Dr. Vijay Viswanathan, CHENNAI V. ACIT, CHENNAI

ITA 1877/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2455 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-06-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 22-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: G BASKAR
• Keywords: Earning of tax free income; Deemed dividend
• Section: 234B; 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO. 18 77 /MDS/201 2 ASSESSMENT YEAR : 2008 - 09 DR. VIJAY VISWANATHAN, NO.4, MAIN ROAD, ROYAPURAM, CHENNAI 600 013. PAN : AABPV0235H. V. THE ASST. COMMISSIONER OF INCOME TAX COMPANY CIRCLE-IV(3), CHENNAI 600 034. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G. BASKAR, ADVOCATE RESPONDENT BY : SHRI N. MADHAVAN, JCI T DATE OF HEARING : 05 .06.2013 DATE OF PRONOUNCEMENT : 17 . 06 . 2013 O R D E R PER S.S. GODARA, J.M : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V , CHENNAI, IN CASE NO.88/09-10 DATED 31.07.2012, FO R ASSESSMENT 1877/MDS/2012 :- 2 -: YEAR 2008-09, IN PROCEEDINGS UNDER SEC.143(3) OF TH E INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN INDIVIDUAL. HE IS THE MANAGING DIRECTOR OF M/S. M.V. HOSPITALS PVT. LTD. ON 30.9.2008, THE ASSESSEE HAD FILED HIS RETURN DISCLOSING INCOME OF ` .77,07,864/- WHICH WAS SUMMARILY PROCESSED. THEREAFTER, THE ASSESSING OFFICER FINAL IZED REGULAR ASSESSMENT IN ASSESSEES CASE VIDE ASSESSMENT ORDER DATED 28.12.2010, ADDING AMOUNTS OF ` .1,26,000/- AS INCOME FROM HOUSE PROPERTY, ` .6,36,700/- WHICH WAS DISALLOWED/ADDED AS EXPENDITURE FOR EARNING EXEMPT INCOME BY INVOKING S EC.14A READ WITH RULE 8D (2)(III) OF INCOME TAX RULES AND THAT OF ` .53,61,459/- AS DEEMED DIVIDEND AFTER INVOKING SEC. 2(22)(E) OF THE ACT. HE ALSO APPLIED INTEREST PROVISIONS UNDER SEC.234B AND C OF THE ACT. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN A PPEAL. IT IS TO BE SEEN THAT THE CIT(APPEALS) HAS PARTLY A CCEPTED 1877/MDS/2012 :- 3 -: ASSESSEES CONTENTIONS QUA INCOME FROM HOUSE PROPER TY AND THAT OF DISALLOWANCE UNDER SEC.14A OF THE ACT. THE ADDI TION REGARDING DEEMED DIVIDEND (SUPRA) STANDS CONFIRMED. THIS LEAVES THE ASSESSEE AGGRIEVED WHO IS IN APPE AL AND RAISES THE FOLLOWING GROUNDS :- 1.1 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN FIXING THE ANNUAL RENTAL VALUE OF THE FLAT AT KODAIKANAL AT `. 1,41,000. 1.2 THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE SEEN THAT THE RENTAL VALUE OF THE PROPERTY IN A HILL STATION WOULD BE SUBSTANTIALLY LESS. 2.1 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER THAT THE APPELLANT HAD RECEIVED DEEMED DIVIDENDS FROM M.V DIABETIC CARE PVT. LTD. AND M.V HOSPITALS PVT. LTD. 2.2 THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE SEEN THAT THE APPELLANT HAD NEITHER RECEIVED ANY LOAN NOR AN ADVANCE WHICH COULD BE TREATED AS DEEMED DIVIDENDS. 2.3 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN OBSERVING THAT THE PARTIES HAVE ARRANGED THEIR AFFAIRS TO APPEAR AS IF EACH OF THE TRANSACTIONS IS INDEPENDENT OF THE OTHER, BUT IN REALITY, IT IS THE TWO SIDES OF THE SAME COIN. 2.4 THE OBSERVATIONS OF THE COMMISSIONER OF INCOME- TAX (APPEALS) IN PARAGRAPH 7.2 OF HIS ORDER ARE UNNECESSARY AND NOT RELEVANT TO DECIDE THE ISSUE IN THE APPEAL. 