2024 (9) TMI 205 - AT - Income Tax

Deemed dividend u/s. 2(22)(e) - AO noticed that the assessee is holding more than 10% of the voting rights in all the above said three companies - HELD THAT - The transactions mentioned above may not be in the nature of loans or advances falling within the scope of section 2(22)(e) - A definite view could be taken only if the relevant documents are examined. Since the assessee has not furnished relevant documents before the tax authorities we are of the view that in the interest of natural justice the assessee may be provided with one more opportunity to present the documents. Accordingly we set aside the order passed by the CIT(A) on this issue and restore the same to his for adjudicating the same afresh by duly considering the evidences that may be furnished by the assessee. Addition made u/s 14A r.w.r. 8D - assessee submitted that it did not incur any expenses in earning the exempt income - AO did not accept the same - HELD THAT - Assessee is having own funds exceeding the value of investments. Hence as per the decision rendered in the case of HDFC Bank Ltd. 2016 (3) TMI 755 - BOMBAY HIGH COURT AO could not have disallowed interest expenses - we are of the view that this issue also requires fresh examination at the end of Ld CIT(A). Accordingly we set aside the order passed by him on this issue and restore the same to his file for adjudicating it afresh after considering the information and explanations that may be furnished by the assessee.

Summary

Issues:
1. Addition of deemed dividend u/s. 2(22)(e) of the Income Tax Act, 1961.
2. Disallowance made u/s. 14A of the Income Tax Act, 1961.

Analysis:

1. Addition of Deemed Dividend (Sec. 2(22)(e)):
The appeal challenged the order confirming the addition of Rs. 69 lakhs u/s. 2(22)(e) and Rs. 21.25 lakhs u/s. 14A of the Act for AY 2013-14. The AO considered amounts as loans and advances, falling under deemed dividend. The AO assessed Rs. 35.00 lakhs as deemed dividend due to transactions between private limited companies and partnership firms. The assessee contended these were normal business transactions, not loans or advances. The Ld.CIT(A) upheld the AO's decision due to lack of supporting documents. The ITAT considered the transactions might not be loans or advances but required documents for a definite view. The ITAT set aside the Ld.CIT(A)'s order to allow the assessee to submit relevant documents for reevaluation.

2. Disallowance u/s. 14A:
The AO disallowed Rs. 21,25,070 under Rule 8D for exempt income earned without making any disallowance u/s. 14A. The Ld.AR argued no expenses were incurred for exempt incomes and the AO failed to verify or consider judicial precedents. The ITAT agreed that the issue required fresh examination by the Ld CIT(A) after considering the explanations and information provided by the assessee. The ITAT directed the Ld CIT(A) to make an appropriate decision in accordance with the law after affording the assessee a hearing.

In conclusion, the ITAT allowed the appeal, setting aside the orders on both issues for reassessment by the Ld CIT(A) after considering the additional information and documents to be furnished by the assessee.