COMMISSIONER OF INCOME TAX II vs. SURAJ DEV DADA

ITA/23/2013HC Punjab & HaryanaPHHC01105086201311 February 2014Author: MR JUSTICE RAJIV SHARMA,MR. JUSTICE SURINDER GUPTA8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arose in the appeal and dismissed it. Regarding issue 1 (Section 2(22)(e)), the Court found that the CIT(A) and Tribunal had concurrently held that the assessee had a running account with M/s Dada Motors Pvt. Limited, advancing money to it. The provision was inserted to curb misuse of company funds by shareholders as loans instead of dividends to avoid tax. In this case, the assessee had advanced money to the company, and the credit balance was for only 55 days, thus Section 2(22)(e) was not attracted. These findings were not shown to be erroneous or perverse. Regarding issue 3 (Section 36(1)(iii)), the Court noted that the CIT(A) and Tribunal had deleted the addition of ₹3,50,000/-. The assessee had not charged interest on the amount advanced to M/s Nalanda Spinners, and the principal was recovered after filing a civil suit. Similar additions for earlier years had been deleted and attained finality. The judgment in S.A. Builders' case did not help the revenue. The Court also decided issues 1 and 2, finding no error in the concurrent findings of the lower authorities.

What were the facts?

The Revenue appealed to the High Court against the ITAT's order for Assessment Year 2008-09. The assessee, engaged in trading, workshop, insurance, and commission agency, filed a return declaring a loss. The Assessing Officer (AO) assessed income at ₹2,55,79,453/-, making additions of ₹2,75,00,000/- under Section 2(22)(e), ₹7,90,796/- under Section 14A, and ₹3,50,000/- under Section 36(1)(iii). The CIT(A) partly allowed the appeal, deleting these additions. The ITAT also partly allowed the Revenue's appeal. The High Court noted that initially, notice was issued only on question (iii), but later decided to adjudicate all substantial questions of law.

What were the issues?

1. Whether, on facts and in law, the ITAT was right in holding that provisions under Section 2(22)(e) of the Income Tax Act, 1961 are not attracted in this case? 2. Whether, on facts and in law, the ITAT was right in holding that the transactions of advancing money by the assessee to the company and earning interest on it amounted to business transactions? 3. Whether, on facts and in law, the ITAT was right in holding that no disallowance under Section 36(1)(iii) is called for, failing to appreciate that the assessee has not established the commercial expediency for advancing the amount to M/s Nalanda Spinners Limited? Assessee's contentions: The assessee supported the orders of the CIT(A) and the Tribunal. For issue 1 & 2, the assessee argued that there was a running current account with the company, and the assessee had advanced money to the company for most of the time, with credit balance for only 55 days. The provisions of Section 2(22)(e) were not attracted as there was no intention to misuse funds or avoid tax, and it was a genuine business transaction. For issue 3, the assessee argued that no interest was charged on the amount advanced to M/s Nalanda Spinners, and the principal was recovered after filing a civil suit, hence notional interest charged by the AO was not sustainable. The CIT(A) and ITAT had upheld these contentions. Revenue's contentions: The revenue argued that for issue 3, there was no commercial expediency for advancing the money, and therefore, the interest paid by the assessee to M/s Dada Motors Pvt. Limited was rightly disallowed by the AO under Section 36(1)(iii). The revenue relied on the judgment in S.A. Builders Limited v. CIT(Appeals) and another, (2007) 288 ITR 1.

Which sections of the Income-tax Act were involved?

Section 260A,Section 2(22)(e),Section 14A,Section 36(1)(iii)

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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of decision:11.02.2014 The Commissioner of Income Tax II, Ludhiana ...Appellant Versus Shri Suraj Dev Dada C/o M/s Dada Motors Pvt. Limited, Ludhiana

...Respondent CORAM: HON'BLE MR.JUSTICE AJAY KUMAR MITTAL HON'BLE MS. JUSTICE ANITA CHAUDHRY Present: Ms. Savita Saxena, Advocate for the appellant-revenue. Mr. J.S.Puri, Advocate for the respondent. Ajay Kumar Mittal,J.

1.

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) for the assessment year 2008-09 against the order of the Income Tax Appellate Tribunal, Chandigarh Bench 'B' (in short, “the Tribunal”) dated 22.8.2012, Annexure A.3 in ITA No.109/CHD/2012, claiming following substantial questions of law:- “i) Whether on facts and in law, the Hon'ble ITAT was right in holding that provisions under section 2(22) (e) of the Income Tax Act, 1961 are not attracted in this case? ii) Whether the Hon'ble ITAT was right in law in holding that the transactions of advancing of money by the assessee to the company and earning

The order continues below.

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