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D.C.I.T, Circle-1 Kolkata Versus M/s The Hooghly Mills Co. Ltd.

2017 (12) TMI 527 - ITAT KOLKATA

Deemed dividend u/s 2(22)(e) - Held that:- We are of the view that section 2(22)(e) was not applicable in the case of the assessee company, as it was holding only 1.7% of the voting power in the lending company M/s Mega Resources Ltd. We note that the AO has erred in law as well as on facts in considering the share holding of the subsidiary company for computing the voting power of the assessee, therefore we are of the view that the AO has misconstrued the provisions of section 2(22)(e) of the A .....

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. 2(24)(x) in respect of employee’s contribution to PF/ESI for an amount of ₹ 1,32,86,580/- Held that:- Based on the provisions of section 43B(a) of the Act, it is abundantly clear that employer`s contribution to provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, is allowable on actual payment basis. We note that the Assessing Officer had made the addition on account of employee’s contribution, which is factually incorrect. However, the m .....

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had retired during the year is allowable u/s 40A(7)(b), even if no provision for the same had been made in the accounts. Respectfully, following the judgment of Jurisdictional ITAT, Kolkata in assessee own case, we are of the view that the order passed by the ld. CIT(A) does not contain any infirmity. Therefore, we confirm the order passed by the ld. CIT(A). - Addition u/s 14A r.w.r. 8D - Held that:- We are of the view that considering the judgment of jurisdictional ITAT ‘A’ Bench, Kolkata .....

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(A) has already directed the Assessing Officer to compute the disallowance under rule 8D (2)(iii), by considering only those investments that have yielded tax free dividend income during the year, therefore, we are of the view that order of CIT(A) does not contain any infirmity and hence we confirm the order passed by CIT(A). - ITA No. 667/Kol/2014 - Dated:- 4-12-2017 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM Assessee by : Shri S. Jhajharia, CA Revenue/Department by : Shri Kalyan Nath, ACI .....

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cts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of ₹ 2,30,00,000/- made by the Assessing Officer u/s 2(22)(e). 2. That, on the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition made by the Assessing Officer u/s 36(i)(va) read with section 2(24)(x) in respect of employee s contribution to PF/ESI for an amount of ₹ 1,32,86,580/-. 3. That, on the facts and in the circumstances of the case, the CIT(A) has err .....

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377; 2,30,00,000/-made by the Assessing Officer u/s 2(22)(e) of the Act. 3.1. The brief facts qua the issue are that assessee company filed his return of income, on 30.09.2008 showing total loss of (-)Rs.6,83,32,840/-. The assessee company carried on a business of manufacturing of jute goods in different varieties. The company owns five jute mills namely Hoohgly Unit, Gondalpara Unit, Waverley Unit, Bowreah Unit & India Unit. The assessee company also runs, a small plastic unit namely Menaks .....

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2(22)(e) of the Income Tax Act and therefore he added ₹ 2,30,00,000/- to the income of the assessee. 3.2 Aggrieved by the addition made by the Assessing Officer u/s 2(22)(e), at ₹ 2,30,00,000/-, the assessee filed an appeal before the CIT(A), who has allowed the assessee s appeal. The ld. CIT(A) observed that the assessee company held 2,21,500 equity shares of the lending company M/s Mega Resources Ltd having total paid-up equity shares of 1,20,00,000. The share-holding of the asses .....

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of the subsidiary company for computing the voting power of the assessee company. The ld CIT(A) observed that the AO had not even discussed the issue in his assessment order. The AO has simply stated that assessee's subsidiary company held more than 10% of the voting power; and then, invoked section 2(22)(e) of the Act, to assess the loan of ₹ 2.30 crores as dividend income in the hands of the assessee. The assessee submitted before the CIT(A) that section 2(22)(e) was not applicable .....

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4. On the other hand, the ld. Counsel for the assessee has submitted before us that the assessee has share holding merely 1.7%, therefore, it does not come in the purview of section 2(22)(e) of the Act. The counsel pointed out that the Assessing Officer simply stated that assessee s subsidiary company held more than 10% of the voting power and then, invoked section 2(22)(e) to assess the loan of ₹ 2.30 crores as dividend income in the hands of the assessee, which is not as per the scheme o .....

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sions of section 2(22) (e) of the Act. The shareholding of assessee's subsidiary company to invoke the provisions of section 2 (22) (e) of the Act. We are of the view that section 2(22)(e) was not applicable in the case of the assessee company, as it was holding only 1.7% of the voting power in the lending company M/s Mega Resources Ltd. We note that the AO has erred in law as well as on facts in considering the share holding of the subsidiary company for computing the voting power of the as .....

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t and consequently, the provisions of section 2(22)(e) are not applicable. Respectfully following the judgment of coordinate Bench, Mumbai, in the case of BhaumikColour (P) Ltd 313 ITR (ITAT) 146, wherein it was held that section 2(22)(e) has created a fiction whereby the definition of "dividend" has been enlarged to include even loans and advances; and so, the legal provision has to be given a strict interpretation. Secondly, the definition of "dividend" as given in section .....

