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2022 (2) TMI 35 - AT - Income TaxAddition u/s 2(22)(e) - deemed dividend - interest bearing Loans - Property purchased for use by the company - Revenue contended that, the CIT(A) ought to have considered the fact of loan/advance reflected in the name of assessee in the books of account of company , coupled with the fact that proportionate ownership of property acquired out of borrowed fund by the company to the extent of loan/advance lies with the assessee and payment of full interest. The company also paid full amount of interest on entire loan and claimed as expenditure in the return of income. HELD THAT - It is an admitted position that M/s. Bajaj Finance Ltd. sanctioned the loan only on the condition that the assessee should be a co-borrowers. Therefore, when the assessee signed the loan documents as a borrower the primary responsibility to repay the loan rests upon the assessee, to safeguard against any future liability on him. The assessee insisted the property be registered in his name which was being used by the business purpose of the company i.e. M/s. Subu Chem Pvt. Ltd. It is admitted position that the assessee is not enjoying own rent from the company. Therefore, this shows that substance of transaction is purchase of property for the purpose of business of the company i.e. M/s. Subu Chem Pvt. Ltd. and it cannot be called as a gratuitous loan or advance given by the company to the assessee. It is a pure business transaction carried out by the company i.e. M/s. Subu Chem Pvt. Ltd. and ratio laid down by the Hon ble High Court of Calcutta in the case of Pradeep Kumar Malhotra 2011 (8) TMI 16 - CALCUTTA HIGH COURT is squarely applicable to the present case. CIT(A) is justified in holding that the AO is not right in bring to tax sum as a deemed dividend in the hands of the assessee. Since, We held that the provision of section 2(22)(e) of the Act have no application to the facts of the case, there is no necessity to deal with the other contentions raised on behalf of the assessee. Thus, grounds by the Revenue fails and are dismissed. Addition made on account of protective basis in the case of assessee - HELD THAT - We note that the CIT(A) held in Para No. 7.3.4 that no addition is maintainable in the hands of the assessee as the same was retained in th hands of its Director on substantive basis. We dismissed in the aforementioned paragraph the similar ground raised by the assessee raised by the Revenue is misconceived and it is dismissed. Proportionate interest paid to NBFC for non-deduction of TDS - HELD THAT - Since the assessee claimed the proportionate interest on loan granted to Director, Shri Jitendra K. Gupta in its books of account. On such submission the CIT(A) confirmed the addition in the hands of the assessee. Therefore, we find no infirmity in the order of CIT(A). DR has rightly pointed that the CIT(A) without making any detailed discussion on such amount simply allowed the said amount and vehemently argued to restore the issue to the file of AO for verification regarding the non-deduction of TDS - AO sought details but the assessee as it appears from Para No. 4.2 of AO s order that the assessee did not give any submissions but the CIT(A) discussed the issue in details in the impugned order in respect of interest paid to HDFC Bank Ltd. and Standard Chartered Bank, but, however, we find no reasons as to how the allowability given by the CIT(A), therefore, we deem it proper to remand the issue to file of AO for its verification in view of the grounds raised by the Revenue that the proportionate amount of interest paid to M/s. Bajaj Finance Ltd., a NBFC as claimed by the ld. DR in ground Nos. 2 and 3. raised by the Revenue is allowed for statistical purpose.
Issues Involved:
1. Deletion of addition of ?7,86,03,706/- as deemed dividend under Section 2(22)(e) of the Income Tax Act. 2. Confirmation of addition of ?2,66,65,600/- as deemed dividend. 3. Allowance of proportionate interest paid to NBFC for non-deduction of TDS. 4. Deletion of addition made on a protective basis. Detailed Analysis: 1. Deletion of Addition of ?7,86,03,706/- as Deemed Dividend: The Revenue challenged the CIT(A)'s action in deleting the addition of ?7,86,03,706/- treated as deemed dividend under Section 2(22)(e) of the Act. The assessee, a director in M/s. Subu Chem Pvt. Ltd., received a loan from the company. The AO considered this loan as deemed dividend. However, the CIT(A) restricted the addition to ?2,66,65,600/- directly transferred to the assessee. The Tribunal upheld the CIT(A)'s decision, noting that the loan was a business transaction for purchasing property for the company's use, not a gratuitous loan. The Tribunal referenced the Calcutta High Court's decision in Pradeep Kumar Malhotra, which stated that advances given for business considerations do not qualify as deemed dividends. 2. Confirmation of Addition of ?2,66,65,600/- as Deemed Dividend: The assessee contested the CIT(A)'s confirmation of ?2,66,65,600/- as deemed dividend. The Tribunal noted that the amount was used to purchase property, part of which was used by the company without paying rent. Since the property purchase benefited the company, the Tribunal found that the transaction was for business purposes, not a gratuitous loan. Thus, the addition was not maintainable under Section 2(22)(e) of the Act, and the grounds raised by the assessee were allowed. 3. Allowance of Proportionate Interest Paid to NBFC for Non-Deduction of TDS: The Revenue challenged the CIT(A)'s decision to allow interest payments to NBFCs without TDS deduction. The CIT(A) observed that interest paid to Standard Chartered Bank and HDFC Bank did not require TDS deduction as per Section 194(A)(3)(iii)(a) of the Act. The Tribunal found no infirmity in this observation. However, for the amount of ?30,12,910/-, the Tribunal remanded the issue to the AO for verification, as the CIT(A) did not provide detailed reasons for its allowability. 4. Deletion of Addition Made on a Protective Basis: The Revenue contested the deletion of an addition made on a protective basis in the hands of the company. The CIT(A) held that the addition was retained in the hands of the director on a substantive basis. The Tribunal found no merit in the Revenue's ground, as the CIT(A)'s decision was consistent with the substantive addition made in the director's case. Summary: - The Tribunal upheld the CIT(A)'s deletion of ?7,86,03,706/- as deemed dividend, considering it a business transaction. - The Tribunal allowed the assessee's appeal, confirming that ?2,66,65,600/- was not deemed dividend as it benefited the company's business. - The Tribunal remanded the issue of ?30,12,910/- interest payment to the AO for verification regarding TDS deduction. - The Tribunal dismissed the Revenue's ground on the protective addition, as the substantive addition was maintained in the director's case. Conclusion: - Assessee's appeal in ITA No. 2522/PUN/2017: Allowed. - Assessee's appeal in ITA No. 2526/PUN/2017: Dismissed. - Revenue's appeal in ITA No. 135/PUN/2018: Dismissed. - Revenue's appeal in ITA No. 152/PUN/2018: Allowed for statistical purposes.
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