2022 (8) TMI 200 - AT - Income Tax

Deemed dividend u/s. 2(22)(e) - loan out of accrued profits of MEPL - as per DR assessee being a shareholder in M/s. Sanghvi Erectors Pvt. Ltd. withdrawn funds and kept the same as fixed deposit in his own name in the Kotal Mahindra Bank and asseSsee transferred the said amount to his personal account and had disowned by stating that the said deposit actually belongs to MEPL - HELD THAT - Fixed deposit was never kept as security against any kind of loan, mortgage, etc. nor any lien in respect of its tenure. Further, it is also stated that the assessee transferred sum from his savings account to MEPL on 22-08-2015 which clearly shows as argued by the ld. AR that assessee s family members might appropriate the funds for themselves under various legal proceedings. On perusal of certificate issued by the Kotak Mahindra Bank, we note that the assessee made term deposit on 01-02-2013 for a period upto 31-07-2013 @ 8.50% interest. Further, the same has been renewed from time to time up to 22-08-2015. The assessee transferred the total realized amount to the account of MEPL. Therefore, which clearly shows the conduct of assessee in refunding the entire amount with interest to MEPL on its maturity with realized total value supports the arguments of ld. AR that the amount was withdrawn and kept in fixed deposit only to protect the interest of the MEPL. If that is the situation, we find the AO terming the same as loan out of accrued profits of MEPL attracting the provisions u/s. 2(22)(e) of the Act is not justified - Decided against revenue. Disallowance u/s 14A r.w.r 8D - CIT-A deleted the addition - HELD THAT - We note that the assessee earned dividend income from his personal investments but not from business assets. DR did not bring on record any contrary evidence to this effect. Therefore, we find no infirmity in the order of CIT(A) - Decided against revenue. Addition made on account of interest on fixed deposit - HELD THAT - We have taken a view in confirming the order of CIT(A) in deleting the said addition u/s. 2(22)(e) while adjudicating ground Nos. 1 and 2 Above. Therefore, we find no infirmity in the order of CIT(A) and it is justified. Thus, ground raised by the Revenue is dismissed.

Summary

Issues:
1. Challenge to deletion of addition made under section 2(22)(e) of the Act.
2. Challenge to deletion of addition made under section 14A r.w. Rule 8D of the Rules.
3. Challenge to deletion of addition made on account of interest on fixed deposit.

Issue 1: Challenge to deletion of addition made under section 2(22)(e) of the Act

The case involved a dispute regarding the addition of Rs.3,30,00,000/- as deemed dividend under section 2(22)(e) of the Act. The Revenue challenged the deletion of this addition by the CIT(A). The Revenue argued that the amount withdrawn by the assessee from a company and kept as a fixed deposit should be treated as a loan attracting the provisions of section 2(22)(e). The Revenue contended that the deemed dividend provision applies once the assessee admits to withdrawing funds from the company. However, the assessee claimed that the withdrawal was made to protect the company's interests due to ongoing litigation. The Tribunal noted the long-standing litigation between the assessee and his family, and the transfer of funds to protect the company's interests. The Tribunal observed that the fixed deposit was eventually repaid to the company with interest, supporting the contention that the withdrawal was not a loan but to safeguard the company's interests. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the addition under section 2(22)(e) of the Act.

Issue 2: Challenge to deletion of addition made under section 14A r.w. Rule 8D of the Rules

The Revenue challenged the deletion of an addition made under section 14A read with Rule 8D of the Rules by the CIT(A). The Tribunal noted that the CIT(A) had deleted the addition based on the assessee earning dividend income from personal investments and not business assets. The Revenue failed to provide any contrary evidence to refute this claim. Consequently, the Tribunal found no error in the CIT(A)'s decision to delete the addition under section 14A r.w. Rule 8D of the Rules.

Issue 3: Challenge to deletion of addition made on account of interest on fixed deposit

The Revenue contested the deletion of an addition made on account of interest on a fixed deposit by the CIT(A). The Tribunal upheld the CIT(A)'s decision, reasoning that since the addition of the principal amount of Rs.3.30 Crores was deleted under section 2(22)(e) of the Act, the addition of interest on the fixed deposit could not stand. Therefore, the Tribunal found no fault in the CIT(A)'s decision to delete the addition of interest on the fixed deposit.

In conclusion, the Tribunal dismissed all grounds raised by the Revenue and upheld the CIT(A)'s orders in deleting the additions under section 2(22)(e) of the Act, section 14A r.w. Rule 8D of the Rules, and interest on the fixed deposit.