TMI Blog2018 (6) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... rest from the said company. In the aforesaid circumstances, the charge of concealment of income as made by the Assessing Officer is not established. That being the case, learned Commissioner (Appeals) was justified in deleting the penalty imposed under section 271(1)(c) of the Act in respect of the addition of deemed dividend under section 2(22)(e) of the Act. Addition of interest - assessee has availed loan from different persons at a higher rate of interest ranging between 12% and 18% it has charged interest on loan advanced @ 12% and 9% - Held that:- Assessing Officer has restricted the interest paid on loan availed at 12% resulting in the addition. Thus, from the facts on record it is very much clear that Assessing Officer has made the addition only on the basis of reasonableness. Thus, in effect, it is a notional addition and the assessee has not concealed any part of its income. That being the case, the provisions of section 271(1)(c) of the Act cannot get attracted to such addition even though the assessee might have accepted such addition. - Decided in favour of assessee - ITA No. 1336/Mum/2016, Cross Objection No. 7/Mum./2018 - - - Dated:- 31-5-2018 - Shri Saktijit D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e companies, he found that assessee holds 50% share in M/s. Inez Infortech Pvt. Ltd. and 49.99% share in M/s. Green Bird Developer Pvt. Ltd. Since, the assessee was substantially interested in both the companies and the other conditions of section 2(22)(e) are satisfied, he called upon the assessee to explain why the loan advanced to M/s. Inez Infotech Pvt. Ltd. should not be treated as deemed dividend at the hands of the assessee. Though, the assessee objected to the proposed addition by making elaborate submissions, however, the Assessing Officer rejecting the claim of the assessee added back an amount of ₹ 1,17,50,000 as deemed dividend under section 2(22)(e) of the Act. Though, the assessee preferred appeal against the additions made by the Assessing Officer before the learned Commissioner (Appeals) and thereafter before the Tribunal, however, he withdrew his appeal before the Tribunal, as, in compliance to the notice issued under section 153A of the Act he had filed a return of income accepting the additions made by the Assessing Officer in the original assessment. Be that as it may, on the basis of additions made by the Assessing Officer, penalty proceedings were initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture which has not been accepted by the Assessing Officer on the ground that the assessee failed to establish the nexus between the interest expenditure and interest income, however, that by itself would not lead to the conclusion that the assessee concealed particulars of income. Further, he submitted that the assessee is in the business of money lending, therefore, it cannot be said that the expenditure incurred is not for earning interest income. Drawing our attention to a chart showing details of loan received and loan advanced, he submitted, assessing officer s allegation that assessee has failed to establish the linkage is incorrect. As regards the imposition of penalty on the addition made on account of deemed dividend, learned Authorised Representative submitted that the addition having been made on the basis of deeming provision and being in the nature of a notional income cannot lead to imposition of penalty under section 271(1)(c) of the Act. He submitted, when the assessee in reality has not received any amount towards dividend and such deemed dividend was on account of loan transaction between two companies, it cannot lead to imposition of penalty under section 271(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 57(iii) of the Act and addition of deemed dividend under section 2(22)(e) of the Act. Whereas, he has sustained penalty imposed in respect of disallowance of interest under section 36(1)(iii) of the Act amounting to ₹ 2,72,391. As regards the penalty imposed on the disallowance of interest made under section 57(iii) of the Act, it is evident from the facts on record that during the relevant previous year assessee has availed loan from different entities and advanced loan to some other companies. In the process, assessee has paid interest of ₹ 2,11,00,398 on the loan availed, whereas, it has earned interest of ₹ 1,11,23,383 on the loan advanced. The reason for disallowance of part of the interest expenditure under section 57(iii) of the Act is, the assessee failed to fully establish the nexus between the loan availed and loan advanced. Undisputedly, the Assessing Officer has imposed penalty under section 271(1)(c) of the Act on the aforesaid addition alleging concealment of income. However, as could be seen from the facts on record, the assessee has disclosed all information in relation to the loan advanced and interest earned thereon as well as the loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein, the assessee held substantial shares. However, it is a fact on record, in the real sense of the term the assessee has not received any income from either of the companies towards dividend. It is also relevant to observe that all relevant information relating to loan transaction between the two companies which resulted in the impugned addition were disclosed to the Department by the assessee himself. That being the case, it cannot be said that the assessee was guilty of concealing income. In any case of the matter, it is a fact on record that M/s Green Bird Developers Ltd., which has advanced the loan to M/s. Inez Infotech Pvt. Ltd. was also in the business of lending. This fact is clearly demonstrated from the Balance Sheet of M/s. Green Bird Developers Ltd., as at 31th March 2009, which shows loans and advances to the tune of ₹ 48,93,04,623, which works out to almost 43% of the total fund outlay. Thus, it has to be accepted that lending is a substantial part of the company s business activity. Therefore, in such circumstances the lending of money by the said company to another company cannot be regarded as deemed dividend as held by the Hon'ble Jurisdictional Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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