that the interest income was assessable as income from other sources, the interest payment would be allowable as deduction u/s. 57 of the Act and other expenses debited in P&L A/c would be allowable as business loss. In that situation also, there would be no effect on the total income.- Decided against revenue. Deemed dividend u/s 2(22)(e) - Tribunal deleted addition - Held that - As assessee did not dispute that the Karta is a member of the HUF which has taken the loan from the Company and, therefore, the case is squarely within the provisions of section 2(22)(e) of the Income Tax Act. - Decided in favour of revenue.

Summary

Issues:
1. Deletion of deemed dividend addition under section 2(22)(e) of the Income Tax Act.
2. Reliance on a decision of Mumbai Tribunal for deletion of deemed dividend addition.
3. Deletion of interest payment addition.
4. Challenge to the consolidated order passed by the Tribunal.

Deletion of Deemed Dividend Addition:
The appeal challenged a judgment where the Appellate Tribunal allowed the assessee's appeal and dismissed the revenue's counter appeal. The revenue questioned the deletion of the addition of a sum as deemed dividend under section 2(22)(e) of the Income Tax Act. The revenue argued that the assessee HUF was a beneficial and registered shareholder with a significant shareholding in the company. The revenue contended that the Tribunal's reliance on a Mumbai Tribunal decision was erroneous as the facts differed. The Court affirmed that the Karta being a member of the HUF that received a loan from the company fell within the provisions of section 2(22)(e), thus upholding the addition as deemed dividend.

Reliance on Mumbai Tribunal Decision:
The revenue further contended that the Tribunal erred in relying on a Mumbai Tribunal decision without considering the factual disparities. However, the Court did not delve into this issue as the Karta's membership in the HUF, which received the loan, established the applicability of section 2(22)(e) without the need for further analysis.

Deletion of Interest Payment Addition:
Regarding the deletion of the interest payment addition, the Tribunal supported the CIT (Appeal)'s view that the interest payment was allowable as a business expense. The Tribunal upheld the CIT's reasoning citing precedents and directed the Assessing Officer to allow the claim of interest payment. The Court found no merit in the revenue's appeal against this decision, emphasizing that the allowance of interest payment was a factual or mixed question of law and fact, adequately addressed by the Tribunal.

Challenge to the Consolidated Order:
The revenue challenged the consolidated order of the Tribunal as being perverse and erroneous on facts and/or in law. However, the Court, after addressing the specific issues raised by the revenue, disposed of the appeal by affirming the addition of deemed dividend and the deletion of interest payment, indicating no basis for setting aside the Tribunal's order.