2017 (12) TMI 810 - HC - Income Tax

Deemed dividend u/s 2(22)(e) - assessee had obtained a loan from M/s. Dewas Soya Ltd. in which assessee held 38.31% shares - proof that the lending company was the one of which public was substantially interested - Held that - Assessing Officer s observation to the effect that the assesse has procured funds from M/s.Dewas Soya Ltd in which the assessee had 38.31% shares was without basis and therefore, the amount of ₹ 1,00,00,000/- could not have been treated as deemed dividend under Section 2(22)(e) of the Act. The Tribunal did not find any infirmity with the order of CIT (A) which it found was a well reasoned order. Accordingly, the provisions of Section 2(22)(e) were not attracted. We find nothing wrong in the order passed by the Tribunal on this aspect. Even otherwise the finding that the company was recipient company could not be held to be public limited company on the basis that the assessee had 38.31% shares cannot be accepted. The assessee of a limited company was entitled to hold shares of other corporate entities and holding of 38.31% shares of M/s. Dewas Soya Ltd will not by itself constitute reason enough to hold that the company is not a public limited company or the company in which public are not substantially interested in. The company M/s. Dewas Soya Ltd. and the assessee were apparently part of the same group. There is nothing on record to suggest that the company was privately held merely because the assessee held 38.31% shares. The Tribunal as the last fact finding Court has clearly opined that the company was one in which the public was substantially interested. In the circumstances the question nos.1 and 2 as proposed will not construe substantial questions of law that requires consideration by the Court. Addition made on account of employees contribution as the provident fund - Held that - The assessee was found to have deposited the amount within grace period and hence there is no substance in the grievance of the Revenue. Thus even the third question does not require any further consideration.

Summary

Issues:
1. Disallowance under Section 14A and Section 8D(2)(iii)
2. Addition under Section 2(22)(e) of the Income Tax Act, 1961
3. Addition on account of employees' contribution to provident fund

Analysis:

1. The appellant challenged the order of the Income Tax Appellate Tribunal (Tribunal) regarding the disallowance under Section 14A and Section 8D(2)(iii) for the assessment year 2009-10. The Tribunal rejected the appellant's contention that disallowance under Section 8D(2)(iii) cannot be made if disallowance in relation to direct expenditure under Section 14A was offered. The Tribunal's decision was based on the interpretation of the relevant provisions. The appellant raised substantial questions of law related to the status of a company, which were dismissed by the Court as not constituting substantial questions requiring consideration.

2. The dispute regarding the addition made under Section 2(22)(e) of the Income Tax Act, 1961 involved the appellant's receipt of an inter-corporate deposit from a public limited company. The Commissioner of Income Tax (Appeals) and the Tribunal both ruled in favor of the appellant, stating that the provisions of Section 2(22)(e) were not applicable as the company was a public company. The Court upheld the Tribunal's decision, emphasizing that the appellant's shareholding in the lending company did not automatically disqualify it from being considered a public limited company.

3. The issue of addition on account of employees' contribution to provident fund was also addressed. The Assessing Officer disallowed the contribution, citing a delay in payment. However, the CIT (A) and the Tribunal ruled in favor of the appellant, considering the payment made within the grace period as compliant with the law. The Court referenced relevant case law and legislative amendments to support the Tribunal's decision, emphasizing that the appellant had met the legal requirements regarding the contribution.

In conclusion, the Court dismissed the appeals, stating that the questions raised did not give rise to substantial questions of law. The decisions of the Tribunal and the lower authorities were upheld, emphasizing compliance with legal provisions and relevant case law in each issue addressed.