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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLEShri M.P. Ahuja
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals)-53, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 26.02.2018 for the A.Y.2014-15.
Brief facts of the case are, assessee filed its return of income on 24.11.2014 declaring total loss at ₹.11,38,76,130/-. The case was (A.Y. 2014-15) M/s. Dealmoney Securities Pvt. Ltd., selected for scrutiny under CASS and notice u/s. 143(2) and 142(1) of Income-tax Act, 1961 (in short “Act”) were issued and served on the assessee. In response AR of the assessee attended and submitted the information as called for.
3. The business of the assessee is broking of shares and securities, stock brokers, depository participant, distribution of financial product and other related ancillary services. The Assessing Officer observed from the balance sheet of the assessee that assessee is holding various investments in the form of equity shares and debenture in the domestic companies, income from which is not forming part of the total income. The dividend income earned by the assessee is ₹.60,653/- and has claimed as exemption u/s. 10(35) of the Act. Assessing Officer observed that assessee has not made any disallowance u/s. 14A of the Act and the assessee was asked why provisions of section 14A of the Act are not attracted in the case of the assessee. In response assessee has filed letter dated 20.12.2016 and 16.12.2016 and submitted that the assessee hold sufficient own funds and surplus funds in the business, therefore provisions of section 14A are not attracted. The Assessing Officer rejected the contention of the assessee and he invoked provisions of section 14A r.w. Rule 8D(2)(ii) and 8D2(iii) of I.T. Rules and determined the (A.Y. 2014-15) M/s. Dealmoney Securities Pvt. Ltd., disallowance under Rule 8D(2)(ii) of I.T. Rules to the extent of ₹.21,70,172/- and Rule 8D(2)(iii) of I.T. Rules ₹.3,38,084/- respectively. Accordingly, he disallowed disallowance u/s. 14A of the Act to the extent of ₹.25,08,256/-
Further, Assessing Officer observed from the balance sheet and audit report that assessee has accepted a loan of ₹.5,28,00,000/- and ₹.4,02,00,000/- from M/s. Destimoney Commodities Pvt. Ltd., (for short “DCPL”) and M/s. Destimoney Distribution and Advisory Services Pvt. Ltd., (for short “DDASPL”) respectively. On perusal of the share holding pattern of the assessee company, he observed that M/s. Destimoney Enterprises Pvt. Ltd., (for short “DEPL”) having substantial shareholding of 57.21% in the assessee company. Further, he observed that M/s. DEPL is having substantial interest of 99.99% in DCPL and the assessee company is holding 99.80% of the shareholding in DDASPL. In this regard the assessee was show caused as to why the loan amount received by the assessee company should not be treated as deemed dividend u/s.2(22)(e) of the Act. In response assessee submitted that the loan availed from DDASPL is in the ordinary course of business and the loan was utilized purely on account of business exigencies as a part of the working capital loan. With regard to loan from DCPL assessee submitted that no addition
(A.Y. 2014-15) M/s. Dealmoney Securities Pvt. Ltd., on account of deemed dividend can be made in the hands of the assessee and addition can be made only in the hands of the shareholder. In this regard he submitted as under: - “Disallowance u/s 2(22)(e). During the previous assessment year ie AY 2013-14, the learned AO had disallowed the payment received from the sister concerns u/s 2(22)(e) to the extent of accumulated profits in the respective companies as on 31.03.2013. The copy of the Balance Sheet with schedules and assessment orders for the AY 2013-14 is enclosed herewith. From the above even though the company has not accepted the disallowances w/s 2(22)(e) and filed the appeal before the Hon'ble Commissioner of Income Tax, Mumbai. Since all the accumulated profits of the sister concerns as on 31.03.2013 is added to the income and hence there are no accumulated profits left which require to be added in the AY 2014-15."
Assessing Officer rejected the submissions made by the assessee and in the case of DDASPL he treated the transactions are covered u/s.2(22)(e) of the Act and accordingly, to the extent of accumulated profits of the lender company is treated for making addition of ₹.3,49,644/- as deemed dividend in the hands of the assessee. With regard to DCPL, the Assessing Officer made the addition to the extent of accumulated profit of ₹.2,41,249/- on protective basis considering the fact that assessee is not shareholder of the lender company.
Aggrieved with the above order, assessee preferred an appeal before the Ld.CIT(A). After considering detailed submissions Ld.CIT(A) deleted the disallowance made under Rule 8D(2)(ii) of I.T. Rules and (A.Y. 2014-15) M/s. Dealmoney Securities Pvt. Ltd., sustained the disallowance made under Rule 8D(2)(iii) of I.T. Rules to the extent of actual exempt income earned by the assessee. Therefore, he partly allowed the ground raised by the assessee with regard to 14A disallowance.
