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TMI Blog2021 (1) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 TH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original return of income on 29.09.2008 declaring income of ₹ 9,51,70,507 under normal provisions of the Act. Subsequently, during the course of assessment proceedings, the assessee revised its financial statements and e-filed revised return of income for the year under consideration on after excluding net profit of ₹ 16.87 crore, both while computing income under normal provisions and also under section 115JB of the Act. According to the assessee, despite the fact that the permission was hedged with various conditions, including in particular, prohibition on pre-launch of the Project, the assessee, on pre-launch basis, entered into agreement for sale of part of the Project, resulting in recognition of notional amount of ₹ 85.24 crores as revenue, which was subsequently cancelled, and in the revised audited financial statements duly approved by the members, the assessee excluded an amount of ₹ 85.24 crores erroneously recognized as revenue in the original financial statements, resulting in reduction of profit after tax by ₹ 16.87 crores. Based on the revised audited and approved financial statements, the assessee, in the revised return of income, decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law that only 'real income' can be brought to tax. While holding so, the Ld. CIT(A) noted the fact that no amount was received against the agreements to sell entered between the assessee and various parties stated supra, which were in fact subsequently cancelled. The CIT(A) also made note of the fact that the Government had later accorded approval to sell the developed area only in May, 2010.Aggrieved such findings of the CIT(A), the Revenue is before us in this appeal. 5. Insofar as the grounds No. 1 and 2 of Revenue's appeal, relating to the action of the learned Assessing Officer in not excluding sales of ₹ 85.24 crores and corresponding profit thereon of ₹ 16.87 crores in computing the total income as per normal provisions as well as under section 115 JB of the Act, Ld. DR, placing reliance on the assessment order justified the same and impugned the order of the Ld. CIT(A); whereas at the outset Ld. AR submitted that the issue stands squarely covered in assessee'sfavour by order dated 24.08.2020 passed by a coordinate Bench of this Tribunal in assessee's own case for the preceding assessment year 2007-08 in ITA No. 3336/Del/2019. He therefore submitted that inasmuch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly 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. With this view of the matter we do not find any merit in grounds No. 1 and 2 of the Revenue's appeal and those are accordingly dismissed. 9. Insofar as Ground No. 3 of Departmental Appeal is concerned, it relates to the addition under section 2(22)(e) of the Act. During the year under consideration, the assessee had received unsecured loan of ₹ 5,99,55,000 from M/s Ritesh Spinnin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lder. He submitted that the said decision of the Special Bench has been affirmed by the Hon'ble High Court of Bombay in the case of CIT v. Universal Medicare: 324 ITR 263 (Bom). He also placed reliance on the additions reported inCIT vs. Ankitech (P) Ltd: 340 ITR 14 (Del), which was further upheld by the apex Court in the case of CIT vs. Madhur Housing and Development Company 401 ITR 152 (SC), and IT vs. MotherIndia Refrigeration Industries (P) Ltd. 155 ITR 711. He also placed reliance on the decision of the Hon'ble Apex Court in the case of ITO vs. MotherIndia Refrigeration Industries (P) Ltd.: 155 ITR 711 also. 12. For proper appreciation of the contentions of the parties on this aspect, we deem it necessary to look into the provisions of section 2(22)(e) of the Act which reads as under: . "2. Definitions. In this Act, unless the context otherwise requires:- (22) "dividend" includes- (a) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advanceor loan to a shareholder, being a person wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eously held more than 20% of the voting power in the assessee and more than 10% of the voting power in RSML. 14. Hon'ble Supreme Court in the case of CIT vs. MotherIndia RefrigerationIndustries (P) Ltd.: 155 ITR 711, held in respect ofthe scope of legal fiction as under: "Having regard to the aforesaid rival contentions, it will be clear that the real issue that arises for our consideration in this case is whether, on a proper construction of the relevant provisions of the concerned enactment, unabsorbed carried forward losses should have preference over current depreciation in the matter of set off or is the position vice versa while computing the total income of an assessee in the concerned assessment year ?And the answer to this question depends on what is thetrue scope and purpose of the legal fiction created under proviso (b) to s. 10(2)(vi)of the 1922 Act or under s. 32(2) of the 1961 Act .................................. It is true that proviso (b) to s. 10(2)(vi) creates a legal fiction and under that fiction, unabsorbed depreciation either with or without current year's depreciation is deemed to be the current year's depreciation but it is well settled, as ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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. 20. Hon'ble Jurisdictional High Court in PCIT vs. IL & FS Energy Development Company Ltd. (2017) 99 CCH 0190 DelHC, (2017) 297 CTR 0452 (Del) decided on 16th August, 2017, after considering a catena of decisions, held the issue in favour of the assessee and observed that,- 9. Mr. Zoheb Hossain, learned Senior Standing Counsel for the Revenue, submitted that, in Cheminvest Ltd. (supra), this Court had no occasion to consider the CBDT Circular No. 5/2014 dated 11th February 2014 which clarified that Section 14A would apply even when exempt income was not earned in a particular AY. According to him, the other decisions of this Court in CIT-IV v. Taikisha Engineering India Pvt. Ltd. [2015] 370 ITR 338 (Del) and CIT-IV v. Holcim India Pvt. Ltd. (2014) 272 CTR (Del) 282 did not actually discuss the above Circular of the CBDT and, therefore, would be distinguishable. 10. Mr. Hossain further submitted that there was nothing in Section 14A of the Act which suggested that exempt income had to nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Shivam Motors (P) Ltd. (2014) 272 CTR (All) 277 have all taken a similar view. The decision in Taikisha Engineering India Pvt. Ltd. (supra) does not specifically deal with this issue. 22. It was suggested by Mr. Hossain that, in the context of Section 57(iii), the Supreme Court in Commissioner Of Income Tax, West v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC) explained that deduction is allowable even where income was not actually earned in the AY in question. This aspect of the matter was dealt with by this Court in M/s Cheminvest Ltd. (supra) where it reversed the decision of the Special Bench of the ITAT by observing as under: "20. Since the Special Bench has relied upon the decision of the Supreme Court in Rajendra Prasad Moody (supra), it is considered necessary to discuss the true purport of the said decision. It is noticed to begin with that the issue before the Supreme Court in the said case was whether the expenditure under Section 57 (iii) of the Act could be allowed as a deduction against dividend income assessable under the head "income from other sources". Under Section 57 (iii) of the Act deduction is allowed in respect of any expenditure laid out or expended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance under Section 14 A of the Act was called for in the AY in question because no exempt income was earned. 21. In view of the above position of law, 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 of the Act. Ground No. 4 of the appeal of the Revenue is accordingly dismissed and ground No. 2 of assessee's appeal is allowed. 22. Ground No. 1 of Assessee's Cross Objections relates to the disallowance of foreign travel expenses.Learned Assessing Officer disallowed travelling expenditure to the extent of ₹ 60,00,107/-, on the ground that the same was in respect of foreign travel, which were incurred for non-business purposes. According to the assessee during the relevant previous year ending 31.03.2008, the assessee incurred total travelling expenditure amounting to ₹ 75,01,489/-, the details of which are as under: a) Travelling expenses ₹ 12,35,195 b) Director travelling expenses ₹ 60,00,107 c) Director foreign travelling expenses ₹ 44,100 d) Foreign travelling ₹ 1,21,588 e) Conveyance S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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