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2015 (12) TMI 761 - ITAT MUMBAI

2015 (12) TMI 761 - ITAT MUMBAI - TMI - Deemed dividend u/s. 2(22)(e) - Held that:- There is factual error in computing the deemed dividend. Surprisingly, there is no reference to the computation made by the assessee in the assessment order. In our considered opinion, without pointing out any flaw or error in the calculation made by the assessee, the AO should not have proceeded by calculating the deemed dividend of its own. Further, the AO has not given any basis as to how he has come to the ac .....

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vt. Ltd (2015 (3) TMI 155 - DELHI HIGH COURT) has held that the “window for disallowance is indicated in Sec. 14A, and is only to the extent of disallowing “expenditure incurred by the assessee in relation to the tax exempt income”. This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.” Thus we direct the AO to restrict the disallowance to ₹ 2,62,194/-.- Decided in favour of assessee for assessee in part. - I.T.A. No. 8706 .....

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e) of the Act amounting to ₹ 91,19,909/- and secondly on account of disallowance u/s. 14A r.w. Rule 8D amounting to ₹ 4,12,825/-. 2.1. The assessee is a proprietor of Nirmal Traders and is engaged in the business of General Commission Agents in yarn & fabrics. The assessee is also a share broker trading in shares & commodities. The return for the year was filed on 26.9.2008 declaring total income at ₹ 31,96,208/-. The returns were selected for scrutiny assessment. Durin .....

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as at ₹ 98,39,957/- in which the assessee was holding 30.39% of shares. 2.2. The AO was of the firm belief that the provisions of Sec. 2(22)(e) of the Act squarely apply on the facts of the case therefore the assessee was asked to explain why provisions of Sec. 2(22)(e) should not be applied. 2.3. The assessee filed a detailed reply claiming that the assessee has from time to time given loan to the companies on which the companies have paid interest to the assessee after deducting tax at s .....

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ransactions, the assessee has received ₹ 1,27,71,834/-. In so far as M/s. Sumo Investment Pvt. Ltd., is concerned, the AO found that the said company has not shown income from money lending business as substantial part of its income, therefore the claim of the assessee that the said company is in money lending business does not hold any water. 3.1. Applying the provisions of Sec. 2(22)(e) of the Act, the AO computed the deemed dividend in the case of M/s. Sumo Investment Pvt. Ltd. at ͅ .....

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s Pvt. Ltd. upto 7.6.2007, there was a debit balance of ₹ 5,166/-. Drawing our attention to the various transactions as exhibited in the accounts ledger, the Ld. Counsel stated that most of the time, it was the company which owed to the assessee, therefore it is incorrect to say that the assessee has borrowed ₹ 1,27,71,834/- from the said company. Same is the situation with M/s. Sumo Investment Pvt. Ltd. The Ld. Counsel further drew our attention to exhibit-24 of the Paper Book and s .....

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. We have given a thoughtful consideration to the orders of the authorities below. We have carefully gone through the relevant documents relied upon by the Ld. Counsel. Before proceeding further, let us understand the provisions of Sec. 2(22)(e) of the Act which read as under: any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) 24made after the 31st day of May, 1987, .....

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vidual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; 8. A perusal of the aforementioned section clearly shows that the loan/advance to the shareholder can be treated as deemed dividend only to the extent to which the company possess accumulated profit. The computation of deemed dividend as per the working of the assessee as exhibited at page-24 of the Paper Book is as follows: Name of the party Amount Deemed Dividend Polyarn Ag .....

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n Deemed dividend upto the extent of accumulated profits. 1. Sumo Investment Pvt. Ltd., ₹ 73,10,000/- ₹ 73,10,000/- 2. Polyyarn Agencies Pvt. Ltd. ₹ 1,27,71,834/- ₹ 18,09,909/- 3. Deemed Dividend ₹ 91,19,909/- 10. Thus, it can be seen that there is factual error in computing the deemed dividend. Surprisingly, there is no reference to the computation made by the assessee in the assessment order. In our considered opinion, without pointing out any flaw or error in the .....

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e. Ground No. 1 is treated as allowed for statistical purpose. 11. Ground No. 2 relates to the disallowance made u/s. 14A r.w. Rule 8D. 12. While scrutinizing the return of income, the AO found that the assessee has received dividend of ₹ 2,62,194/-. The AO noticed that the assessee has not allocated any expense for earning of the exempt income. The assessee was asked to explain why expense should not be allocated as per provisions of Sec. 14A r.w. Rule 8D. 12.1. The assessee claimed that .....

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