2021 (8) TMI 25 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - CIT(A) deleted the addition on the ground that no dividend income was received by the assessee during the year and therefore in view of the decision of Holcim India Pvt. Ltd 2014 (9) TMI 434 - DELHI HIGH COURT - HELD THAT - No infirmity in the order of the learned CIT(A) in deleting the addition made by the AO u/s 14A r.w.r. 8D of the Rules. It is an admitted fact that the assessee during the year under consideration has not earned any exempt or dividend income. It has been held in various decisions that in absence of any exempt or dividend income received during the year under consideration no addition can be made u/s 14A r.w.r. 8D of the Rules. The Hon ble Delhi High Court in the case of Chiminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT has held that in absence of any exempt income disallowance u/s 14A of the Act of any amount was not permissible. The Hon ble Supreme Court in the case of CIT vs M/s Chettinad Logistics Pvt. Ltd. 2018 (7) TMI 567 - SC ORDER has held that in absence of any exempt income no disallowance u/s 14A r.w.r. 8D can be made. Since the assessee in the impugned assessment year has admittedly not received any exempt income or dividend income therefore the order of the learned CIT(A) in deleting the disallowance made by the AO u/s 14A r.w.r 8D is upheld and the grounds raised by the Revenue on this issue are dismissed. Deemed dividend addition u/s 2(22)(e) - as per AO assessee has failed to demonstrate that the money advanced by the companies to it was in the nature of trade advance and therefore the learned CIT(A) was not justified in deleting the addition - HELD THAT - Since the facts of the present appeal are identical to the facts of the related party decided by the Tribunal in the case of Gaurav Arora 2019 (3 ) TMI 1289 - ITAT DELHI therefore respectfully following the same we hold that regular/routine transactions cannot be termed as loans and advances so as to attract the provisions of section 2(22)(e) - Since the learned CIT(A) while deleting the addition has thoroughly discussed the issue and has given a finding that these are trading/business transactions therefore in absence of any contrary material brought to our notice by the learned DR against the factual finding given by the learned CIT(A) as above we do not find any infirmity in his order. Accordingly the same is upheld and the grounds raised by the Revenue on this issue are dismissed

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules.
2. Addition under Section 2(22)(e) of the Income Tax Act as deemed dividend.
3. Recasting of ledger account and its correctness.
4. Holding that the sale of silver recorded in the diary seized is duly accounted for in the books/cash sale.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules:
The Assessing Officer (AO) observed that the assessee had substantial investments in shares, which could generate tax-free dividend income. Despite not earning any exempt income, the AO applied the provisions of Section 14A read with Rule 8D, disallowing ?1,42,80,173/- on the grounds that expenses claimed in the Profit & Loss Account were related to such investments. The CIT(A) deleted this disallowance, stating that since no exempt income was received during the year, Section 14A was not applicable. This was supported by various judicial precedents, including the Hon'ble Supreme Court's decision in PCIT vs Oil Industries Development Board and CIT vs M/s Chettinad Logistics Pvt. Ltd., which held that in the absence of exempt income, no disallowance under Section 14A can be made. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the deletion of the disallowance.

2. Addition under Section 2(22)(e) of the Income Tax Act as deemed dividend:
The AO made an addition of ?91,47,56,196/- under Section 2(22)(e), treating payments received from Jaypee Capital Services Pvt. Ltd. (JCPL) as deemed dividends. The CIT(A) deleted this addition, concluding that the transactions were business-related and not loans or advances. The CIT(A) noted that JCPL was a broker dealing in shares, currency, and derivatives, and the transactions with the assessee were regular business transactions. This conclusion was supported by the CBDT Circular No. 19/2017 and various judicial decisions, including CIT vs Creative Dyeing & Printing Pvt. Ltd., which clarified that advances in the nature of commercial transactions do not fall under deemed dividends. The Tribunal upheld the CIT(A)'s decision, agreeing that the transactions were in the ordinary course of business and not loans or advances.

3. Recasting of ledger account and its correctness:
The AO recast the ledger accounts, considering only cheque payments as loans/advances, while ignoring business transactions. The CIT(A) criticized this approach, stating that it did not reflect the correct nature of the accounts. The CIT(A) emphasized that the transactions were part of regular business activities and should not be considered loans or advances. The Tribunal agreed with the CIT(A), noting that the AO's method was incorrect and that the transactions should be viewed in their entirety.

4. Holding that the sale of silver recorded in the diary seized is duly accounted for in the books/cash sale:
This issue was not elaborately discussed in the judgment, but the CIT(A) held that the sale of silver recorded in the seized diary was duly accounted for in the books/cash sale. The Tribunal did not find any reason to disturb this finding.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. The disallowance under Section 14A was deleted due to the absence of exempt income, and the addition under Section 2(22)(e) was deleted as the transactions were regular business transactions. The recasting of ledger accounts by the AO was found to be incorrect, and the sale of silver was considered duly accounted for. The Tribunal's decision was pronounced in open court on 27/07/2021.

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