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2019 (9) TMI 1646 - AT - Income TaxDisallowance u/s 14A and Rule 8D(2)(i),(ii) & (iii) - sufficiency of own funds - HELD THAT:- We find that the assessee has own fund much above amount made investments in shares even by excluding the capital reserve and revaluation reserve. Therefore it is obvious that the entire investment made by the assessee of Rs.64,42,600/- is from its own interest free funds. In such situation, it will be incorrect to apply Rule 8D(2)(i) & (ii) of the Rules in the case of the assessee, because the assessee has not incurred any interest expenditure directly or indirectly with respect to its investment made for Rs.64,42,600/-. Therefore in the case of the assessee only Rule 8D(2)(iii) will be applicable and accordingly we hereby sustain the addition of Rs.32,213/- and further direct the Ld.A.O to delete the addition of Rs. 4,28,272/- (Rs.4,60,482 – Rs.32,213) made by applying the Rule 8D(2)(i) & (ii) of of the Rules. Deemed Dividend u/s 2(22)(e) - business commitments of the assessee and its sister concerns - HELD THAT:- It is apparent that both the assessee and its sister company are dealers in automobiles of different nature and engaged in business with close proximity. The combined endurance to market the products in the same vicinity results in close commercial ties between the assessee company and its sister company. As a result both the companies were maintaining current accounts in order to achieve their respective business targets. Therefore it cannot be said that, the interdependence for meeting several business commitments of the assessee and its sister concerns does not result in commercial nexus between the assessee company and its sister concerns. As pointed out by the Ld.AR some expenses were met by both the companies which were reimbursed by either company. These facts are not disputed. Moreover at the close of the financial year the current account maintained by the assessee with its sister concern showed nil balance. In this situation, we are of the view that the decision of the Jurisdictional High Court in the case CIT vs. C. Subba Reddy would be most appropriate, wherein it was held that “when no benefit has accrued to assessee and credit was a result of business transaction and was neither in nature of loan or deposit hence, provisions of Sections 2(22)(e) of the Act do not stand attracted.” Further in the case of the assessee the circular No.19/2017 supra is also very relevant. Considering these aspects of the case, we are of the considered view that provisions of Section 2(22)(e) of the Act will not be applicable in the case of the assessee. Therefore we hereby direct the Ld.AO to delete the addition made by invoking the provisions of Section 2(22)(e) - Decided in favour of assessee.
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