TMI Blog2019 (8) TMI 1835X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, we are of the opinion, the ground no.2 raised by the assessee should be allowed. Deemed dividend addition u/s 2(22)(e) - Correctness of invoking the provisions of section 2(22)(e) - HELD THAT:- As the entire accumulated reserves of (i) M/s Riverview Properties Pvt. Ltd. and (ii) M/s Khiranagar Development Pvt. Ltd. are nothing but the share premium. The same is outside the scope of the accumulated reserves within the meaning of section 2(22)(e) of the Act. Thus, in the absence of eligible reserves and surplus with the payer companies, the provisions of section 2(22)(e) of the Act are not correctly invoked by the Assessing Officer in this case. From this point of law, Assessing Officer/CIT(A) are not correct in making the addition u/s 2(22)(e) of the Act. Accordingly, the relevant ground no.3 and additional ground no.1 1.1 are allowed in favour of the assessee. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- Disallowance made by the assessee in connection with the clause (ii) of Rule 8D(2) of the Rules. Regarding the Rule 8D(2)(iii), we find same again stands in favour of the assessee by virtue of the order of the Tribunal in assessee s own case for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income Tax (Appeals) erred in sustaining the addition of Rs.14,33,719/- made by the Assessing Officer on account of bank interest on deposits belonging to the Society. 2. The ld. Commissioner of Income Tax (Appeals) erred in sustaining the disallowance of business expenditure of Rs.3,66,34,133/- reflected separately as Exceptional Items . 3. The ld. Commissioner of Income Tax (Appeals) erred in upholding the disallowance by treating the amount Rs.2,38,60,653/- of advance of as deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961. 4. The ld. Commissioner of Income Tax (Appeals) erred in sustaining the figure of average of total assets at Rs.406,56,33,364/- instead of at Rs. 614,75,23,172/- while working out the disallowance u/s 14A r.w.r. 8D. 5. The ld. Commissioner of Income Tax (Appeals) erred in sustaining the disallowance of interest at Rs.10,52,27,421/- u/s 36(1)(iii). 6. For these and such other grounds as may be urged at the time of hearing, the order of the CIT (Appeals) and the assessing officer may be vacated and the appellant s claim may be allowed or any suitable directions issued. 7. The appellant craves leave to add, alter, delete or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Income/(Loss) as per the Return of Income (16,22,73,675) Add: as per Para 3. Disallowance on account of ITS Mismatch 14,33,719 4. Disallowance on account of Exceptional Items 3,66,34,133 5. Disallowance u/s 2(22)(e) 2,38,60,653 6. Disallowance u/s 14A r.w. rule 8D 6,66,81,493 7. Disallowance of interest on account of diversion of borrowed fund for non- business consideration 12,47,34,986 8. Disallowance u/s 37 of the Act [26,54,82,375] 25,33,44,984 Assessed Total Income 9,10,71,309 Rounded off to 9,10,71,310 4. The matter travelled to the First Appellate Authority against the disallowances/additions made by the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2009-10. We observe that in assessment year 2009-10 the Co-ordinate Bench of the Tribunal dismissed this ground of appeal raised by the assessee by observing as under : 40. The Ld. Counsel for the assessee could not bring any material before us to show that assessee has infact handed over the money to the society. Since there is no evidence on record that any society has been formed and the assessee has transferred the money to the society or has shown any liability in its books and considering the fact that the assessee has claimed tax credit on such interest income, therefore, we find no infirmity in the order of the CIT(A) on this issue. Accordingly, the grounds raised by the assessee on this issue are dismissed. Thus, in view of statement made by ld. AR and the decision of Coordinate Bench, ground No. 3 raised in the appeal by assessee is dismissed. 10. Thus, the contention of the assessee that the interest income accrued on the deposits of the society is not taxable in the hands of the assessee, stands rejected by the Tribunal over the years. Considering the above written submission on this issue on hand and the order of the Tribunal in assessee s own cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SOT 907 (Mum)] d. Tamilnadu Magnesite Ltd. [95 Taxmann.com 239 (Mad)] 13. Thus, it is the case of the assessee that the claim of expenditure relating to the aborted project of going for Initial Public Offer (IPO) constitutes an allowable revenue expenditure. The said judgemental laws settle this issue in favour of the assessee. In these case, various projects, otherwise capital in nature were allowed as business expenditure of respective assessees. 