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2017 (12) TMI 527

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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aterial on record suggests that the same is related to the employer’s contribution which was allowable u/s 43B. Therefore, considering the factual position, as explained above, we do not find any infirmity in the order of CIT(A), therefore, we confirm the order of CIT(A). - Addition made on account of gratuity liability - Held that:- The coordinate Bench Kolkata in assessee’s own case allowed the claim of the assessee, holding that the liability for gratuity in respect of those employees who .....

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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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ed in deleting the addition of ₹ 1,30,70,800/- made on account of gratuity liability. 4. That, on the facts and in the circumstances of the case, the CIT(A) is not justified in deleting the addition of ₹ 12,23,842/- made by the Assessing Officer u/s 14A of the Income Tax Act read with rule 8D of the Income Tax Rules, 1962. 5. The appellant craves leave to amend, modify and later any grounds of appeal during the course of hearing of this case. 3. Ground No.1 relates to addition of  .....

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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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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. Therefore, based on these facts, the CIT(A) deleted the addition of ₹ 2.30 crores. 3.3 Not being satisfied with the order of CIT(A), the Revenue is in appeal before us. The ld DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 3. .....

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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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2(22)(e) is an inclusive definition and the AO was not competent to enlarge the same by importing things which do not form part of such legal fiction. In view of the above, the AO was not justified in considering the share-holding of the subsidiary company for the purposes of invoking section 2(22)(e). The Assessing Officer has not disputed the fact that the assessee company was having 1.7% share-holding in the lending company. As the assessee company was holding less than 10% of the voting powe .....

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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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h was disallowed in earlier year was claimed u/s 43B on payment basis. The ld CIT(A) held that even employee s contribution is allowable u/s 43B on payment basis. In view of the above, the disallowance of ₹ 1,32,86,580/- was deleted by CIT(A). 4.3. Not being satisfied with the order of the ld. CIT(A), the Revenue is in appeal before us, on this issue. The ld DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para .....

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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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d 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 material on record suggests that the same is related to the employer s contribution which was allowable u/s 43B. Therefore, considering the factual position, as explained above, we do not find any infirmity in the order of CIT(A), therefore, we confirm the order of CIT(A). 4.6 In the result .....

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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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claim of the assessee, holding that the liability for gratuity in respect of those employees who 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). 5.6 In the result, the appeal filed by the .....

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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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we direct the Assessing Officer to compute disallowance under Rule 8D(2)(iii) by restricting to those investments that have yielded tax free dividend income during the year.The CIT(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 .....

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