2017 (12) TMI 1217 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - Held that - In the facts of present case assessee has merely been a medium to transfer the loan amount by M/s Sharma Medicare Pvt.Ltd. to M/s Eastern Creations Ltd. due to the restriction u/s 3(1)(iii)(d) of Companies Act 1956. A specific query was put forth by Bench to Ld.AR as to why intercorporate loans were not advanced to M/s Eastern Creations. Ld.AR was unable to reason out the business exigency for advancing loans to M/s Eastern Creation through assessee. In over all consideration of the issue as deliberated upon in the foregoing paragraphs we are of the view that Ld.AO was within his realm to invoke provisions of Sec.2(22)(e) of the Act. We therefore uphold the action of authorities below. Accordingly ground No. 1 and 2 raised by assessee stand dismissed. TDS u/s 194 - interest paid to financial companies - Addition u/s 40(a)(ia) - non deduction of tds - Held that - AO has rightly made addition of interest paid to these financial companies for non deduction of TDS u/s 194 of the Act. However in the event assessee is able to produce relevant information before Ld.AO to establish that M/s Reliance Capital Ltd. and M/s Bajaj Capital Ltd. have paid tax on such interest received then Ld.AO shall grant relief to assessee as per law. Addition made towards purchase of medicines and materials - Held that - We observe that assessee is rendering OPD services where patients are attended by assessee and cost of medicines issued at the counter are included in the fees payable by them. However we fail to understand how entire medicines/materials worth 21, 41, 248/- would be distributed amongst the patients. Ld.AR has not filed any details like total number of patients attended by assessee during the year in order to establish a reasonable distribution of medicines purchased by assessee. He has also not placed on record details of medicines/materials purchased. We therefore do not find any infirmity in restricting the disallowance to 50, 000/- by Ld.CIT(A). The same is therefore upheld.

Summary

Issues Involved:
1. Sustaining addition under Section 2(22)(e) of the Income Tax Act.
2. Addition under Section 40(a)(ia) of the Income Tax Act.
3. Ad hoc addition towards purchase of medicines and materials.

Issue-wise Detailed Analysis:

1. Sustaining Addition under Section 2(22)(e) of the Income Tax Act:
The primary issue revolves around the addition of ?25,45,305/- under Section 2(22)(e) of the Income Tax Act, which pertains to deemed dividends. The assessee argued that the loan from M/s Sharma Medicare Pvt. Ltd. was for the construction of a hospital by M/s Eastern Creation Pvt. Ltd. and was channeled through the assessee due to restrictions under the Companies Act, 1956. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] found that the loan was for the benefit of the assessee, who held substantial shares in both companies. The CIT(A) observed that the loan was not for any business purpose of M/s Sharma Medicare Pvt. Ltd. and was ultimately for the benefit of the assessee. Despite the assessee's arguments and additional evidence, the Tribunal upheld the findings of the AO and CIT(A), concluding that the loan qualified as deemed dividend under Section 2(22)(e) of the Act.

2. Addition under Section 40(a)(ia) of the Income Tax Act:
The second issue concerns the addition of ?1,43,834/- under Section 40(a)(ia) for non-deduction of TDS on interest payments to M/s Reliance Capital Ltd. and M/s Bajaj Capital Ltd. The assessee requested that the case be remanded to the AO for verification, arguing that if the interest was included in the recipients' total income, the addition should be reconsidered. The Tribunal agreed to set aside this issue to the AO for verification, directing the assessee to provide relevant details to establish the claim.

3. Ad hoc Addition towards Purchase of Medicines and Materials:
The third issue pertains to the addition of ?50,000/- on an ad hoc basis towards the purchase of medicines and materials. The CIT(A) observed that the assessee, a professional doctor, included the cost of medicines in the professional fees charged to patients. However, the CIT(A) noted that it was not practically possible to utilize the entire stock of medicines by the end of the financial year. The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to ?50,000/-, as the assessee failed to provide details of the total number of patients or the distribution of medicines.

Conclusion:
The Tribunal dismissed the grounds related to the addition under Section 2(22)(e) and the ad hoc addition towards purchase of medicines, while it allowed the ground related to Section 40(a)(ia) for statistical purposes, remanding it to the AO for further verification. The appeal was thus partly allowed for statistical purposes.