2022 (5) TMI 1276 - AT - Income Tax

Deemed dividend u/s.2(22)(e) - CIT(A) deleting the addition made by AO of treating the loan received from Rajshree Automotive Pvt. Ltd., as deemed dividend - HELD THAT - As the issue is covered in regard to deemed dividend assessed by AO u/s.2(22)(e) of the Act, as the same land was under consideration by Tribunal in immediate preceding year i.e., assessment year 2013-14 2019 (9) TMI 1646 - ITAT CHENNAI hence taking a consistent view and taking the issue as covered in favour of assessee, we confirm the order of CIT(A) and dismiss this issue of Revenue s appeal. Disallowance u/s 14A r.w.r. 8D - HELD THAT - We noted that the Tribunal in immediate preceding year 2019 (9) TMI 1646 - ITAT CHENNAI deleted the addition in regard to disallowance under Rule 8D(2)(ii) but sustained the disallowance under Rule 8D(2)(iii) to the extent of Rs.32,213/-. Even now, the ld.counsel for the assessee agreed that the order of CIT(A) to the extent of same investment made of Rs.64,42,600/- can be considered for making disallowance u/s.8D(2)(iii) and hence, the order of CIT(A) can be reversed. In view of the above, we are of the view that this issue is covered by Tribunal s order in earlier year against the assessee and hence, we reverse the order of CIT(A) to the extent of disallowance of Rs.32,213/- deleted by CIT(A) under Rule 8D(2)(iii). This issue of Revenue s appeal is allowed.

Summary

Issues:
1. Addition of loan received as deemed dividend under section 2(22)(e) of the Income Tax Act.
2. Disallowance of expenses related to exempt income under section 14A r.w. rule 8D(2)(iii) of the Income Tax Rules, 1962.

Issue 1: Addition of loan received as deemed dividend under section 2(22)(e) of the Income Tax Act:
The first issue in this appeal pertains to the addition made by the Assessing Officer (AO) treating the loan received from a company as deemed dividend under section 2(22)(e) of the Income Tax Act. The AO observed that the assessee had received a loan from a related company where both entities had a common Managing Director. The AO applied section 2(22)(e) and added the loan amount to the assessee's income. However, the Commissioner of Income Tax (Appeals) (CIT(A)) deleted the addition based on a Tribunal decision in the assessee's own case for the previous assessment year. The CIT(A) highlighted the commercial ties between the companies, reimbursement of expenses, and the absence of any benefit accruing to the assessee. The Tribunal affirmed the CIT(A)'s decision, considering the consistent view taken in the previous year and the lack of a contrary argument from the Revenue. Therefore, the Tribunal confirmed the CIT(A)'s order, dismissing this issue of the Revenue's appeal.

Issue 2: Disallowance of expenses related to exempt income under section 14A r.w. rule 8D(2)(iii) of the Income Tax Rules, 1962:
The second issue in this appeal concerns the disallowance made by the AO on expenses related to exempt income under section 14A read with rule 8D(2)(iii) of the Income Tax Rules. The AO disallowed a percentage of the average value of investments as per Rule 8D(2)(iii). However, the CIT(A) deleted this disallowance by relying on a Tribunal decision in the assessee's own case for the previous year. The Tribunal noted that the disallowance under Rule 8D(2)(ii) was deleted in the previous year but sustained under Rule 8D(2)(iii). The Tribunal reversed the CIT(A)'s decision to delete the disallowance under Rule 8D(2)(iii) based on the same investment amount. The Tribunal held that this issue was covered by the previous year's order against the assessee. Consequently, the Tribunal partly allowed the Revenue's appeal on this issue.

In conclusion, the Tribunal's judgment addressed the issues of addition of a loan as deemed dividend and the disallowance of expenses related to exempt income. The decision provided detailed analysis, referencing previous Tribunal decisions and legal provisions to arrive at a reasoned conclusion for each issue presented in the appeal.