SH. VINAY SINGAL,LUDHIANA vs. ACIT, LUDHIANA

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ITA 97/CHANDI/2013Status: DisposedITAT Chandigarh28 November 2018AY 2008-094 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the provisions of section 2(22)(e) were not attracted as the assessee had a running account with the company with a substantial credit balance. It also held that disallowances under sections 36(1)(iii) and 14A were not warranted as the assessee had sufficient own funds to cover the advances and interest-free advances.

What were the facts?

The assessee appealed against the CIT(A)'s order upholding additions made by the AO. The additions related to deemed dividend under section 2(22)(e), and disallowances of interest expenditure under sections 36(1)(iii) and 14A.

What were the issues?

Whether the amounts advanced to the assessee constituted a loan or advance attracting deemed dividend provisions, and whether interest expenditure was disallowable when the assessee had sufficient own funds.

Which sections of the Income-tax Act were involved?

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

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आदेश/Order

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against the order dated 28.12.2012 of the Commissioner of Income Tax (Appeals)-II, Ludhiana [hereinafter referred to as ‘CIT(A)’].

2.

The assessee has taken the following grounds of appeal:- 1. That the order passed u/s 250(6) of the Income-tax Act, 1961 is against law and facts on the file in as much as the Ld. CIT(A) was not justified to arbitrarily uphold the addition of Rs. 10,60,000/- made by the Ld. Assessing officer by resort to provisions of section 2(22)(e) of the Income-tax Act, 1961.

2.

That he was further not justified to arbitrarily uphold a disallowance of Rs. 23,92,670/- made by

ITA No. 97/Chd/2013- Sh. Vinay Singal, Ludhiana 2 the Ld. Assessing officer out of interest account by resort to provisions of section 36(i)(iii).

3.

That he was also not justified to arbitrarily uphold the disallowance of Rs. 10,29,664/- out of interest account by resort the provisions of seciton14A.

3.

Ground No.1 is against the conformation of addition on account of

deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961 (in short 'the

Act') amounting to Rs. 10,60,000/-.

4.

At the outset, the Ld. Counsel for the assessee has reproduced before

us a copy of the account of the assessee with the company namely M/s

Janpath Estates Pvt Ltd. in which the assessee admittedly has substantial

interest. The Ld. Counsel for the assessee has demonstrated from the

account sheet that it is not a case of loan or advance from the company as

such, rather, the assessee was having a running account with the said

company and often there was a credit balance of the assessee towards the

company. It was on a particular day that some amount was found debited

in the account of the assessee, however, immediately within next 10 days

there was again a credit balance of the assessee towards the company. In

the end of the year, there was a credit balance of Rs. 4.26 crores of the

assessee towards the company. After perusal of the above statement of

record, which the Ld. DR could not rebut, we are of the view that the

provisions of section 2(22)(e) of the Act are not attracted in this case.

In view of our above discussion, disallowance made by the lower

authorities on this issue is ordered to be deleted.

5.

Ground No.2: Vide ground No.2, the assessee has agitated the

disallowance of Rs. 23,92,670/- made by the Assessing officer out of the

ITA No. 97/Chd/2013- Sh. Vinay Singal, Ludhiana 3 interest expenditure by resort to the provisions of section 36(i)(iii) of the

Act.

6.

At the outset, the Ld. Counsel for the assessee has submitted that the

total amount advanced by the assessee was Rs. 3.79 cores, whereas, the

assessee’s own capital on the date of advancement was Rs. 13.77 crores,

which means the assessee was possessed of sufficient funds to meet the

aforesaid interest free advance. A perusal of the orders of the lower

authorities reveals that his fact has not been disputed by them.

In view of this, the issue is squarely covered by the decision of the

Hon'ble Jurisdictional High Court in the case of CIT Vs. Kapson

Associates (2016) 381 ITR 204 (P&H), and further by the recent

decision of the Coordinate Bench of the Tribunal in the case of ‘ACIT Vs.

Janak Global Resources Pvt Ltd’ ITA No. 470/Chd/2018 order dated

16.10.2018. Accordingly, the disallowance made by the lower authorities

is ordered to be deleted.

7.

Ground No.3: The issue taken by the assessee in ground No.3 is

regarding disallowance out of interest expenditure u/s 14A of the Act.

As noted above, since the assessee has demonstrated that he was

possessed of own sufficient funds, hence, applying the same analogy as

discussed above, no disallowance u/s 14A of the Act on account of interest

expenditure is warranted. Admittedly the assessee has not claimed any

other expenditure in respect of administrative expenses; hence, no

disallowance can be made in that respect also. This issue is also

accordingly decided in favour of the assessee.

ITA No. 97/Chd/2013- Sh. Vinay Singal, Ludhiana 4 In the result, the appeal of the assessee is hereby allowed. Order pronounced in the Open Court on 28.11.2018.

Sd/- Sd/- ( बी , आर . आर . कुमार / B.R.R. KUMAR) (संजय गग� / SANJAY GARG ) लेखा सद�य/ Accountant Member �या�यक सद�य /Judicial Member

Dated : 28.11 .2018 “आर.के.” आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar

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