2016 (5) TMI 457 - AT - Income Tax

Disallowance u/s 37(1) - additional payment in violation of Stamp Duty Act, 1899 - Held that - Since the material issue is that the said payment was never claimed by the assessee as business expenditure, the occasion to make a disallowance of the same does not arise. There is no dispute on the fact that the expenditure was not claimed as an expense by the assessee. In the circumstances, the occasion to make an addition of the same by way of a disallowance does not arise. Accordingly, we hold that the disallowance of ₹ 875,000/- on account of additional payments was wrongly made by the Assessing Officer. Moreover, the partial sustenance of this addition by the Ld. CIT (A) is also incorrect and is liable to be deleted for the reason aforesaid. Hence, this ground of appeal of the Department is also rejected.Section 40A(3) of the Act has been wrongly invoked as admittedly no expenses relatable to the addition has been claimed. - Decided in favour of assessee Deemed dividend addition u/s 2(22) - Held that - The assessee company is not a registered shareholder of the payer companies who have advanced loans to the assessee company. Thus we hold that the amount is not taxable as deemed dividend in the hands of the assessee company u/s 2(22)(e) of the Act as the assessee company is not a shareholder of the payer companies - Decided against revenue

Issues Involved:
1. Deletion of addition under Section 37(1) for additional payment in violation of Stamp Duty Act.
2. Deletion of addition under Section 2(22)(e) on account of deemed dividend.
3. Disallowance under Section 40A(3) for cash payments exceeding prescribed limits.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 37(1) for Additional Payment in Violation of Stamp Duty Act:
The Department contended that the assessee was not entitled to claim the deduction of additional payments made for land purchase as the consideration for these payments was not received in lieu of anything other than the land already acquired. The additional payments were made after the execution of registered sale deeds, and no stamp duty was paid on these payments. The Department argued that these additional payments were in violation of the Indian Stamp Act and cannot be allowed as a deduction.

The Tribunal noted that the additional payments were not routed through the profit/loss account of the assessee and were not claimed as business expenditure. Since the expenditure was not claimed as an expense, the occasion to make a disallowance did not arise. Thus, the disallowance of Rs. 875,000/- on account of additional payments was held to be wrongly made by the Assessing Officer and the partial sustenance of this addition by the CIT (A) was also incorrect.

2. Deletion of Addition under Section 2(22)(e) on Account of Deemed Dividend:
The Department argued that the assessee had received Rs. 9,00,000/- from Super Belts (P) Ltd. and Rs. 10,78,000/- from Green Valley Housing & Land Development (P) Ltd. as deemed dividends. The CIT (A) had deleted the addition, which the Department contested.

The Tribunal observed that the assessee company was not a registered shareholder of the payer companies. Citing the Hon'ble Jurisdictional High Court's decision in CIT vs Ankitech (P) Ltd., the Tribunal held that the amount of Rs. 796,743/- is not taxable as deemed dividend in the hands of the assessee company under Section 2(22)(e) because the assessee was not a shareholder of the payer companies. Therefore, this ground of appeal by the Department was rejected.

3. Disallowance under Section 40A(3) for Cash Payments Exceeding Prescribed Limits:
The assessee challenged the disallowance of Rs. 13,46,000/- under Section 40A(3) on the ground that no deduction was claimed for the purchase of land. The assessee argued that it did not derive income from the purchase and sale of land and had not claimed any deduction in respect of the cost of land under the head 'business income.'

The Tribunal noted that Section 40A(3) is an exception to the deductibility of expenditure under the computation provisions of 'profits and gains of business or profession.' Since the assessee had not claimed any deduction for the expenditure, the provisions of Section 40A(3) were not applicable. The Tribunal referred to the judgments of the Hon'ble Rajasthan High Court in Motilal Khatri and the Hon'ble Punjab & Haryana High Court in CIT vs Alpha Toyo Ltd., which supported the view that if no expenditure is claimed, disallowance under Section 40A(3) does not arise. Consequently, the Tribunal held that the disallowance under Section 40A(3) was wrongly invoked and allowed the assessee's appeal on this ground.

Conclusion:
The appeal of the Department was dismissed, and the appeal of the assessee was allowed. The Tribunal ruled that the additional payments were not claimed as expenses, thus no disallowance could be made. Additionally, the deemed dividend could not be taxed in the hands of the assessee as it was not a shareholder of the payer companies, and the disallowance under Section 40A(3) was not applicable as no deduction was claimed. The order was pronounced in the open court on 10/2/2016.

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