2023 (7) TMI 230 - AT - Income Tax

Assessment u/s 153A - Addition of deemed dividend u/s 2(22)(e) - CIT(A) in this case has deleted the addition so made by the Assessing Officer observing that the aforesaid advances received by the assessee from the two concerns were purely business transactions - HELD THAT - As noted that M/s Safari Retreats Pvt. Ltd. had given the loan in the regular course of business, where the lending of money was the substantial part of the business of the company. The assessee had duly paid interest @12% per annum on the loan amount which was reasonably high commercial rate of interest. - as in the case of advances from Forum Ventures Pvt. Ltd , the said advances were received pursuant to an agreement entered into with the said concern of the assessee for purchasing 40,000 sq.ft. in the form of six flats for a real estate project. This was a pure business deal. Since, the project did not mature, therefore, the agreement was cancelled by an exit agreement dated 29.01.2010 and the entire amount was refunded by the assessee to the said Forum Venture Pvt. Ltd. CIT(A) therefore held that both the transactions with the aforesaid concerns were business and commercial arrangements duly supported not only by agreements but also by the conduct of the parties involved. CIT(A) has further observed that it was not the case of the Ao that the said amounts were given gratuitously to the assessee only by virtue of its company beneficial shareholder. This addition was not based on any incriminating material found during the search action and that in the absence of incriminating material found during the search action, no addition could have been made by the Assessing Officer in an assessment carried u/s 153A of the Act. The above issue is squarely covered by the recent decision of the Hon ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd. reported in 2023 (4) TMI 1056 - SUPREME COURT No reason to interfere with the above findings of the ld. CIT(A), the same are accordingly upheld. Addition u/s 14A r.w.r. 8D - proportionate disallowance of expenditure relating to earning of tax exempt income - HELD THAT - Since this was a case of reassessment proceedings u/s 153A pursuant to the search action u/s 132 of the Act, therefore, the addition if any could have been based on the basis of incriminating material found during the search action. CIT(A) observed that the aforesaid addition u/s 14A was not based on any incriminating material found during the search action, therefore deleted the impugned addition correctly. Disallowance of statutory deduction claimed by the assessee u/s 24(i) - CIT(A) deleted the addition - HELD THAT - CIT(A) correctly deleted the aforesaid disallowance made by the Assessing Officer observing that the assessee himself had suo moto added back the aforesaid administrative expenditure relating to building maintenance etc. and that no double deduction was claimed and also held that even this addition was not based on any incriminating material found during the search action and that in the absence of incriminating material found during the search action, no addition could have been made by the Assessing Officer in an assessment carried u/s 153A.

Summary

Issues Involved:
1. Deletion of addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.
2. Deletion of addition under Section 14A of the Income Tax Act, 1961.
3. Deletion of addition under Section 24(i) of the Income Tax Act, 1961.
4. Deletion of disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.

Summary:

Issue 1: Deemed Dividend under Section 2(22)(e)

The Revenue contested the deletion of additions made by the Assessing Officer (AO) on account of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The AO had added advances received by the assessee from group companies as deemed dividends, asserting that the assessee had substantial shareholding in these companies. The CIT(A) deleted these additions, observing that the advances were purely business transactions with substantial interest paid, thus not gratuitous. The CIT(A) noted that the loans were given in the ordinary course of business and supported by agreements, and the transactions were commercial rather than gratuitous. The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Calcutta High Court's ruling in Pradip Kumar Malhotra vs. CIT, which clarified that advances given in return for an advantage to the company do not qualify as deemed dividends under Section 2(22)(e).

Issue 2: Addition under Section 14A

The Revenue challenged the deletion of an addition of Rs. 37,09,868/- made by the AO under Section 14A for proportionate disallowance of expenditure related to tax-exempt income. The CIT(A) noted that the assessee had already disallowed Rs. 2,00,000/- in its computation of income and that the disallowance under Section 14A cannot exceed the exempt income, referencing various High Court decisions. Additionally, the CIT(A) observed that the addition was not based on any incriminating material found during the search action. The Tribunal upheld the CIT(A)'s findings.

Issue 3: Addition under Section 24(i)

The AO disallowed the statutory deduction claimed by the assessee under Section 24(i), asserting that the assessee had claimed administrative expenses in its business income while also claiming standard deduction. The CIT(A) deleted this disallowance, noting that the assessee had already added back the administrative expenses and no double deduction was claimed. The CIT(A) further held that the addition was not based on any incriminating material found during the search action. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's decision in PCIT vs. Abhisar Buildwell Pvt. Ltd.

Issue 4: Disallowance under Section 40(a)(ia)

In the appeal for the assessment year 2011-12, the Revenue contested the deletion of disallowance made under Section 40(a)(ia) for non-deduction of TDS on certain payments. The CIT(A) deleted the addition on merits, and the Tribunal noted that the issue had already been decided in favor of the assessee in a related appeal concerning a demand raised under Sections 201(1)/201A. The Tribunal upheld the CIT(A)'s decision, noting that the addition was not based on any incriminating material found during the search action.

Conclusion:

The Tribunal dismissed all the appeals of the Revenue, upholding the CIT(A)'s deletions of the additions made by the AO on various grounds, including deemed dividend, disallowance under Section 14A, statutory deduction under Section 24(i), and disallowance under Section 40(a)(ia), primarily on the basis that these additions were not supported by incriminating material found during the search action.