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TMI Blog2022 (11) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... in confirming the action of the AO in invoking section 14A r.w.r. 8D of the Act, whereby a disallowance of Rs.12,81,831/- was made in the hands of the Appellant. 2.1 While doing so the Ld. CIT(A) failed to appreciate that: (i) No satisfaction as contemplated u/s 14A r.w.r. 8D was recorded by the AO prior to invoking section 14A; (ii) The provisions of section 14A were not at all applicable in the present case since no exempt income was actually earned by the Appellant in the present case; and; (iii) In any case no disallowance as per Rule 8D was called for in respect of interest expenditure in the present case. 2.2 In the facts and circumstances of the case the disallowance made by the AO and sustained by the CIT(A) deserves to be deleted in toto. 3 In the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the addition of Rs.1,11,12,387/- as deemed dividend u/s 2 (22)(e) of the Act. 3.1 While doing so the Ld. CIT(A) failed to appreciate that: (i) The provisions of deemed dividend are not at all attracted in the present case since section 2(22)(e) envisages loans / advances by the Company to its shareholders and not the other way round; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On perusal of the order of the Ld.CIT(A) it is observed that the assessee's submission has been reproduced by the Ld.CIT(A). The Ld.CIT(A) had considered the submission of the assessee before deciding the case. Assessee was granted opportunity by the Ld.CIT(A). Thus, there was no violation of natural justice. Hence, the ground number 1 of the assessee is dismissed. Ground No.2: 14A disallowance : 2.2 The AO has made addition u/s 14Arw Rule 8D of the Act of Rs.12,81,831/-. The Ld.CIT(A) had upheld it. At the outset the Ld.AR submitted that there was no exempt income earned by the assessee during the year hence there cannot be any disallowance u/s 14A of the Act. The Ld.AR submitted that this fact of no exempt income was also submitted before the Ld.CIT(A). The Ld.DR has not rebutted this fact. The Hon'ble Bombay High Court in the case of Pr.CIT Vs. Kohinoor Project (P.) Ltd. [2020] 121 taxmann.com 177 (Bombay) has held as under : Quote, " Section 14A of the Act deals with expenditure incurred in relation to income not includible in total income. As per sub-section (1) of section 14A, for the purpose of computing the total income, no deduction shall be allowed in respect of expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authority for sustaining the disallowance that the computation of income of the firm may result into positive income as well as negative income, i.e. loss and therefore, the provision of section 14A do not prohibit disallowance of expenditure in relation to exempt loss incurred by the assessee, is neither here nor there. The Hon'ble jurisdictional High Court in Pr. CIT v. HSBC Invest Direct (India) Ltd. [2020] 421 ITR 125 (Bom.) has held 'that disallowance cannot exceed the exempt income so earned by the assessee during the year under consideration.' If the disallowance is to be restricted to the amount of exempt income, the sequitur is that there can never be any disallowance u/s 14A in the absence of positive exempt income for the year. Insofar as section 14A is concerned, there is no qualitative difference between two situations, first, where the exempt income is Nil and second, where there is negative income for the year joined with a possibility of earning positive income in future. As the assessee in the instant case admittedly did not earn any exempt income during the year, respectfully following the ratio of the above decisions, we hold that no disallowance wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT Vs. Jignesh Shah [2015] 54 taxmann.com 293 (Bombay) has held, "Thus on strict interpretation of Section 2(22)(e) of the Act, unless the Respondent-Assessee is the shareholder of the company lending him money, no occasion to apply it can arise." In this case as observed, the Lender Company is shareholder of the assessee and assessee is not share holder of the Lender. Therefore, respectfully following the Hon'ble Bombay High Court, the AO is directed to delete the said addition of Rs.1,00,00,000/-. 3.3.1 Kimplas Piping System Ltd : The AO has mentioned in the Order that Kimplas Piping System has given loan of Rs.11,12,387/- during the year to the assessee. The assessee holds 20.22 % shares of the Kimplas Piping System Ltd. Ld.AR submitted that the Kimplas Piping System Ltd had not given any loan but the amount was part of the commercial transaction of the assessee with the Kimplas Piping System Ltd. The Ld.AR filed copy of Ledger Account of the Kimplas Piping System Ltd. The Ld.DR relied on the order of the lower authorities. 3.4 We have perused the records. It is observed from the Ledger account that there are multiple transactions during the year. However, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but ultimately assessee has taken a credit/benefit, the assessee should have known that it is surpassing the deeming provisions particularly when it has holding beneficial interest. It is settled law that deemed dividend provisions get attracted as soon as it takes benefit and it does not matter whether it is repaid within the same year. It is similar to the case of Miss P. Sarda v. CIT [1998] 96 Taxman 11/229 ITR 444 (SC), the Hon'ble Apex court held that even though the loan is repaid at the end of the year, will attract the provision of section 2(22)(e) of the act. Therefore, in our considered view, even though assessee claims it as inter corporate deposit, the literal meaning will remain same as the short term loan enjoyed by the assessee, hence in our considered view, the provision of section 2(22)(e) is attracted in the present case." Unquote. 3.5 The facts of the present case explains that Provisions of Section 2(22)(e) are attracted for the loan of Rs.Rs.11,12,387/- from Kimplas Piping System Ltd to the assessee. Therefore, respectfully following the ITAT Mumbai bench decision , we hold that the AO has rightly treated loan of Rs.11,12,387/- received from Kimplas Pipin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent as per 26AS, the AO is directed to verify the documents and reconcile. The Assessee shall submit all relevant documents to the AO. Therefore, to the extent of difference, the issue is set aside to the AO for verification after giving opportunity to the Assessee. Thus, the Ground No.4 is partly allowed. Ground No.5: 6. The AO while calculating Book Profit u/s.115JB has added Rs.3,00,000/-, which according to the AO was undisclosed rent. 6.1. The Hon'ble Bombay High Court in the case of CIT Vs. Forever Diamonds Pvt. Ltd in ITA 1609 of 2013 has held as under : Quote "3. The grievance of the revenue is that, when according to the Assessing Officer the accounts as prepared and as audited are manifestly in conflict with the manner in which the accounts have to be prepared under the Companies Act, then it is open to the Assessing Officer to recast the accounts for the purposes of Section 115JB of the Act. The Tribunal, by the impugned order negative the revenue's contention by relying upon the decision of the Supreme Court in Apollo Tyres Ltd. V/s C.I.T., reported in 255 ITR 273. It has very pertinently quoted the following observations from Apollo Tyres Ltd. in the impugned ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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