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Issues Involved:
1. Disallowance of interest expenditure. 2. Addition towards deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961. Summary: Disallowance of Interest Expenditure: Brief Facts: A search and seizure operation u/s 132 was conducted on the assessee on 7.11.2006. The Assessing Officer (AO) disallowed interest expenditure of Rs. 13,93,080/- claimed by the assessee, stating it was not fully utilized for business purposes. Addition Towards Deemed Dividend u/s 2(22)(e): Assessing Officer's Stand: The AO added Rs. 36,14,010/- towards deemed dividend u/s 2(22)(e), arguing that advances taken from the company by the Directors were loans for repayment purposes. Assessee's Argument: The assessee contended that the advances were for business purposes, specifically for acquiring land on behalf of the company due to restrictions under the A.P. Agriculture Land Ceiling Act. The advances were not loans as they lacked a repayment schedule and did not carry interest. CIT(A) Decision: The CIT(A) sided with the assessee, referencing the Delhi High Court's rulings in CIT vs. Rajkumar and CIT vs. Creative Dyeing and Printing Pvt. Ltd., which held that trade advances do not fall within the ambit of section 2(22)(e). The CIT(A) concluded that the advances were in the ordinary course of business and not loans, thus not deemed dividends. Revenue's Appeal: The Revenue appealed to the Tribunal, but the Tribunal upheld the CIT(A)'s decision. The Tribunal noted that the advances were for business purposes, facilitating land procurement at lower costs for the company, and thus could not be categorized as loans. Share Premium and Accumulated Profits: The Tribunal also considered the share premium account and accumulated profits, concluding that share premium cannot be considered for deemed dividend u/s 2(22)(e). The Tribunal cited various precedents, including the Delhi Tribunal's decision in ACIT Vs. Clough Engineers Ltd., and the Supreme Court's rulings in CIT vs. Urmila Ramesh and P.K. Badiani vs. CIT. Final Decision: The Tribunal dismissed the Revenue's appeals, affirming that the advances were not loans and did not fall under the purview of section 2(22)(e). Consequently, the Cross Objections (C.Os) filed by the assessee were deemed infructuous and dismissed. Related Case: In the case of G. Sailaja, the issues were materially identical to those of G. Saibabu. Following the same rationale, the Tribunal dismissed the Revenue's appeals and the C.Os filed by the assessee. Conclusion: Appeals filed by the Revenue in the cases of G. Saibabu and G. Sailaja were dismissed, and the C.Os filed by the assessees were also dismissed. Order Pronouncement: The order was pronounced in the open Court on 31st July, 2013.
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