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2021 (4) TMI 54 - AT - Income TaxDeemed dividend u/s 2(22)(e) - loan advanced to the shareholder - HELD THAT - CIT(A) held that the provisions of section 2(22)(e) were not applicable in the case of the assessee as the said loan was advanced to the shareholder in the ordinary course of business of lending of money by the said company. DR could not point out any defect in the said observations made by the CIT(A).There is no merit in this ground of Revenue. The findings of the ld. CIT(A) on this issue are accordingly upheld. Addition u/s 56(2)(viia) - HELD THAT - CIT(A) considering the above submissions observed that since the assessee company was 100% subsidiary of M/s Alpine Commercial Co. Ltd. in which the public was substantially interested, therefore according to the provisions of section 2(18)(b)(B)(c), the assessee company being 100% of subsidiary of the said public limited company was also treated as a company in which public was substantially interested and that the provisions of section 56(2)(viia) were not attracted in the case of the assessee company. DR could not bring out any defect in the order of the CIT(A) warranting our interference. The findings of the CIT(A) on this issue are upheld. Addition u/s 14A on account of expenditure incurred for earning of tax exempt income - HELD THAT - CIT(A) while deleting the aforesaid addition has observed that the assessee during the year did not earn any tax exempt income. He while relying upon the decisions of the various High Courts including the decision in the case of CIT vs. Shivam Motors Pvt. Ltd.. 2014 (5) TMI 592 - ALLAHABAD HIGH COURT and in the case of Corrtech Energy P. Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT held that when there is no exempt income earned by the assessee, no disallowance of corresponding/notional expenditure is to be made under the provisions of section 14A of the Income Tax Act. DR could not point out any infirmity in the order of CIT(A) in this respect. The findings of the ld. CIT(A) on this ground are, therefore, upheld.
Issues Involved:
1. Deletion of addition of deemed dividend u/s 2(22)(e) 2. Deletion of addition u/s 56(2)(viia) for purchasing shares below market value 3. Deletion of addition u/s 14A for expenditure incurred for earning tax-exempt income Analysis: Issue 1: Deletion of addition of deemed dividend u/s 2(22)(e) The Revenue challenged the deletion of the addition made by the Assessing Officer under section 2(22)(e) on account of deemed dividend. The Assessing Officer treated a loan amount as deemed dividend as the appellant-company had taken a loan from a company in which it held substantial interest. However, the assessee argued that the loan was advanced in the ordinary course of business and interest was paid. The CIT(A) agreed with the assessee, stating that the loan was given in the ordinary course of business. The Tribunal upheld the CIT(A)'s decision, finding no defect in the reasoning provided. Issue 2: Deletion of addition u/s 56(2)(viia) for purchasing shares below market value The Revenue contested the deletion of the addition under section 56(2)(viia) for purchasing shares below market value. The Assessing Officer added the price difference as per the book value of shares. The assessee argued that the provisions were not applicable as it was a subsidiary of a public limited company where the public was substantially interested. The CIT(A) agreed, stating that the provisions were not attracted due to the public interest in the holding company. The Tribunal upheld the CIT(A)'s decision, finding no grounds for interference. Issue 3: Deletion of addition u/s 14A for expenditure incurred for earning tax-exempt income The Department challenged the deletion of the addition made under section 14A for expenditure incurred for earning tax-exempt income. The CIT(A) observed that no tax-exempt income was earned during the year, citing relevant court decisions. The CIT(A) held that when no exempt income is earned, no disallowance of corresponding expenditure should be made under section 14A. The Tribunal upheld the CIT(A)'s decision, finding no issues with the order. In conclusion, the Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s decisions in each issue.
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