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2019 (9) TMI 1229 - AT - Income TaxAddition u/s 2(22)(e) as deemed dividend - accumulated profit needs to be worked out on the date of such payment/advancement of loan - HELD THAT - In case only a single amount has been advanced to the assessee, then we may have set aside the issue to the file of the Ld. A.O to work out the amount of accumulated profits as on the date of giving advance. However from perusal of the fund flow statement we find that the assessee company started receiving funds from AOPL from 2.4.2014 and thereafter almost on 50 more occasions the amount have been received and there is alleged investment in other companies as per the strategic investment plan. Therefore in case of the assessee it will not be practicable to compute the accumulated profits on 50 days during the year since at some point of time there may be addition to the accumulated profit and at some time there may be reduction in the accumulated profits. Therefore without giving a general finding for the adoption of accumulated profits as on date of payment, in the instant case since the first day of receiving the fund from AOPL is 2.4.2014, therefore only the opening balance of the accumulated profits as on 1.4.2014 at ₹ 38.76 crores should have been considered for computing the amount of deemed dividend as per the provisions of section 2(22)(e) Disallowance of ROC expenses and stamp duty incurred for increase in share capital - HELD THAT - Following the judgments BROOKE BOND INDIA LIMITED VERSUS COMMISSIONER OF INCOME-TAX 1997 (2) TMI 11 - SUPREME COURT as mentioned above we are of the view that Ld. CIT(A) has rightly confirmed the disallowance of ROC fees incurred exclusively for increase in share capital.
Issues Involved:
1. Addition of ? 2,97,74,68,364/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. 2. Interpretation and applicability of Section 2(22)(e) concerning the nature of transactions between the assessee and its subsidiary. 3. Calculation of accumulated profits for deemed dividend purposes. 4. Disallowance of ? 85.55 lakhs incurred for increasing share capital under Section 35D of the Income Tax Act, 1961. Detailed Analysis: 1. Addition of ? 2,97,74,68,364/- as Deemed Dividend: The assessee challenged the addition made by the Assessing Officer (AO) under Section 2(22)(e) of the Income Tax Act, 1961, which treats certain loans and advances to substantial shareholders as deemed dividends. The AO added ? 2,97,74,68,364/- to the income of the assessee, considering it as a deemed dividend received from its subsidiary, M/s Advantage Overseas Pvt Ltd (AOPL). The AO's basis was that the amount was shown as an unsecured loan in the assessee's balance sheet and not as a trade advance. The CIT(A) confirmed the AO's addition, stating that the transaction did not fall within the exceptions provided under Section 2(22)(e). 2. Interpretation and Applicability of Section 2(22)(e): The assessee contended that the transaction was a commercial one, made in the ordinary course of business for strategic investments, and thus should not be treated as a deemed dividend. The assessee provided evidence of a Memorandum of Understanding (MoU) dated 12.10.2012, which outlined the terms of the strategic investment and profit-sharing agreement with AOPL. The Tribunal noted that the funds received from AOPL were immediately invested in strategic investments and were not kept idle. The Tribunal found that the transaction was indeed a commercial one, carried out in the ordinary course of business, and thus did not attract the provisions of Section 2(22)(e). The Tribunal relied on various judicial precedents and CBDT Circular No. 19 of 2017, which clarified that trade advances for commercial transactions do not fall under the ambit of deemed dividends. 3. Calculation of Accumulated Profits: The assessee argued that the accumulated profits should be considered as on the date of each payment received from AOPL, rather than the closing balance at the end of the financial year. The Tribunal, referring to the decision in M.P. Stock Holding Pvt. Ltd V/s ACIT (2003) 84 ITD 542 (Ahd), held that the accumulated profits should be calculated up to the date of each payment. However, given the multiple transactions during the year, the Tribunal concluded that only the opening balance of accumulated profits as on 01.04.2014 should be considered, which was ? 38.76 crores. 4. Disallowance of ? 85.55 Lakhs for Increasing Share Capital: The assessee claimed the ROC fees and stamp duty incurred for increasing its authorized share capital as a deduction under Section 35D of the Income Tax Act, 1961. The AO disallowed the entire amount, considering it as capital expenditure. The CIT(A) confirmed the disallowance, relying on the Supreme Court decisions in Brooke Bond India Ltd. v. CIT, Punjab State Industrial Development Corpn. Ltd. v. CIT, and CIT v. Kodak India Ltd., which held that such expenses are capital in nature. The Tribunal upheld the CIT(A)'s decision, stating that the ROC fees for increasing share capital are directly related to capital expenditure and are not deductible as revenue expenditure. Conclusion: The Tribunal allowed the assessee's appeal regarding the addition of ? 2,97,74,68,364/- as deemed dividend, holding that the transaction was a commercial one and did not attract the provisions of Section 2(22)(e). The Tribunal also held that for calculating deemed dividends, the accumulated profits should be considered as on the date of each payment, but in this case, only the opening balance as on 01.04.2014 should be considered. The Tribunal dismissed the assessee's appeal regarding the disallowance of ? 85.55 lakhs for increasing share capital, confirming it as capital expenditure.
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