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r in the lending company, the provisions of section 2(22)(e) is not attracted in its case. Therefore, considering the factual position, we are of the view that the order passed by the ld. CIT(A) does not contain any infirmity. Therefore, we confirm the order passed by the ld. CIT(A). 3.6 In the result, the appeal filed by the Revenue (in Ground No.1), is dismissed. 4. Ground No.2 raised by the Revenue relates to addition made by the Assessing Officer u/s 36(i)(va) read with section 2(24)(x) in r .....

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respectively have been paid during the year (up to 31.03.2007). The assessing officer noted that under section 36(1)(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (24) of section 2 apply, if such is credited by the assessee to the employee s account in the relevant fund or funds on or before the due date, shall be allowed in computing the income referred to in section 28.These amounts were paid out of the accumulated liability. As the amoun .....

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asis was disallowed by AO, since section 43B is not applicable for payment of employee s contribution. 4.2 Dissatisfied with the order of the Assessing Officer, the assessee carried the matter to the ld. CIT(A) who allowed the claim of the assessee. The ld. CIT(A) observed that the Assessing Officer has made the addition on the ground that the sum of ₹ 1,32,86,580/- was related to the employee s contribution. The CIT(A) noted the computation of income that sum of ₹ 1,32,86,560/- whic .....

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and is not being repeated for the sake of brevity. 4.4. On the other hand, the ld. Counsel for the assessee has submitted that the Assessing Officer had made the disallowance out of miss-conception and without properly appreciating the Tax Audit Report. In the Tax Audit Report it has been very clearly and distinctly mentioned that out of the total outstanding of Employers Contribution towards Family Pension Fund and Provident Fund as on 01.04.2006 ₹ 3,74,26,843/- and Employees contributio .....

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,90,273/- was included in payment of ₹ 1,32,86,580/- and hence the entire disallowance made by the Assessing Officer is bad, illegal, unjustified and uncalled for and hence the entire amount of ₹ 1,32,86,580/- paid during the year being in connection with employers contribution only was fully allowable u/s.43B and hence the question of any disallowance did not arise. The ld counsel also pointed out that similar disallowance had been made by the Assessing Officer in his earlier assess .....

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isions of section 43B (a) of the Income Tax Act, which reads as follows: 43B.Certain deduction to be only on actual payment: (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees. Therefore, based on the provisions of section 43B(a) of the Act, it is abundantly clear that employer s contribution to provident fund or superannuation fund or gratuity fund or any other fun .....

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, the appeal filed by the Revenue (in Ground No.2) is dismissed. 5. Ground No.3 raised by the Revenue relates to addition of ₹ 1,30,70,800/- made on account of gratuity liability. 5.1 The brief facts qua the issue are that during the assessment proceedings,it was noted by the AO, from Para 19B(5)(b) of Notes on Accounts that the assessee had not provided for gratuity liability in respect of employees retired/terminated during the year amounting to ₹ 1,30,70,800/- in the Books of acco .....

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s to the tune of ₹ 1,30,70,800/-, therefore assessing officer disallowed the same. 5.2 Not being satisfied with the addition made by the assessing officer, the assessee filed an appeal before the CIT(A), who has deleted the addition made by the assessing officer. Aggrieved by the addition made by the CIT(A), the Revenue is in appeal before us. 5.3. The ld Counsel for the assessee has submitted before us that gratuity is a statutory liability payable under the Gratuity Act 1971 and the same .....

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ich we have already noted in our earlier para and is not being repeated for the sake of brevity. 5.5 Having heard the rival submissions perused the material available on record, we note that, assessee s issue under consideration is fully covered in favour of the assessee, by the judgment of the jurisdictional ITAT in earlier years. The coordinate Bench Kolkata in assessee s own case in the ITA No.1285/Kol/2007 Assessment Year 2001-02 and ITA No.1286/Kol/2007, Assessment Year 2002-03 allowed the .....

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Revenue (in Ground No.3) is dismissed. 6. Ground No.4 raised by the Revenue relates to addition of ₹ 12,23,842/- made by the Assessing Officer u/s 14A of the Income Tax Act r.w.r 8D of the Income Tax Rules, 1962. 6.1 The brief facts qua the issueare that during the assessment proceedings, the assessing officer found that the assessee have received exempted dividend income of ₹ 14,35,675/-. The AO asked the assessee to explain why provisions of section 14A would not be applicable. Th .....

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the assessee and deleted the addition made by AO. Aggrieved by the order of CIT(A), the Revenue is in appeal before us. 6.3 We have heard both the parties and perused the materials available on record, we are of the view that disallowance under rule 8D (2) (iii) should be restricted to 0.5% of only those investments which yielded tax free income during the relevant previous year. We note that in the assessee s case under consideration, the Assessing Officer found that the assessee had received d .....

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