With regard to disallowance of section 2(22)(e) of the Act, Ld.CIT(A) deleted the protective addition made on the accumulated profit of DCPL. With regard to disallowance made on the accumulated profit on DDASPL he held that the provisions of section 2(22)(e) of the Act is attracted and observed as under:- “5.6 As regards applicability of Section 2(22)(e) of the Act to loans shown from M/s. Destimoney Distributors and Advisory Services Pvt. Ltd. is concerned it is noted that 99.98% of its shares are held by the appellant. Thus section 2(22)(e) is applicable here in the case of DDASPL. As per the appellant the amount to be recovered from DDASPL was Rs.42,17,772/ on 01.04.2013 and closing balance of amount to be received on 31.03.2014 was Rs.37,12,031/- Thus there is no loan received from DDASPL. However, it is seen from audited accounts of DDASPL in the Notes giving details of transactions with related parties that it has received interest of Rs. 13,01,095 from the appellant during the year on the loans advanced to it. In fact there is a loan account and another expenses account. The loan account shows amounts advanced to appellant by DDASPL. The appellant has passed journal entries for amounts receivable from DDASPL for expenses and attempted to show a common account. It is therefore held that section 2(22)(e) is attracted in this case.”
Aggrieved assessee is in appeal before us raised following grounds in its appeal: - (A.Y. 2014-15) M/s. Dealmoney Securities Pvt. Ltd., “1. In the facts and circumstances of the case and in law, the Ld. CTIT(Appeals) -53 erred in confirming disallowance u/s 14A read with Rule 8D(2)(ii) of IT Act, 1961 of Rs. 60.653/- inspite of accepting that investment of the appellant is strategic long term investment.
2. In the facts and circumstances of the case and in law, the Ld. CIT(Appeals)-53 erred in confirming the addition of Rs. 3,49,644/- as deemed dividend u/s 2(22)(e) of the I.T. Act from amount received from Destimoney Distribution and Advisory Services Pvt. Ltd., even though the appellant has received the amount in the ordinary course of business and towards on account payment for reimbursement of expenses incurred by Appellant.
The appellant craves leave to add, to alter withdraw all or any of the grounds mentioned above before the final hearing of the appeal by Honourable members of the tribunal.”
In spite of issue of notice none appeared on behalf of the assessee nor any adjournment was sought. Thus, we proceed to dispose off this appeal on merits on hearing the Ld.DR.
Considered submissions of the Ld.DR and material placed on record, we observe that Ld.CIT(A) has sustained the addition to the extent of exempt income earned by the assessee, however, aggrieved with the above findings of the Ld.CIT(A), assessee is in appeal before us raising the ground that Ld.CIT(A) inspite of accepting that investment of the assessee is strategic long term investment still he made the disallowance under Rule 8D(2)(ii) of I.T.Rules. After considering the finding of the Ld.CIT(A) we observe that Ld.CIT(A) has in fact deleted the interest
(A.Y. 2014-15) M/s. Dealmoney Securities Pvt. Ltd., calculated by the Assessing Officer under Rule 8D(2)(ii) of I.T. Rules and however, Ld.CIT(A) has clearly observed that assessee has earned exempt income, but has not disallowed any expenditure relating to the above earning of such exempt income. It is clear from the fact that the 14A disallowance applicable in the case of assessee only to the extent of Rule 8D(2)(iii) of I.T. Rules and accordingly, Ld.CIT(A) has observed that Rule 8D(2)(iii) of I.T.Rules applicable in the case of the assessee and has not sustained the calculation made by the Assessing Officer on the interest part, he has sustained the calculation on the basis of Rule 8D(2)(iii) of I.T.Rules, the amount to be disallowed is restricted to exempt income earned by the assessee. Therefore, he restricted the disallowance to the extent of the exempt income earned by the assessee. Therefore, we do not find any mistake in the findings of the Ld.CIT(A). Accordingly, ground raised by the assessee is, accordingly, dismissed.
With regard to addition sustained by the Ld.CIT(A) to the extent of ₹.3,49,644/- relating to the accumulated profit of DDASPL considering that assessee is holding beneficial shareholding in the above said company and Ld.CIT(A) has observed that there is no loan received from DDASPL during this year. However, he observed that it is seen from the audit accounts of the above company in the notes giving details of (A.Y. 2014-15) M/s. Dealmoney Securities Pvt. Ltd., transaction with related parties that it has received interest of ₹.13,01,095/- from the assessee during the year on the loans advanced to it. He observed that in fact there is a loan account and another expenses account. He Further, observed that the assessee had passed journal entries for amounts receivable from DDASPL for expenses and attempted to show a common account. Therefore section 2(22)(e) of the Act is attracted in this case. On a careful observation we observe that assessee has taken loans in the ordinary course of business and utilized the same for its business purpose, this transaction can be considered as a transaction in the ordinary course of business by looking at the accumulation of the profit in the business. It is no way matching the huge loan taken by the assessee. It does not show that assessee has availed the loan in order to earn the dividend income and surpassed the provisions of section 2(22)(e) of the Act. The legislature intention is to penalize the transactions involving indirect availing of dividend by way of taking loans by the shareholders. In the given case, we do not find any benefit availed by the assessee by way of indirectly availing the dividend. The amount of loan taken by the assessee is huge compared to the accumulated profit in the business it clearly indicates that the loan was availed for the purpose of business and exigency of the business. Therefore this (A.Y. 2014-15) M/s. Dealmoney Securities Pvt. Ltd., transaction cannot be considered under provisions of section 2(22)(e) of the Act. Accordingly, ground raised by the assessee is allowed.
In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 21st June, 2022.