2019 (4) TMI 1617 - AT - Income Tax

Disallowance u/s.14A - CIT(A) had deleted the disallowance made by the AO u/s.14A on the ground that assessee has not earned any exempt income during the year under consideration - HELD THAT - It is now well settled in the case of Essar Teleholdings Ltd reported 2018 (2) TMI 115 - SUPREME COURT OF INDIA that no disallowance u/s.14A of the Act could be made when there is no exempt income claimed by the assessee.No infirmity in the order of ld. CIT(A) in this regard. Accordingly Ground No.1 raised by the revenue for both the years is dismissed. Addition u/s.41(1) - HELD THAT - It is not the case of the revenue that the assessee had claimed deduction or allowance in the earlier years with regard to these sundry creditors. It is not in dispute that these sundry creditors pertain to capital account transactions and hence, does not fall within the ambit of a trading liability of the assessee. Hence, we hold that the CIT(A) had rightly deleted the addition made u/s.41(1). Addition made deemed dividend u/s.2(22)(e) - HELD THAT - There is no need in the facts of the instant case to look into the dispute as to whether the assessee had maintained a current account with Muchhala Magic Land Pvt. Ltd.,(lending company) and that the provisions of Section 2(22)(e) could indeed be made applicable to the same as the assessee had been given relief by the CIT(A) on the ground that it was not holding any shares in the lending company. This is a primary condition to be satisfied in order to invoke the provisions of Section 2(22)(e) of the Act. Reliance in this regard is placed on the decision of Hon ble Delhi High Court in the case of CIT vs Ankitech (P) Ltd Ors 2011 (5) TMI 325 - DELHI HIGH COURT which in turn followed the decision of Hon ble Jurisdictional High Court in the case of CIT vs Universal Medicare (P) Ltd 2010 (3) TMI 323 - BOMBAY HIGH COURT Accordingly, we hold that assessee company is not a shareholder in the lending company and hence, the provisions of Section 2(22)(e) of the Act cannot be made applicable in the facts of the instant case. We find that the ld, CIT(A) had rightly deleted the addition in this regard.

Summary

Issues Involved:
1. Deletion of disallowance u/s.14A of the Act by the ld. CIT(A).
2. Justification of deleting the addition made u/s.41(1) of the Act.
3. Deletion of the addition made towards deemed dividend u/s.2(22)(e) of the Act.

Issue 1: Deletion of disallowance u/s.14A of the Act by the ld. CIT(A):
The appeal involved the question of whether the disallowance made by the ld. AO under section 14A of the Income Tax Act was justified. The ld. CIT(A) deleted the disallowance, citing the absence of exempt income earned by the assessee during the relevant year. The Tribunal upheld this decision, referring to a Supreme Court ruling that disallowance under section 14A cannot be made in the absence of exempt income. Consequently, the Tribunal dismissed the Revenue's appeal on this ground.

Issue 2: Justification of deleting the addition made u/s.41(1) of the Act:
This issue revolved around the addition made by the ld. AO under section 41(1) of the Act concerning certain sundry creditors. The ld. CIT(A) deleted this addition after considering the assessee's arguments that the liabilities in question were related to capital supplies for ongoing construction projects and had not been claimed as revenue expenditure in previous years. The Tribunal upheld the ld. CIT(A)'s decision, emphasizing that the liabilities were not trading liabilities and that no deductions had been claimed earlier. Consequently, the Tribunal dismissed the Revenue's appeal on this issue.

Issue 3: Deletion of the addition made towards deemed dividend u/s.2(22)(e) of the Act:
The final issue pertained to the addition made by the ld. AO towards deemed dividend under section 2(22)(e) of the Act, concerning a loan received by the assessee from a company. The ld. CIT(A) deleted this addition after finding that the assessee did not hold any shares in the lending company, a prerequisite for invoking section 2(22)(e). The Tribunal agreed with this reasoning, citing relevant judicial precedents and holding that the provision could not be applied in the absence of shareholding. Consequently, the Tribunal dismissed the Revenue's appeal on this ground as well.

In conclusion, the Tribunal upheld the decisions of the ld. CIT(A) across all issues, leading to the dismissal of the Revenue's appeals for both assessment years.