2021 (8) TMI 98 - AT - Income Tax

Deemed dividend addition u/s 2(22) - AO found that the assessee purchased shares from private limited companies through its partner having the share holding more than 10% - HELD THAT - We deem it proper to remand the matter to the file of AO to decide the issue regarding the applicability of section 2(22)(e) of the Act in conformity with the directions rendered by this Tribunal in earlier years. Thus, the grounds raised by the assessee are allowed for statistical purpose. Disallowance u/s.14A r.w. Rule 8D - HELD THAT - The fact remains admitted by both the parties before us and also born by the record that no exempt income was derived by the assessee during the year under consideration. CIT(A) examined the record and found that the assessee has not earned any exempt income warranting the disallowance u/s. 14A r.w. Rule 8D. Admittedly, the circular issued by the CBDT is not binding on the appellate authority as rightly held by the CIT(A) in impugned order at page No. 13 and it is justified - as it is clearly established that the assessee has not earned any exempt income. Therefore, no disallowance is warranted by applying the method prescribed under Rule 8D. Therefore, in our opinion the disallowance made by the AO is not warranted and the CIT(A) rightly deleted the same, therefore, we find no infirmity in the order of CIT(A). Thus, the grounds raised by the Revenue fails and are dismissed.

Summary

Issues involved:
1. Whether the addition made under section 2(22)(e) of the Income Tax Act was justified.
2. Whether the disallowance made under section 14A r.w. Rule 8D was justified.

Issue 1: Addition under section 2(22)(e) of the Income Tax Act:
The case involved appeals by both the assessee and the Revenue against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2012-13. The main issue was whether the addition made by the Assessing Officer under section 2(22)(e) of the Act was justified. The assessee, a registered firm dealing in silver, gold ornaments, and bullion, had purchased shares from private limited companies through a partner with a shareholding of more than 10%. The AO considered the assessee a beneficiary shareholder and added an amount to the total income under section 2(22)(e). The CIT(A) upheld the AO's decision. The Tribunal noted that similar issues were raised in earlier years, and the matter was remanded to the AO for verification. Following previous decisions, the Tribunal remanded the matter to the AO to decide the applicability of section 2(22)(e) in line with past directions. Consequently, the Tribunal allowed the assessee's appeal for statistical purposes.

Issue 2: Disallowance under section 14A r.w. Rule 8D:
The Revenue's appeal focused on whether the CIT(A) was correct in deleting the addition made on account of disallowance under section 14A read with Rule 8D. The AO disallowed an amount under Rule 8D for the purpose of computing expenditure related to exempt income invested in equity shares. The CIT(A) deleted the addition, stating that the CBDT circular was not binding on the appellate authority and that no exempt income was earned by the assessee during the relevant year. The Tribunal observed that the method prescribed in Rule 8D was not applicable when no exempt income was earned, as contended by the assessee before the AO. The CIT(A) rightly deleted the disallowance, as confirmed by the Tribunal. Therefore, the Tribunal dismissed the Revenue's appeal, finding no infirmity in the CIT(A)'s order.

In conclusion, the Tribunal allowed the assessee's appeal for statistical purposes regarding the addition under section 2(22)(e) and dismissed the Revenue's appeal concerning the disallowance under section 14A read with Rule 8D.