2021 (1) TMI 774 - AT - Income Tax

Computation of income/profit - not excluding sales and corresponding profit thereon in computing the total income as per normal provisions as well as u/s 115 JB - HELD THAT - The issue involved for this assessment year is directly and substantially involved for the assessment year 2007-08 and there is no change is in facts or in law we find it difficult to take a different view that was taken for the assessment year 2007-08. Ld. CIT(A) dealt with this issue in extenso to reach a conclusion that the starting point for computing of the profits is the audited financial statement as prepared under the Companies Act which is subject to further additions/deductions in terms of various upward and downward adjustments provided in various clauses of explanation given below subsection (2) of section 115 JB of the Act and such a finding is well fortified by the findings of the Tribunal in assessee s own case for the assessment year 2007-08.Findings of the Ld. CIT(A) therefore cannot be found fault with and are to be confirmed. Addition u/s 2(22)(e) - deemed dividend - loan advanced by RSML to the assessee and Mr. Sanjiv Arora is a common shareholder holding substantial interest in both the companies i.e. RSML and the assessee - HELD THAT - Shareholding pattern of the assessee during the relevant previous year a perusal of which reveals that Mr. Arora merely held 1633632 equity shares in the assessee which constitutes merely 14.09 % of the total voting power and therefore Mr. Arora did not hold 20% of the voting power in the assessee and consequently the assessee cannot be regarded as a company in which Mr. Arora has substantial interest. We therefore find that the relationship as contemplated in section 2(22)(e) of the Act to apply the mischief of the said section is not at all satisfied in the facts of the present case. Thus the provisions of section 2(22)(e) of the Act are not at all attracted in the present case since the assessee was not a concern in which any of the shareholders of RSML had substantial interest. Disallowance u/s 14A read with Rule 8D - HELD THAT - There is no dispute that during the relevant previous year the assessee did not earn any exemptdividend income from investments held in subsidiaries. When no exempt income is actually earned by an assessee from investments held during the year no portion of expenses incurred during the year can be disallowed under section 14A of the Act - we are of the considered opinion that where there is no dispute of fact that no dividend has been earned by the assessee during the year no disallowance is called for under section 14 A - Decided in favour of assessee. Disallowance of foreign travel expenses - CIT-A upholding disallowance on the ground that the said expenditure was incurred for foreign travel for personal purposes - HELD THAT - As factually the assessee failed to establish the nexus between the travel and the business purpose for this year and therefore we do not find any ground to interfere with the findings of the Ld. CIT(A) on this aspect. While upholding the findings of the Ld. CIT(A) we dismiss Ground No. 1 of assessee s appeal.

Issues Involved:
1. Acceptance of revised return of income and exclusion of ?16.87 crores from taxable income.
2. Addition of foreign travel expenses amounting to ?7,02,655.
3. Addition under section 2(22)(e) regarding deemed dividend.
4. Disallowance under section 14A read with Rule 8D.

Detailed Analysis:

1. Acceptance of Revised Return of Income and Exclusion of ?16.87 Crores:
The assessee, a public limited company engaged in real estate, filed a revised return of income excluding ?16.87 crores from taxable income based on revised financial statements. The original return included notional revenue of ?85.24 crores from pre-launch sales agreements, which were later canceled. The assessing officer rejected the revised return, but the CIT(A) accepted it, stating that recognizing hypothetical revenue was against the settled law of taxing only 'real income'. The CIT(A) emphasized that the revised accounts, approved in the AGM and filed with the ROC, should be accepted unless challenged under the Companies Act. The tribunal upheld the CIT(A)'s decision, noting that the issue was identical to a previous assessment year where the tribunal had ruled in favor of the assessee.

2. Addition of Foreign Travel Expenses Amounting to ?7,02,655:
The assessing officer disallowed ?60,00,107 as foreign travel expenses, deeming them non-business related. The CIT(A) upheld the disallowance of ?7,02,655 due to lack of evidence proving the business purpose, while remanding the remaining ?52,97,452 for verification. The tribunal found no basis to interfere with the CIT(A)'s findings, as the assessee failed to establish the nexus between the travel and business purposes.

3. Addition Under Section 2(22)(e) Regarding Deemed Dividend:
The assessing officer treated a loan of ?5,99,55,000 from RSML as deemed dividend under section 2(22)(e), based on common shareholding by Mr. Sanjiv Arora. The CIT(A) reversed this, stating that the assessee was not a shareholder in RSML and that the deemed dividend should be taxed in the hands of the common shareholder. The tribunal upheld the CIT(A)'s decision, referencing the Special Bench of the Tribunal and the Hon’ble High Court of Bombay, which ruled that deemed dividend is taxable in the hands of the common shareholder.

4. Disallowance Under Section 14A Read with Rule 8D:
The assessing officer disallowed ?2,44,463 under section 14A, despite the assessee not earning any exempt income during the relevant year. The CIT(A) directed the assessing officer to recompute the disallowance based on revised financial statements. The tribunal, referencing the Hon’ble Jurisdictional High Court's decision, held that no disallowance is warranted under section 14A when no exempt income is earned. Therefore, the tribunal dismissed the revenue's appeal on this ground and allowed the assessee's appeal.

Conclusion:
The tribunal dismissed the revenue's appeal and allowed the assessee's appeal in part, upholding the CIT(A)'s decisions on all issues. The order was pronounced in the open court on January 4, 2021.

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