2024 (10) TMI 659 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - CIT (A) deleted the above disallowance based on the finding that there is no exempt income declared by the assessee during this year - HELD THAT - We observed that assessee has not declared any exempt income during the year and the issue is fairly settled and covered in favour of the assessee by various decisions of different courts, in specific in the case of PCIT vs. Era Infrastructure (India) Ltd 2022 (7) TMI 1093 - DELHI HIGH COURT - Accordingly, ground no.1 raised by the Revenue is dismissed. Addition as deemed dividend u/s 2(22)(e) - AO treated a loan received by the assessee from its wholly owned subsidiary as deemed dividend - HELD THAT - We observed that GFPL is the wholly owned subsidiary company of the assessee and the Assessing Officer observed that the assessee has taken certain loan from them and considering the fact that it is a wholly owned subsidiary, he treated the transaction as deemed dividend u/s 2(22)(e) - we observed from the ledger copy submitted before us which shows that assessee has taken certain advances from the company and incurs certain expenditure on behalf of them which basically relates to travelling, conveyance expenditure and certain expenditure incurred on behalf of them. As per the transactions involved between these two entities, it does not give any impression that it is a loan transaction. More or less, the details of transactions show that it is only a revenue expenditure and transactions are seemed to be current transactions. Therefore, we are inclined to agree with the findings of ld. CIT (A) and ground raised by the Revenue is dismissed.

Summary

Issues:
1. Deletion of addition under section 14A of the Income-tax Act, 1961
2. Deletion of addition as deemed dividend under section 2(22)(e) of the Income Tax Act

Analysis:

Issue 1: Deletion of addition under section 14A of the Income-tax Act, 1961
The Revenue appealed against the deletion of an addition of Rs. 1,66,97,147 made by the Assessing Officer (AO) on account of investments in subsidiaries, both in India and abroad, under section 14A read with Rule 8D of the Act. The Revenue contended that the assessee had not declared any exempt income during the year, but relied on CBDT circular and AO's findings. The assessee argued that the issue was settled in their favor by various court decisions, including the jurisdictional High Court's ruling in PCIT vs. Era Infrastructure (India) Ltd. The tribunal observed that the assessee had not declared any exempt income during the year, and the issue was settled in favor of the assessee by various court decisions. Consequently, the tribunal dismissed the Revenue's appeal.

Issue 2: Deletion of addition as deemed dividend under section 2(22)(e) of the Income Tax Act
The second ground of appeal related to the addition of Rs. 6,43,40,824 as deemed dividend under section 2(22)(e) of the Act. The Assessing Officer treated a loan received by the assessee from its wholly owned subsidiary as deemed dividend. The assessee argued that the transactions were in the nature of current account transfers and not loans, citing various expenses incurred on behalf of the subsidiary. The tribunal noted that the transactions between the entities were in the nature of current account transactions, involving reimbursement for expenses like travelling and conveyance. The tribunal agreed with the CIT (A) that the transactions did not constitute loans but were revenue expenditures. Therefore, the tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decision to delete the addition.

In conclusion, the tribunal dismissed the Revenue's appeal on both grounds, affirming the CIT (A)'s decisions to delete the additions under section 14A and section 2(22)(e) of the Income Tax Act.