2015 (10) TMI 987 - AT - Income Tax

Deemed dividend u/s.2(22)(e) - CIT(A) deleted the addition - The written submission filed by the assessee, wherein, assessee contended that Rungta Agencies Pvt Ltd., has given loan or advance in the nature of loan to the assessee i.e. OCP Ltd. - Held that - The assessee does not hold any share in Rungta Agencies Pvt Ltd., and assessee is not a shareholder or member in Rungta Agencies Pvt Ltd. Therefore, provisions of section 2(22)(e) of the Act is not applicable. We find that the facts of the assessee s case are similar with that of Bhaumik Colours 2008 (11) TMI 273 - ITAT BOMBAY-E . We find that the CIT(A) has come to the conclusion to delete the addition made under section 2(22)(e) following the decision of Bhaumik Colours (supra). As the assessee is not shareholder of the company, who has advanced money, therefore, we are of the view that the CIT(A) is justified in his action and our interference is not required - Decided in favour of assessee. Addition on account of suppression of the value of concrete sleepers by the assessee - CIT(A) deleted the addition - Held that - The assessee has shown the value of 2884 numbers at Nil. The assessee admitted that this rejected sleepers occasionally sold to private parties. The company sales the PSC sleepers to Indian Railways and when the sleepers are found to be defected after testing, they are rejected by the railway authorities. The assessee company has been consistently following the accounting practice of valuing the rejected railways sleepers as nil and accounted for on realization basis and the department has accepted this method. Therefore, for the year under consideration, the assessee is following same method and if this valuation is rejected, it will not affect the book results. Therefore, in our opinion, the CIT(A) is justified in his action and our interference is not called for.- Decided in favour of assessee.

Summary

Issues:
1. Deletion of addition under section 2(22)(e) of the Act
2. Deletion of addition on account of suppression of the value of concrete sleepers

Deletion of Addition under Section 2(22)(e) of the Act:
The case involved an appeal by the revenue against the order of the ld CIT(A) regarding the addition of Rs. 40,50,000 made by the AO under section 2(22)(e) of the Act. The AO treated this amount as deemed dividend in the hands of the assessee company due to a loan received from a related company. The CIT(A) deleted this addition based on the argument that the conditions stipulated in section 2(22)(e) were not satisfied as the shareholder did not have substantial interest in the assessee company. The CIT(A) referred to Section 2(32) of the Act to establish that substantial interest requires a minimum of 20% shares with voting power in a company. The ITAT upheld the CIT(A)'s decision, stating that since the assessee was not a shareholder of the lending company, the provisions of section 2(22)(e) did not apply.

Deletion of Addition on Account of Suppression of the Value of Concrete Sleepers:
The second issue revolved around the deletion of an addition of Rs. 19,84,192 made by the AO due to the valuation of rejected PSC sleepers at Nil in the closing stock. The assessee explained that these sleepers were not marketable products regularly and were only occasionally sold to private parties. The CIT(A) accepted this explanation, stating that the rejected sleepers had no market value as they could not be sold without specific permission from railway authorities. The ITAT upheld the CIT(A)'s decision, noting that the assessee had consistently followed the practice of valuing rejected sleepers at nil and accounting for them on a realization basis. The ITAT concluded that the CIT(A) was justified in deleting this addition.

In conclusion, the ITAT dismissed the revenue's appeal, upholding the decisions of the CIT(A) to delete both the addition under section 2(22)(e) of the Act and the addition related to the valuation of concrete sleepers.