2019 (6) TMI 743 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - receipt of loan from company holding more than 10% shares in the said company - HELD THAT - As gone through the ledger extract of loan given to MIPL. A perusal of the said account reveals that the assessee had given loan to MIPL and the opening balance as on 1.4.2010 was 40.55 crores. Thereafter during the year the assessee has further given loans of 2 crores on various dates totalling to 6.33 crores. The said company MIPL has refunded the loans to the extent of 3.68 crores and closing debit balance was 2.61 crores. The said ledger account is self-explanatory and clearly shows that the loan was given by the assessee to MIPL and not vice versa. Since this ledger account was before the AO who had examined the same before making the addition we do not find it necessary to restore this issue to the file of the AO for verification of the same facts. Allowability of interest on loan u/s 57 - loss under the head Income from other sources - nexus between the income earned u/s 56 and expenses claimed u/s 57 - HELD THAT - There is no dispute that the assessee has raised secured loans from HDFC Ltd BHW Home Finance and Religare Finvest Ltd. It is also not in dispute that the assessee has transferred these borrowings as loan to MIPL. It is also not in dispute that the loans have been raised in F.Ys 2007-08 2008-09 and 2009-10. The assessee has charged interest from MIPL @ 15% whereas the assessee is paying interest on borrowed funds ranging from 12.94% to 18.5%. We have also examined the bank statement of Canara bank exhibited at pages 28 to 31 of the paper. A perusal of the same shows that as soon as the assessee received the funds from HDFC Ltd BHW Home Finance and Religare Finvest Ltd. the same were transferred to MIPL thus clearly establishing the direct link/nexus between the borrowings and lending. No disallowance on this count. We accordingly direct the Assessing Officer to delete the entire disallowance Deduction u/s 80C OR u/s 80G - HELD THAT - As perused the computation of taxable income we find force in the contention of the ld. AR. In the inner column deduction u/s 80C has been shown at 25, 08, 938/- and in the outer column only eligible deduction of 1 lakh has been shown. Though there is a mention of deduction u/s 80G but nothing has been claimed under this section. It appears that the AO has wrongly taken the claim of deduction u/s 80C as claim of deduction u/s 80G. Facts are in favour of the assessee and therefore no interference is called for.

Summary

Issues:
1. Addition under section 2(22)(e) of the Income-tax Act, 1961.
2. Disallowance of interest expenditure under section 57 of the Act.
3. Deletion of addition claimed as deduction under section 80G of the Act.

Issue 1: Addition under section 2(22)(e) of the Income-tax Act, 1961:
The Assessing Officer added ?3.68 crores under section 2(22)(e) as deemed dividend, believing the assessee received this amount from a company where they held more than 10% shares. The assessee contended they had actually given a loan to the company. The Commissioner of Income Tax (Appeals) agreed with the assessee, noting the loan was given by the assessee to the company. The ITAT confirmed this finding, emphasizing the ledger account evidence showing the loan was given by the assessee to the company, not vice versa.

Issue 2: Disallowance of interest expenditure under section 57 of the Act:
The Assessing Officer disallowed the entire claim of interest expenditure of ?93,63,773 made by the assessee, as the income claimed did not match the expenses. The CIT(A) restricted the disallowance to ?38,05,852, highlighting the direct nexus between the borrowed funds and loans given to a specific company. The ITAT upheld the CIT(A)'s decision, noting the clear linkage between the borrowings and lending, directing the Assessing Officer to delete the disallowance.

Issue 3: Deletion of addition claimed as deduction under section 80G of the Act:
The Assessing Officer added ?1 lakh as a donation deduction under section 80G, which the assessee disputed, stating they had not claimed any deduction under that section. The CIT(A) found merit in the assessee's claim and deleted the addition. The ITAT agreed, observing that the computation of taxable income clearly indicated the assessee had not claimed any deduction under section 80G, and the Assessing Officer had erroneously treated a deduction under section 80C as a deduction under section 80G. Consequently, the appeal filed by the Revenue was dismissed, while the appeal of the assessee was allowed.

In conclusion, the ITAT upheld the CIT(A)'s decisions in favor of the assessee on all three issues, emphasizing the importance of documentary evidence and the direct nexus between transactions to determine tax liabilities accurately.