2018 (12) TMI 1894 - AT - Income Tax

Addition u/s 2(22) (e) on account of deemed dividend - HELD THAT - We find that Id. First Appellate Authority has recorded a finding of fact that assessee is not the share holder of both the companies. CIT(A) has followed the decision of Special Bench of ITAT in case of ACIT vs. Bhaumik Colour Pvt. Ltd. 2008 (11) TMI 273 - ITAT BOMBAY-E . This decision of ITAT has been upheld by the Hon ble Bombay High Court. Hon ble Delhi High Court has also held in case of CIT vs. Ankitech (P.) Ltd. 2011 (5) TMI 325 - DELHI HIGH COURT that the assessee should be a share holder in the lender company and such holding should be more than 10% of the voting rights only then Section 2(22)(e) would be attracted. As concurred with hon ble Delhi High Court. Therefore respectfully following the decision of Hon ble Gujarat High Court in case of CIT vs. Daisy Packers (p.) Ltd. 2015 (7) TMI 253 - GUJARAT HIGH COURT we do not find any error in the order of Id. CIT(A) on this issue. This ground of appeal is rejected. Addition u/s 41(1) being cessation of liability - HELD THAT - The assessee has shown sundry credit in the name of Sarovar Park Plaza Mumbai which was carried forward from after year without any transaction from A.Y.2007-08. The assessee has shown outstanding balance of creditors account as liability in its books of account and such amount was not written back in Profit Loss Account After taking in to consideration the decision in the case of CIT v/s. Bhogilal Ramjibhai Atara 2014 (2) TMI 794 - GUJARAT HIGH COURT and in the case of CIT v/s. Nitin S. Garg 2012 (5) TMI 30 - GUJARAT HIGH COURT as elabortaed in the findings of the Ld. CIT(A) we are of the view that there was nothing on record to demonstrate that there was remission or cessation of liability relevant to Assessment Year 2007-08. Therefore we do not find any error in the decision of the Ld. CIT(A). Accordingly the appeal of the revenue is dismissed. Disallowance in respect of belated contribution to provident fund and ESIC u/s. 36(1)(va) - HELD THAT - As the assessee has failed to make payment of the PF/ESIC received from the employees within the time allowed as per the PF/ESIC act. We have further noticed that hon ble high court in the case of CIT vs. GSRTC 2014 (1) TMI 502 - GUJARAT HIGH COURT held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (10) of clause (24) of section 2 apply the assessee shall be entitled to deduction of such amount in computing the income referred to in section 28 if such sum is credited by the assessee to the employees account in the relevant fund or funds on or before the due date. In the light of the above facts and judicial findings we do not find any error in the decision of ld. CIT(A) in sustaining the disallowance therefore this ground of the appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Deletion of addition of ?75,00,000/- made under Section 2(22)(e) of the Income Tax Act on account of deemed dividend.
2. Deletion of addition of ?38,21,232/- made under Section 41(1) of the Income Tax Act due to cessation of liability.
3. Disallowance of ?4,28,367/- made by the assessing officer in respect of belated contribution to provident fund and ESIC under Section 36(1)(va) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?75,00,000/- under Section 2(22)(e) of the Act:
The assessing officer noticed that the assessee received an unsecured loan of ?75,00,000/- from Cama Motors Company Ltd. and treated this amount as deemed dividend under Section 2(22)(e) of the Act, as common directors held more than 20% share capital. The assessee argued that it did not hold more than 10% shares in Cama Motors Pvt. Ltd. and was not a shareholder of the company. The CIT(A) allowed the appeal, referencing the ITAT's decisions in previous years and the case of ACIT vs. Bhaumik Colour Pvt. Ltd., which held that deemed dividend can only be assessed in the hands of a shareholder of the lender company. The Gujarat High Court and Bombay High Court decisions supported this view. Consequently, the ITAT upheld the CIT(A)'s decision, dismissing the revenue's appeal on this issue.

2. Deletion of Addition of ?38,21,232/- under Section 41(1) of the Act:
The assessing officer added ?38,21,232/- as income under Section 41(1) due to the cessation of liability, noting that the sundry creditor amount had been carried forward since A.Y. 2007-08 without transactions. The assessee argued that the liability was not written back in the profit and loss account and cited Gujarat High Court decisions in CIT vs. Nitin S. Garg and CIT vs. Bhogilal Ramanlal Atara, which held that merely because liabilities were outstanding for many years, it could not be inferred that they had ceased to exist. The CIT(A) agreed with the assessee, and the ITAT upheld this decision, dismissing the revenue's appeal on this issue.

3. Disallowance of ?4,28,367/- under Section 36(1)(va) of the Act:
The cross-objection pertained to the disallowance of ?4,28,367/- for belated contributions to provident fund and ESIC. The assessee failed to make payments within the time allowed by the respective acts. The ITAT referenced the Gujarat High Court's decision in CIT vs. GSRTC, which held that deductions are only allowed if contributions are credited to the employees' account on or before the due date. The ITAT found no error in the CIT(A)'s decision to sustain the disallowance, dismissing the assessee's cross-objection.

Conclusion:
The ITAT dismissed both the revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decisions on all issues. The order was pronounced in the open court on 10-12-2018.