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Income Tax Appellate Tribunal, MUMBAI BENCHES “J”, MUMBAI
Before: SHRI G.S. PANNU (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against the order dated 23.06.2016 passed by the Ld. Commissioner of Income Tax (Appeals)-14, Mumbai, for the assessment year 2011-12, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee company filed its return of income for the assessment year under consideration declaring nil income. The case was selected for scrutiny and the AO issued notices u/s 143(2) and 142(1). In response to the said notices, authorized representative of the assessee appeared before the AO and filed the details and made submissions. It was noticed that the assessee had invested in AOP M/s Universal Cons in which the assessee was a member holding 50% of total holdings. It was further 2 Assessment Year: 2011-12 observed that the assessee had not carried out any business during the relevant year however, taken loan of Rs. 1,66,86,543/- from group concern and others and the same was invested in AOP and paid interest thereon. On being asked as to why the same should not be disallowed u/s 37(1)/36(i)(iii)as well as u/s 14A of the Act, the authorized representative of the assessee submitted that assessee is partner of the said AOP and since the balance in the capital account with the AOP as on 31.03.2011 is due to share of profit of Rs. 8,25,71,757/- for the A.Y.2009-10 the assessee company had received the entire amount of investment back, therefore it cannot be said that the assessee had invested the interest bearing loan for earning exempt income. The AO rejecting the contention of the assessee , worked out the disallowance u/s 14A read with Rule 8D of the Income Tax Rules at Rs.7,15,918/- and added the same to the income of the assessee. Further the assessee had obtained unsecured loan of Rs. 1,39,73,334/-from M/s Solar Creations Pvt. Ltd. The said company had reserves and surplus of Rs.5,42,99,997/- as on 31.03.2011. The AO assessed deemed dividend of Rs.1,39,73,334/-u/s 2(22)(e) of the Act in the hands of the assessee holding that the assessee company is the share holder of lending company. Apart from the aforesaid additions, the AO made addition u/s 36(i)(iii) of the Act and determined the total income of the assessee at Rs. 1,72,48,370/-.
The assessee challenged the assessment order before the CIT(A). The Ld. CIT(A) after hearing the assessee, deleted the addition made u/s 14A read with rule 8 in principal, however, directed to verify whether the amount invested in AOP has been received by the assessee during the year relevant to the assessment year under consideration. So far as the addition u/s 2(22)(e) of the Act is concerned the Ld. CIT(A) deleted the same by following the order of his predecessor passed in the assessee’s own case for the assessment year 2009- 10. 3 Assessment Year: 2011-12
The revenue has challenged the impugned order on the following effective grounds:-
1. i) “The Learned CIT (A) has erred on facts and in deleting the disallowance amounting to Rs. 7,15,918/- under section 14A r.w. Rule 8D following the decision of Godrej & Boyce Mfg. Co. Ltd. Ignoring the facts that the disallowance worked out by following Rule 8D provides uniform mechanism for working out disallowance of expenses which are attributable to earning exempt income. ii) The Learned CIT (A) has erred on facts and in law in deleting the addition of Rs. 1,39,73,344/- u/s 2(22)(e) of the Income Tax Act 1961 without properly appreciating the factual and legal matrix at clearly brought out by the Assessing Officer. iii) The Learned CIT (A) has erred on facts and in law in deleting the addition of Rs. 1,39,73,344 u/s 2(22)(e) of the Income Tax Act 1961 without properly appreciating that once a payment is held to be divided by deeming fiction u/s 2(22)(e) of the Act, it can be taxed in the hands of recipient concern, or it has to be taxed in the hand of shareholder of the paying company, or it has to be taxed in the hands of shareholders because of whom the relationship between the paying company and recipient concern was established.
2. The Ld. CIT (A) order is contrary in law and on facts and deserves to be set aside.”
Ground No. 1 of the appeal pertains to the addition u/s 14A read with Rule 8D of the Income Tax Rules, made by the AO. Before us the Ld. DR relying on the assessment order submitted that the Ld. CIT (A) has wrongly deleted the disallowance made u/s 14A read with rule 8D of the Income Tax Rules and directed the AO to make addition after verification regarding receiving back of the amount invested in AOP in the assessment year under consideration. The 4 Assessment Year: 2011-12 Ld. DR further submitted that since the disallowance has been made as per the provisions of the law, the finding of the Ld. CIT(A) is not sustainable.
