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2017 (4) TMI 1526 - AT - Income TaxDeemed Dividend u/s 2(22)(e) - payment by way of loan or advance - HELD THAT - For payment by way of an advance or loan as employed in section 2(22)(e) of the Act there should be a outgoing or actual flow of money from the company to its shareholder. In the instant case there is no outgoing or actual flow of money from M/s Saurabh Agrotech Pvt. Ltd. to the assessee therefore it cannot be said that there is any payment by way of advance or loan to the assessee by M/s Saurabh Agrotech Pvt. Ltd. In the instant case where the assessee has purchased shares of Vijay Agro Mills Pvt. Ltd. from M/s Saurabh Agrotech Pvt. Ltd. and there is an amount payable to M/s Saurabh Agrotech Pvt. Ltd. it is a transaction of purchase and sale of shares and the same cannot fall within the ambit of payment by way of loan or advance. Secondly on 10.04.2008 the day when assessee acquired shares of vijay Agro Mills Pvt. Ltd. from M/s Saurabh Agrotech Pvt. Ltd the Assessee was not holding any shares in M/s Saurabh Agrotech Pvt. Ltd. as per annual return filed with the ROC and which is also verified by the Ld. CIT (A) therefore the second condition for invoking the provisions of deemed dividend doesn t get satisfied. In view of the fact that all the three conditions are to be satisfied cumulatively and the two conditions not being satisfied in the instant case there is no necessity to examine the third condition in terms of extent of accumulated profits which can attract deemed dividend. We agree with the contention of the ld AR that provisions of section 2(22)(e) of the Act are not attracted in the instant case. Disallowance u/s 14A r.w.r. 8D - contention raised by the ld. AR is that no disallowance u/s 14A of the Act can be made in the year under consideration as no dividend income has been received in respect of investment made by the assessee - HELD THAT - There is no dividend income which is received or receivable for the year under consideration in respect of its investments in shares. It is noted that said fact is on record and remain undisputed before us. No contrary authority has been brought to our notice. In light of above discussions respectfully following the decision of the Hon ble Delhi High Court in case of Cheminvest Limited 2015 (9) TMI 238 - DELHI HIGH COURT no disallowance under section 14A can be made in the instant case. Disallowing the claim of the assessee company being VAT reimbursement and in the nature of capital receipt - HELD THAT - In the instant case the subsidy in the form of VAT reimbursement is provided to the assessee company in terms of the Industrial Incentive Policy of state of Bihar formulated in the year 2006. The objective of the policy was to establish new industries and to revive the sick and closed units in the state of Bihar and to create favorable environment to attract the investors of state and from abroad. Applying the purpose test the objective and the purpose of providing the VAT subsidy (to the extent of 300% of capital employed) is clearly related to encouraging setting up of the new units which commences production within five years from 1.4.2006 and to generate fresh employment opportunities in the state. It is noted that even the ld CIT(A) has given a similar finding where he states that the purpose of the industrial incentive scheme is to encourage all round development of the state of Bihar. Further the subsidy is calculated on the amount of VAT collected and deposited with the Government which would subsequently be entered in the passbook and verified by the Commercial taxes department. There is a distinction between the entitlement towards the said subsidy and its subsequent disbursement. The assessee becomes entitled to such subsidy once it has set up the new unit in the state of Bihar and the disbursement happens when the assessee company actually starts production. By its very nature the subsidy would thus be payable after the commencement of production but that would not make it a revenue receipt as it was only a mode of disbursement and had nothing to do with the object for which the subsidy was given. The object for which the subsidy is granted would takes primacy over the fact that it was given after the commencement of production and conditional upon the same. The subsidy is thus on capital account. Referring to amendment in the definition of income any subsidy given by the Central Government or a State Government or any authority etc. for any purpose except where it is taken into account for determination of the actual cost of the asset under Explanation 10 section 43(1) has become chargeable to tax. Even if a subsidy is given to attract industrial investment or expansion which is a otherwise a capital receipt under the pre-amended era shall henceforth be treated as income chargeable to tax except where it has been taken into account for determining the actual cost of assets in terms of Explanation 10 to section 43(1). This amendment is with effect from 1-4-2016 and is prospective in its application. In the instant case as the assessment year under consideration is 2009-10 Section 2(24)(xviii) shall have no operation. Thus VAT subsidy received by the assessee from the Government of Bihar is a capital receipt and accordingly not chargeable to tax. Disallowance of deduction under section 80IA claimed on the profits of the Wind Mills - HELD THAT - The Coordinate Bench in assessee s own case for A.Y. 2007-08 has already taken a view in favour of the assessee following the decision of Hon ble Madras High Court in case of CIT Vs. Velayudhaswamy Spinning Mills (P) limited 2010 (3) TMI 860 - MADRAS HIGH COURT . Addition invoking the provisions of section 145(3) - Trading addition - GP rate determination - shortage of mustard seeds - HELD THAT - AO has not pointed out any sales or purchase which is out of the books or not vouched. Day to day stock records is also maintained. The shortage of mustard seeds claimed by the assessee in the month of April 09 and March 10 is verifiable from the day to day stock register of the said months wherein the shortage is shown on day to day basis whenever the same has occurred. The reason as to why the shortage has been claimed in the month of April 09 and March 10 and not in the months of May 2009 to Feb 2010 has been duly explained before the AO. So far as non-production of laboratory test reports are concerned it is submitted that every lot of seeds contain different quality of oil and considering the content of oil in the seed payment is made to the supplier. The maintenance of laboratory test report has thus no relevance for application of section 145(3). The Ld. CIT(A) after considering all these facts held that AO has no material for rejecting the book results declared by the assessee. The department has not challenged this finding of the CIT(A) where it is held that section 145(3) is not applicable. Hence on this account itself the ground of the department be liable to be dismissed. Adhoc trading addition is hereby deleted.
