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Income Tax Appellate Tribunal, “C”
Before: Sri J. Sudhakar Reddy & Sri Sanjay Garg
Date of concluding the hearing : February 03, 2021 Date of pronouncing the order : March 26, 2021 ORDER Per Sanjay Garg, Judicial Member:- The present appeal has been preferred by the Revenue for the assessment year 2014-15 against the order dated 06.03.2018 of the Commissioner of Income Tax(Appeals)-I, Kolkata [hereinafter referred to as the ‘CIT(A)’].
At the time of hearing of the appeal, no one has put in appearance on behalf of the assessee despite service of notice through RAPD. We, therefore, proceed to decide the appeal on merits ex parte of the assessee after hearing the Ld. DR.
The Revenue has raised four grounds of appeal
as under: “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A)- 1, Kolkata, erred deleting the addition of Rs.14,52,00,000/- of the deemed dividend u/s 2(22)(e) as the assessee Company, a share holder of M/s Super Diamond Nirman (P) Ltd, a closely held Company, who granted loan to the assessee company
2. Whether on the facts and in the circumstances of the case erred in law, the Ld. CIT(A)-1, Kolkata, erred deleting the addition of Rs.15,79,95,500/- as per provision u/s 56(2)(viia) which is squarely applicable to the assessee Company purchased shares of M/s Super Diamond Nirman (P) Ltd below the fare market value.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A)-1, Kolkata, erred deleting the addition of Rs.9,70,710/- u/s 14A as the assessee Company invested in unquoted shares with the part of interest bearing loan amount.
M/s Sunshine Niwas Pvt. Ltd Assessment Year: 2013-14 4. The appellant craves leave to add amend, or alter to any grounds(s) of appeal at the time of hearing.”
Ground No.1 – The Revenue has contested the action of CIT(A) in deleting the addition made by the Assessing Officer u/s 2(22)(e) on account of deemed dividend. 4.1 The brief facts relevant to the issue are that during the assessment proceedings, the Assessing Officer observed that the appellant-company was engaged in the business of lending as well as in developing and selling of flats. The Assessing Officer further observed that the assessee has taken loan of Rs.14,52,00,000/- from M/s. Super Diamond Nirman (P) Ltd. in which the assessee-company was holding substantial interest i.e. 24.16% of shares. The Assessing Officer therefore treated the entire loan amount as deemed dividend u/s 2(22)(e) of the Income Tax Act and made the impugned addition. 4.2 Before the Ld. CIT(A), the assessee submitted that the provisions of section 2(22)(e) were not applicable in its case as the loan was advanced by the said company in the ordinary course of its business where the lending of money was a substantial part of the business of the company and that due interest was paid by the assessee on the said loan. That even the assessee company was 100% subsidiary of another public limited company M/s Alpine Commercial Co. Ltd. 4.3 Considering the above submissions made by the assessee along with evidences furnished, the Ld. CIT(A) held that the provisions of section 2(22)(e) were not applicable in the case of the assessee as the said loan was advanced to the shareholder in the ordinary course of business of lending of money by the said company. The ld. DR could not point out any defect in the said observations made by the ld. CIT(A). In view of this, there is no merit in this ground of Revenue. The findings of the ld. CIT(A) on this issue are accordingly upheld.
Ground No.2 - The Revenue has contested the action of the CIT(A) in deleting the addition made by the Assessing Officer u/s 56(2)(viia) of the Income Tax Act. 5.1 The brief facts relevant to the issue are that the Assessing Officer observed from the record that the appellant company purchased 1449500 shares of Super M/s Sunshine Niwas Pvt. Ltd Assessment Year: 2013-14 Damond Nirman Pvt. Ltd form Pooja Corporation @Rs.50 per share for Rs.72475000/-. From the Balance Sheet of Super Diamond Nirman Pvt. Ltd., the Assessing Officer worked out the Book value per share of Super Diamond Nirman Pvt. Ltd as on 31.03.2012 at Rs.159/-. He show-caused the assessee as to why the difference in price be not added u/s 56(2)(viia) of the Income Tax Act. In response to show-cause notice, the assessee explained that Sunshine Niwas was a subsidiary of a public Ltd. Company and the provisions of sec. 56 were not applicable. However, the Assessing Officer held that Super Diamond Nirman was not a company where public was substantially interested, and being a Pvt. Ltd. Company its shares had to be adopted at Book value. He accordingly computed the amount of difference of (159 minus 50) i.e. Rs. 109 per share totalling Rs.157995500/- and added back the said amount u/s 56(2)(viia) of the Income Tax Act for purchasing shares below market value. 5.2 In the appellate proceedings before the CIT(A), the assessee submitted that the section 56(2)(viia) was not applicable in its case as the assessee company was subsidiary of another public limited company i.e. M/s Alpine Commercial Co. Ltd in which the public was substantially interested. The ld. CIT(A) considering the above submissions observed that since the assessee company was 100% subsidiary of M/s Alpine Commercial Co. Ltd. in which the public was substantially interested, therefore according to the provisions of section 2(18)(b)(B)(c), the assessee company being 100% of subsidiary of the said public limited company was also treated as a company in which public was substantially interested and that the provisions of section 56(2)(viia) were not attracted in the case of the assessee company. The Ld. DR could not bring out any defect in the order of the CIT(A) warranting our interference. The findings of the CIT(A) on this issue are upheld.
Ground No.3 - Vide Ground No.3, the Department has agitated the action of CIT(A) in deleting the addition of Rs.9,70,710/- made by the Assessing Officer u/s 14A of the Income Tax Act on account of expenditure incurred for earning of tax exempt income.
M/s Sunshine Niwas Pvt. Ltd Assessment Year: 2013-14 6.1 The ld. CIT(A) while deleting the aforesaid addition has observed that the assessee during the year did not earn any tax exempt income. He while relying upon the decisions of the various High Courts including the decision Hon’ble Allahabad High Court in the case of CIT vs. Shivam Motors Pvt. Ltd. and the Hon’ble Gujarat High Court in the case of Corrtech Energy P. Ltd. held that when there is no exempt income earned by the assessee, no disallowance of corresponding/notional expenditure is to be made under the provisions of section 14A of the Income Tax Act. The ld. DR could not point out any infirmity in the order of CIT(A) in this respect. The findings of the ld. CIT(A) on this ground are, therefore, upheld.
In the result, the appeal of the Revenue is hereby dismissed.
Kolkata, the 26th March, 2021.