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2022 (6) TMI 474 - AT - Income TaxDisallowance u/s 14A r.w. Rule 8D - CIT(A) restricted the disallowance to the extent of dividend income earned by reducing the expenditure apportioned by the assessee and the balance amount of addition was confirmed - HELD THAT - CIT(A) has rightly confirmed the disallowance under section 14A of the Act after reducing the expenditure apportioned by the assessee from the exempt income earned. Thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed. Deemed dividend addition u/s 2(22)(e) - HELD THAT - As decided in own case 2022 (4) TMI 173 - ITAT CHENNAI the expression 'shareholder' referred to in section 2(22)(e) of the Act refers to both a registered shareholder and the beneficial shareholder. And further that if a person is a registered shareholder but not a beneficial shareholder, then the provisions of section 2(22)(e) of the Act would not apply and likewise if a person is a beneficial shareholder but a registered shareholder then also the provisions of section 2(22)(e) of the Act would not apply. While in the case at hand the ITAT noted that the assessee was not a shareholder at all and hence the provisions of section 2(22)(e) of the Act would not apply. - Decided against revenue.
Issues Involved:
1. Restriction of disallowance under section 14A read with Rule 8D. 2. Deletion of addition under section 2(22)(e) of the Income Tax Act. 3. Deletion of disallowance of interest income. Issue-wise Detailed Analysis: 1. Restriction of Disallowance under Section 14A read with Rule 8D: The Revenue's appeal concerns the restriction of disallowance made under section 14A read with Rule 8D. The assessee, engaged in investment and finance, filed a return for the assessment year 2013-14, admitting a total income of Nil after computing a business loss. The Assessing Officer (AO) completed the assessment, disallowing ?3,40,39,003 under section 14A and adding it to the total income. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] restricted the disallowance to the extent of dividend income earned, i.e., ?2,03,51,052, and confirmed the balance addition of ?1,90,76,191. The Tribunal observed that the CIT(A) followed the decisions from earlier assessment years (2010-11 and 2012-13) and the Hon'ble Delhi High Court's decision in Joint Investments P. Ltd. v. CIT. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's ground. 2. Deletion of Addition under Section 2(22)(e): The AO examined the shareholding patterns and noticed a loan of ?1,19,00,031 obtained by the assessee from M/s. Aban Infrastructure Pvt. Ltd., where a significant shareholder of the assessee company also held substantial interest in the lender company. The AO treated the loan as deemed dividend under section 2(22)(e) and added it to the total income. On appeal, the CIT(A) allowed the assessee's ground, following appellate orders for earlier years. The Tribunal noted that the assessee was not a registered shareholder in the lending company, and thus, the provisions of section 2(22)(e) did not apply, as per the jurisdictional High Court's decision in CIT v. Printwave Services P Ltd. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's ground. The Revenue cited the Supreme Court's judgment in CIT vs. National Travel Services, arguing that a beneficial owner of shares need not be a registered shareholder to attract section 2(22)(e). However, the Tribunal noted that the Supreme Court referred the matter to a larger bench for reconsideration, and thus, the cited case law did not apply to the present case. 3. Deletion of Disallowance of Interest Income: The AO determined an interest income of ?64,501 after considering the net expenditure incurred by the assessee towards earning interest income. The CIT(A) allowed the assessee's ground on appeal. The Tribunal observed that the assessee had fully utilized the loan obtained from Industrial Finance Corporation of India (IFCI) to fund M/s. Aban Offshore Ltd., and the interest income was fully offered to tax. The AO had no justification for reducing the interest expenditure from exempt income. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's ground. Conclusion: The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s orders regarding the restriction of disallowance under section 14A, deletion of addition under section 2(22)(e), and deletion of disallowance of interest income. The Tribunal found no merit in the Revenue's arguments and adhered to precedents from earlier assessment years and relevant judicial decisions.
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