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2013 (11) TMI 818 - AT - Income TaxAddition on account of section 2(22)(e) - Deemed dividend - Shri Sunil P.Mantri is a common shareholder of M/s. Sunil Mantri Realty Ltd. and its 3 group concerns, namely, M/s Mantri Power Ltd, M/s Sunil Mantri Builtech Pvt Ltd and M/s Mantri Lifestyle Developers Pvt Ltd Held that - Merely because the assessee, Sunil P. Mantri has not received any sum directly from the lender concern M/s Sunil Mantri Realty Ltd. or through above said 3 group concerns, it cannot be said that assessee has not received any benefits from the transactions - Lender concern, M/s Sunil Mantri Reality Ltd is not engaged in the business of money lending - Loans/advances have not been made in the normal course of business. Contention of the assessee that the MoU dated 15th May, 2007 evidences payments of advances towards awarding of preferential contract to lender concern of any new project that may arise in future by the recipient concerns is hypothetical in nature which lacks any evidentiary value as the MoU pertains to future projects, if any which does not quantify any amounts of consideration Thus, Sunil P.Mantri clearly falls u/s 2(22)(e) of the Act But, additions are to be restricted only to the extent of the accumulated profits of the lender concern up to March 31st of the previous years relevant to the assessment years under consideration during which the loans/advances have been made to various concerns - Decided against the assessee. Computation of income from House property on estimated basis @ 7% of cost of the property - Disallowance/addition on account of notional interest in respect of the property located at Ambey Valley, Lonawala and the allowability of interest expenses respectively - AO estimated the gross annual value @ 7% of the cost of acquisition and after allowing 30% standard deduction u/s 24(a), the AO determined the income from house property Held that - When the assessee claims for a lower ALV, the assessee is duty bound to file municipal valuation to substantiate his claim of lower value, which he has not discharged during the assessment/appellate proceedings No any merit in the contention of the Ld.AR that the estimation of gross annual value ought to have been made as per the rent fixed by the municipal authority - Gross rent estimated by AO @ 7% of cost of the property is reasonable - Assessee has paid interest on borrowed capital is also not disputed Decided against the Assessee. Protective assessment against the companies for taxing deemed dividend - Held that - The deeming provisions as it applies to the case of loans or advances by a concern to concern in which its share-holder has substantial interest, is based on the presumption that the loans or advance would ultimately be made available to the share-holder of the concern giving the loans or advances. The intention of the legislature is therefore to tax dividend only in the hands of the share-holder and not in the hands the concern. The said proposition is supported by the decision of the Bombay High Court in the case of CIT Vs. Universal Medicare P. Ltd. 2010 (3) TMI 323 - BOMBAY HIGH COURT . Accordingly, the decision of the Ld. CIT(A) in deleting the additions made by the AO on protective basis in the hands of the recipient concerns are upheld.
Issues Involved:
1. Addition of deemed dividend under section 2(22)(e) of the Income Tax Act. 2. Deletion of additions made on protective basis in the hands of recipient concerns. 3. Disallowance/addition on account of notional interest in respect of property located at Ambey Valley, Lonawala. 4. Allowability of interest expenses. Detailed Analysis: 1. Addition of Deemed Dividend under Section 2(22)(e): The primary issue revolves around the addition of deemed dividend under section 2(22)(e) of the Income Tax Act made in the assessment of Shri Sunil P. Mantri. The assessee held 85.50% shares in M/S Sunil Mantri Reality Ltd, which advanced loans to various concerns where the assessee also held shares. The Assessing Officer (AO) treated these amounts as deemed dividends in the hands of Sunil P. Mantri, given his substantial control over the lender company. The Ld.CIT(A) confirmed these additions but restricted them to the extent of accumulated profits of the lender concern. The Tribunal upheld this decision, directing the AO to restrict the additions based on the accumulated profits of M/s Sunil Mantri Realty Ltd as of 31.03.2007 and 31.03.2008 for the relevant assessment years 2008-09 and 2009-10. 2. Deletion of Additions Made on Protective Basis in the Hands of Recipient Concerns: The Ld.CIT(A) deleted the additions made on a protective basis in the hands of the recipient concerns, following the principle that deemed dividends should be taxed in the hands of the shareholder and not the concerns. This decision was based on the Special Bench ruling in ACIT Vs. Bhaumik Colour P. Ltd. and the Bombay High Court's decision in CIT Vs. Universal Medicare P. Ltd. The Tribunal upheld this view, confirming that the intention of section 2(22)(e) is to tax dividends in the hands of the shareholder. 3. Disallowance/Addition on Account of Notional Interest in Respect of Property Located at Ambey Valley, Lonawala: The AO estimated the gross annual value of the property at 7% of the cost of acquisition and determined the income from house property after allowing a 30% standard deduction under section 24(a). The Ld.CIT(A) confirmed this estimation. The Tribunal found no merit in the assessee's contention for a lower annual value, as the assessee failed to provide municipal valuation to substantiate the claim. Thus, the gross rent estimation by the AO was deemed reasonable, and the decision of the Ld.CIT(A) was upheld. 4. Allowability of Interest Expenses: The Tribunal upheld the Ld.CIT(A)'s decision that the assessee is eligible for the claim of deduction in respect of interest paid on borrowed capital, as the fact of interest payment was undisputed. Resultantly: 1. The appeals by Sunil P. Mantri (ITA No. 5402/M/2011 & ITA No. 5407/M/2011) are partly allowed, with directions to restrict additions based on accumulated profits. 2. The cross appeals by the Revenue (ITA No. 5702/M/2011 & 5703/M/2011) are dismissed. 3. The other four appeals by the Revenue (ITA No. 5689/M/2011, ITA No. 5682/M/2011, ITA No. 5704/M/2011, and ITA No. 5681/M/2011) are dismissed. 4. The cross objections by the assessees (C.O.132/M/2012, C.O. 134/M/2012, C.O.135/M/2012, and C.O. 136/M/2012) become infructuous and are dismissed. Order Pronounced: The order was pronounced in the open court on November 14, 2013.
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