On the other hand, the Ld. counsel for the assessee submitted that there is no infirmity in the order of the Ld. CIT (A) as the Ld. CIT (A) has directed the AO to delete addition u/s 14A read with rule 8D after conducting verification regarding receiving back the amount invested in the AOP and taking into consideration the workout furnished by the assessee during the assessment proceedings.
We have heard the rival submissions and also perused the material on record. The Ld. CIT (A) has decided this issue holding as under:
4.3 I have gone through the submission. As per the details filed in the letter it is apparent that in this year, there is no investment in AOP out of borrowed funds taken by the appellant. Therefore, in my considered opinion, no disallowance u/s 14A r.w. Rule 8D(2)(ii) can be made. The AO is required to verify and in case the amount invested in AOP has already been received back by the appellant in A.Y. 2011-12 as submitted above, then the addition made by the AO is to be deleted.
Since, the Ld. CIT (A) has directed the AO to verify the facts contended by the assessee, we do not find any reason to interfere with the same. In our considered opinion, the finding of the Ld. CIT (A) does not suffer from any legal infirmity. Hence, we uphold the same and dismiss this ground of appeal
of the revenue.
9. Vide ground No 2, the revenue has challenged the action of the Ld. CIT (A) in deleting the addition made by the AO u/s 2(22)(e) of the Act. The Ld. Departmental Representative (DR) submitted that since the assessee had obtained unsecured loan of Rs. 1,39,73,344/- from the company M/s Solar 5 Assessment Year: 2011-12 Ltd. are the group companies having common shareholding and the Solar Creation Pvt. Ltd. was having sufficient accumulated profit, the AO has rightly made addition by invoking the provision of section 2(22)(e) read with section 56 of the Act after hearing the assessee. Since, the impugned order is erroneous, the same is liable to be set aside.
10. On the other hand, the Ld. counsel for the assessee submitted that the identical issue came before the CIT (A) in the assessee’s own case for the A.Y. 2009-10. The Ld. CIT(A) by relying on the judgment of the Hon’ble Bombay High Court passed in the case of CIT vs. Impact Containers Pvt. Ltd., decided the said issue in favour of the assessee and against the revenue. The revenue challenged the findings of the Ld. CIT(A) before the ITAT and the ITAT Mumbai upheld the findings of the CIT (A) . Hence, this issue is squarely covered by the order of the ITAT, Mumbai in assessee’s own case for the A.Y. 2009-10, there is no infirmity in the impugned order passed by the Ld. CIT (A).
We have perused the record available with us in the light of the rival submissions of the parties. The Ld. CIT (A) has decided the issue against the revenue and in favour of the assessee by holding as under:-
6.1 I have considered the submissions made. It is noted from the appellate order passed by my predecessor for A.Y. 2009-10 that the issue is covered in favour of the appellant. The Ld. CIT (A) relying on the decision in the case of Impact Containers Pvt. Ltd. of 2012 (BHC) wherein the decision in the case of Bhaumic Colours was upheld holding that “In their case, the subject matter of this appeal, the AO has not disputed the very fact that appellant i.e. M/s Solar Readymade Private Limited is not a shareholder of lending company named M/s Solar Creators Private Limited. On this undisputed fact the loan advanced by the lending company to the appellant cannot be taken as falling within the provisions of sec 2(22) (e) of the I T Act and hence the 6 Assessment Year: 2011-12 addition made by the AO for an amount of Rs. 1,58,08,668/- being not substantiate is deleted herewith. As the first limb of section 2((22) has not been found present in the case, the working of quantum of disallowance for the purpose i.e. up to the reserve and surplus available on the last date of concerned year in the case of lending company is not required to be done and hence that aspect is not dealt with. The ground no. 3 is allowed.
The coordinate Bench has decided the identical issue in favour of the assessee in the assessee’s case for the A.Y. 2009-10 and since the Ld. CIT (A) has decided the identical issue in favour of the assessee in accordance with the order of the coordinate Bench, we do not find any infirmity in the order of the Ld. CIT (A) to interfere with. We therefore respectfully following the order dated 31.10.2016 passed by the coordinate Bench in the assessee’s own case aforesaid, uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue and direct the AO to delete the addition made u/s 2(22)(e) of the Act.
In the result, appeal filed by the revenue for assessment year 2011-2012 is dismissed.