Issues Involved:
1. Deemed Dividend of Rs. 70,00,000. 2. Disallowance of interest of Rs. 33,90,121. 3. VAT reimbursement of Rs. 3,24,17,009. 4. Deduction under section 80IA. 5. Trading addition of Rs. 5,00,000. Detailed Analysis: 1. Deemed Dividend of Rs. 70,00,000: - Facts: The assessee was holding 24.70% shares in Saurabh Agrotech Pvt. Ltd. (SAPL). On 10.04.2008, the assessee purchased 10,000 shares of Vijay Agro Mills Pvt. Ltd. (VAMPL) from SAPL for Rs. 70 lacs. The AO treated this amount as deemed dividend under section 2(22)(e) of the Income-Tax Act, 1961, as the assessee had a credit balance of Rs. 70 lacs with SAPL. - Contentions: The assessee argued that the amount was not a loan or advance but a payment for the purchase of shares. Additionally, the assessee contended that it did not hold any shares in SAPL on 10.04.2008, thus section 2(22)(e) was not applicable. - Findings: The Tribunal held that section 2(22)(e) applies only to loans or advances. Since the transaction was for the purchase of shares, it did not qualify as a loan or advance. Furthermore, the assessee did not hold shares in SAPL on the relevant date. Hence, the addition of Rs. 70 lacs as deemed dividend was deleted. 2. Disallowance of Interest of Rs. 33,90,121: - Facts: The AO disallowed Rs. 33,90,121 under section 14A read with Rule 8D, claiming that the assessee used interest-bearing funds for investments in shares. - Contentions: The assessee argued that investments were made from non-interest bearing funds and no exempt income was earned during the year. - Findings: The Tribunal noted that section 14A is not applicable if no exempt income is received. Following the Delhi High Court's decision in Cheminvest Ltd., the Tribunal deleted the disallowance, as no dividend income was received during the year. 3. VAT Reimbursement of Rs. 3,24,17,009: - Facts: The assessee received VAT reimbursement under the Industrial Incentive Policy 2006 of Bihar, which it claimed as a capital receipt. - Contentions: The assessee argued that the subsidy was for setting up new units and thus should be treated as a capital receipt. - Findings: The Tribunal applied the "purpose test" from the Supreme Court's decision in Ponni Sugars and Chemicals Ltd., determining that the subsidy was for setting up new units and thus a capital receipt. The Tribunal allowed the claim, treating the VAT reimbursement as a non-taxable capital receipt. 4. Deduction under Section 80IA: - Facts: The AO disallowed the deduction claimed under section 80IA for profits from windmills, arguing that losses from earlier years should be set off. - Contentions: The assessee contended that the initial assessment year for section 80IA should be the year in which the deduction is first claimed, not the year of commencement of the business. - Findings: The Tribunal followed the Madras High Court's decision in Velayudhaswamy Spinning Mills, holding that losses from earlier years should not be set off against profits of the eligible business in the initial assessment year. The Tribunal allowed the deduction under section 80IA. 5. Trading Addition of Rs. 5,00,000: - Facts: The AO made a lump-sum trading addition of Rs. 5,00,000, alleging excessive shortage of mustard seeds. - Contentions: The assessee maintained that the shortage was due to drying moisture in the mustard seeds and was verifiable from stock records. - Findings: The Tribunal noted that the gross profit rate declared by the assessee was better than the previous year and that the AO had no material to reject the book results. The trading addition was deleted. Conclusion: The Tribunal allowed the appeals of the assessee on all grounds, deleting the additions and disallowances made by the AO and confirming the deductions and claims made by the assessee. The appeals filed by the Revenue were dismissed.
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