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2025 (4) TMI 663 - AT - Income TaxDisallowance of claim of deduction of expenditure against the unaccounted cash receipts from sale of spent solvents / scrap - HELD THAT - We find that this issue is squarely covered in favour of the assessee by the decision in assessee s own case for A.Y. 2018-19 2024 (11) TMI 1447 - ITAT HYDERABAD wherein the Tribunal has followed the decision in the case of MSN Pharmachem Private Limited 2024 (11) TMI 499 - ITAT HYDERABAD where the Tribunal has directed the Assessing Officer to allow 60% of expenditure against unaccounted cash receipts from sale of spent solvents / scrap for the year under consideration. Thus we direct the AO to allow 60% of the receipts as expenditure against unaccounted cash receipts from sale of spent solvents / scrap and sustain 40% of addition towards unaccounted sale of spent solvents and scrap. Addition made on account of deemed dividend (dividend distribution tax in the hands of the appellant) - HELD THAT -As following the decision of the ITAT Hyderabad Benches in the case of MSN Pharmachem Private Limited 2024 (11) TMI 499 - ITAT HYDERABAD we are inclined to uphold order of the LD.CIT(A) on this issue and direct the Assessing Officer to delete the addition made u/s 2(22)(e) of the Act in the hands of the assessee. Accordingly ground of Revenue appeal is dismissed.
ISSUES PRESENTED and CONSIDERED
The Tribunal considered two primary issues in the appeals: 1. Whether the assessee is entitled to a deduction of expenditure against unaccounted cash receipts from the sale of spent solvents/scrap. 2. Whether the payments made by the appellant company to its group companies constitute deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961, and if so, whether the levy of dividend distribution tax is applicable. ISSUE-WISE DETAILED ANALYSIS 1. Deduction of Expenditure Against Unaccounted Cash Receipts Relevant Legal Framework and Precedents: The issue revolves around whether the unaccounted cash receipts from the sale of spent solvents/scrap should allow for the deduction of related expenditures. The Tribunal referenced its decision in the assessee's own case for A.Y. 2018-19, where a 60% deduction was allowed against such receipts. Court's Interpretation and Reasoning: The Tribunal noted that income cannot be earned without incurring some expenditure. It emphasized the need to consider the entire seized material, which included both cash inflow and outflow entries, rather than selectively considering parts of it. Key Evidence and Findings: The seized material included Excel sheets showing cash inflows from unaccounted sales and corresponding cash outflows for expenditures. Affidavits from employees corroborated the expenditure claims. Application of Law to Facts: The Tribunal found that the seized material and affidavits provided sufficient evidence of expenditure incurred for handling and disposing of hazardous waste. It directed the Assessing Officer to allow a 60% deduction of the receipts as expenditure. Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that the expenditure claims were unsubstantiated but found the evidence provided by the assessee, including affidavits, persuasive. Conclusions: The Tribunal directed the Assessing Officer to allow 60% of the receipts as expenditure against unaccounted cash receipts from the sale of spent solvents/scrap. 2. Deemed Dividend and Dividend Distribution Tax Relevant Legal Framework and Precedents: Section 2(22)(e) of the Income Tax Act, 1961, defines deemed dividend. The Tribunal referred to several judicial precedents, including decisions from the Gujarat High Court and the Supreme Court, which clarify that deemed dividend applies only if the shareholder benefits from the transaction. Court's Interpretation and Reasoning: The Tribunal emphasized that the transactions between the appellant and its group companies were trade advances in the ordinary course of business and did not constitute loans or advances for the purpose of deemed dividend. Key Evidence and Findings: The Tribunal found that the payments were used for business purposes, such as working capital and asset acquisition, and not for the benefit of the common substantial shareholder. Application of Law to Facts: The Tribunal applied the legal principles from relevant case law to conclude that the transactions were commercial in nature and did not fall under the ambit of deemed dividend. Treatment of Competing Arguments: The Tribunal rejected the Revenue's contention that payments exceeding a certain threshold should be treated as loans or advances, noting that the threshold was arbitrary and not based on any legal principle. Conclusions: The Tribunal directed the Assessing Officer to delete the addition made under Section 2(22)(e) and the consequent levy of dividend distribution tax. SIGNIFICANT HOLDINGS Core Principles Established:
Final Determinations on Each Issue:
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