14. In the light of the written submission discussed above, ld. Counsel for the assessee brought our attention to the various details and submitted that there is no dispute about the fact relating to the genuineness of the expenditure as the details were already furnished and accepted by the Assessing Officer on its merits. He further submitted that most of the payments were incurred towards the deposits and processing fee paid to the agencies and government bodies. According to ld. AR, no fixed assets like land or building etc were purchased. In the light of the undisputed fact of genuineness of expenditure, the only issue of adjudication by the Tribunal relates to the applicability of the said Hon ble Supreme Court judgement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition cited by both the parties. 18. It is an undisputed fact that the assessee decided to go for Initial Public Offering (IPO) right from the year 2009. The company filed the Draft Red Herring Prospectus and Red Herring Prospectus before SEBI and BSE in September, 2009 and May, 2010. In this regard, the board resolution was passed in 2011 to not pursue with the said public issue. Accordingly, by this time, the assessee incurred gross expenditure of Rs.3,66,34,133/-. The board resolution also speaks about the decision of written off of the said expenditure for the year ending on 31st March, 2011. We find relevant to extract relevant parts of the resolution as under :- CERTIFIED TRUE EXTRACT OF THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF KUMAR URBAN DEVELOPMENT LIMITED HELD ON TUESDAY, 29TH MARCH, 2011 AT 12.00 NOON AT THE OFFICE OF THE COMPANY AT TARDEO NO.7, GROUND FLOOR, SURYODAYA ESTATES, TARDEO ROAD, MUMBAI. The Chairman informed the Board that the company had filed Draft Red Herring Prospectus and Red Herring Prospectus before SEBI and Bombay Stock Exchange during the period September, 2009 and May 2010. In view of the negative and volatile market cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit Loss Account under the head exception items. Further, in the notes to accounts, under Schedule 20-Note 3(o) it is stated as under: Exceptional items in the Profit Loss Account represents Rs.3,66,34,133/- incurred towards proposed Initial Public Offering 4.1 Accordingly, vide order sheet note dated 10.03.2014, the assessee was requested to justify the said expenses and also contended as to why same shall not be disallowed. 4.2 In response, the assessee filed a write-up on 18.03.2014. no other documents justifying the expenses However, have been provided by the assessee. In absence of the relevant supporting documents, assessee s claim cannot be established without reasonable doubt. Accordingly, an amount of Rs.3,66,34,133/- is disallowed and added back to the Total Income of the assessee. Thus, Assessing Officer disallowed the claim for want of the evidences. 21. The CIT(A) confirmed the above finding of the Assessing Officer by holding that the said expenditure was incurred for expansion of capital base to meet the requirement of long term funds for its working capital. The CIT(A) relied on heavily on the Hon ble Supreme Court judgement in the cases of (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant facts include that during the year under consideration the assessee company received certain advances from its subsidiary companies viz. Riverview Properties Pvt. Ltd. and Khiranagar Development Pvt. Ltd. The assessee submitted the explanation for these advances. However, the Assessing Officer held that these advances squarely fall within the mischief of deemed dividend as per the provisions of section 2(22)(e) of the Act. Therefore, Assessing Officer disallowed the amount of Rs.2,38,60,653/- and added back to the total income of the assessee. 26. Before us, in this regard, ld. Counsel filed the following written submission :- 3] Ground No. 3 and Addl Ground No. 1 and 1.1 - Addition on account of deemed dividend of Rs.2,38,60,653/- : 3.1] This issue has been discussed by the learned A.O. in paras 5-5.3 of his order. According to him, the assessee company had taken loan from Riverview Properties Pvt. Ltd. He has stated that the assessee is a substantial shareholder of Riverview Properties Pvt. Ltd. According to him, Riverview Properties Pvt. Ltd. had accumulated reserves to the tune of Rs.35,07,69,275/-. Accordingly, the loan taken by the assessee is being taxed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been made by Pushpak Commercial Financed Pvt Ltd in the ordinary course of its business of money lending which is substantial part of the business of the company. (ii) CIT vs. Mahesh Chandra Manti [61 taxmann.com 101 (Cal)] : Before any payment can take character of dividend within meaning of provision, it had to be shown that there were accumulated profits lying with company which made payment (iii) DCIT vs. MAIPO India Ltd. [24 SOT 42 (Delhi)] : Amount representing share premium cannot from part of accumulated profits and therefore loans and advances received by assessee company out of that could not be treated as deemed dividend under s. 2(22)(e). (iv) DCIT vs. Radhe Sham Jain [28 taxmann.com 255 (Chd.)] : Payment by company wherein public is not substantially interested by way of advance or loan to a shareholder who is holding shares not less than 10 percent, is to be treated as deemed dividend and such deemed dividend can be there only to the extent of accumulated profits 28. Thus, the entire accumulated reserves of (i) M/s Riverview Properties Pvt. Ltd. and (ii) M/s Khiranagar Development Pvt. Ltd. are nothing but the share premium. The same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of interest is warranted. Accordingly, it is submitted that the disallowance of interest made by the A.O. is not justified at all. Secondly, the interest disallowance offered by the assessee on its own in the return of income is also not warranted. The assessee submits that similar disallowance of interest u/s 14A r.w.r. 8D was offered by it in the return. The learned A.O. had enhanced the disallowance. The entire interest disallowance including the disallowance offered by the assessee on suomoto basis was deleted by Hon'ble ITAT on the ground that the assessee had interest free funds much higher than the tax free investments. 4.5] The assessee further submits that in view of the above decision in its own case for the earlier years, no disallowance of interest is warranted u/s. 14 A. 4.6] As regards the disallowance of indirect expenditure under rule 8D(iii), it is submitted that the said disallowance should not be made in respect of the investments which did not yield any exempt income during the year under consideration. The relevant details of the exempt income are given on pages 95 - 96 of the paper book. The assessee submits that the investments which did not yie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years. While deciding ground No. 2 we have upheld disallowance u/s. 14A in respect of investments made in partnership firms on which tax free income has been earned. The Assessing Officer is directed that after giving effect to ground No. 2, the balance disallowance, if any from suo-moto disallowance made by the assessee u/s. 14A be deleted. Accordingly, additional ground No. 1 raised in the appeal is partly allowed for statistical purpose. 32. The above extracts/discussion deals with the disallowance made by the assessee in connection with the clause (ii) of Rule 8D(2) of the Rules. Regarding the Rule 8D(2)(iii), we find same again stands in favour of the assessee by virtue of the order of the Tribunal in assessee s own case for the assessment years 2009-10 to 2010-11 (supra). Accordingly, the relevant ground no.4 and additional ground no.2 2.3 are raised by the assessee are allowed. 33. Ground no.5 relates to the disallowance of Rs.12,47,34,896/- u/s 36(1)(iii) of the Act. The CIT(A) restricted the disallowance to Rs.10,52,27,421/- and granted relief of Rs.1,95,07,565/-. Considering the part relief, both Revenue and assessee are in appeal before us. 34. On thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of interest was made for A.Ys. 2009 - 10 to 2010 - 11 and the same has been deleted by Hon'ble ITAT. 35. From the above, it is evident that the assessee has interest free funds amounting to Rs.417.43 crores against granting of interest free funds to the assessee s relatives relating to the source which is much less than the said interest free funds. Considering the same, the assessee is entitled to relief on this issue. The similar issue was adjudicated by the Tribunal in assessee s own case for the assessment years 2009-10 and 2010-11 (supra). For the sake of completeness, the contents of para 14 from the order of the Tribunal for the assessment year 2010-11 (supra) are extracted as under :- 14. In ground No. 4 the assessee has assailed confirming of disallowance of interest expenditure u/s. 36(1)(iii). The stand of the assessee is that own funds of the assessee are much more than the funds advanced to the sister concerns. The ld. AR referred to the Balance sheet at page 13 of the paper book. The ld. AR pointed that peak amount advanced by the assessee to two group concerns Kumar Housing Corporation Ltd. and Kumar Sinew Developers Pvt. Ltd. is Rs.108.82 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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