1877/MDS/2012 :- 4 -: 2.5 THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE FURTHER SEEN THAT THE APPELLANT NEVER DERIVED ANY BENEFIT OUT OF THE TRANSACTION OF SALE OF CERTAIN ASSETS BY THE AFORESAID TWO COMPANIES TO DR. R. RAMACHANDRAN. 2.6 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN RELYING ON CERTAIN DECISIONS WHICH ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 3.1 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN SETTING ASIDE THE ISSUE RELATING TO INVOCATION O F SECTION 14A TO THE FILE OF THE ASSESSING OFFICER. 3.2 THE COMMISSIONER OF INCOME- TAX (APPEALS) HAVING FOUND THAT THE APPELLANT HAD NOT CLAIMED THE SUM OF ` .5,78,203 AS AN EXPENDITURE, THE QUESTION OF DISALLOWING SUCH AN EXPENDITURE WHICH IS NOT AT ALL CLAIMED DOES NOT ARISE. 3.3 THE COMMISSIONER OF, INCOME- TAX (APPEALS) ERRE D IN CONFIRMING THE DISALLOWANCE OF `. 58,497. THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE SEEN THAT NOWHERE THE AO HAS FOUND THAT THE APPELLANT HAD ACTUALLY INCURRED ANY EXPENDITURE FOR EARNING THE DIVIDENDS AND HENCE THE ACTION OF THE AO IN APPLYING THE PROVISIONS OF SECTION 14A WOULD NOT ARISE. 4.1 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE LEVY OF INTEREST UNDER SECTIONS 234A, 234B AND 234C OF THE IT ACT. 4.2 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN MERELY OBSERVING THAT THE LEVY OF INTEREST UNDER THESE SECTIONS IS MANDATORY AND CONSEQUENTIAL IN NATURE. THIS VIEW OF THE COMMISSIONER OF INCOME- TAX (APPEALS) IS UNTENABLE IN LAW. 1877/MDS/2012 :- 5 -: 5. IN THE COURSE OF HEARING, THE ASSESSEE VEHEMENT LY REITERATES THE PLEADINGS IN THE GROUNDS AND PRESSES FOR ACCEPTANCE OF THE APPEAL. 6. THE REVENUE CHOSE TO DRAW SUPPORT FROM CIT(APPEAL)S FINDINGS UNDER CHALLENGE AND PRAYS FO R CONFIRMATION THEREOF. 7. FACTS APROPOS GROUNDS 1.1 AND 1.2 ARE THAT IN PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT Y EAR, THE ASSESSEE IS STATED TO HAVE OWNED TWO RESIDENTIAL PR OPERTIES IE. ONE AS 5/2, WEST MADA STREET IN CHENNAI (DECLARED A S SELF- OCCUPIED). THE OTHER IS STATED TO BE A DELUXE COTT AGE IN KODAIKANAL, DIST. DINDUGUL. IN THE COURSE OF SCRU TINY THE ASSESSEE HAD RETURNED LOSS FROM VACANT HILL STATION HOUSE PROPERTY AS ` .2,91,702/-. HE ALSO PLEADED BEFORE THE ASSESSING OFFICER TO COMPUTE ITS REASONABLE ANNUAL LETTING VA LUE (ALV). IN PURSUANCE THEREOF. THE SAME WAS COMPUTED AS ` .1.80 LAKHS. THEREAFTER, THE A.O. PROCEEDED TO ALLOW DEDUCTION UNDER 1877/MDS/2012 :- 6 -: SEC.24(A) OF THE ACT AT THE RATE OF 30% AND ADDED A N AMOUNT OF ` .1.26 LAKHS. 8. IN ASSESSEES APPEAL, THE ONLY ARGUMENT RAISED WAS THAT THE ALV DETERMINED BY THE ASSESSING OFFICER WA S ON THE HIGHER SIDE. ACCEPTING THE SAME IN PART, THE CIT(A PPEALS) HAS REDUCED THE ALV TAKEN BY THE ASSESSING OFFICER @ ` .32 PER SQ.FT. FOR A TOTAL AREA OF 470 SQ.FT. TO THAT @ ` .25/- PER SQ. FT. IE. ` .1.41 LAKHS AND ISSUED NECESSARY DIRECTIONS TO THE ASSESS ING OFFICER TO RE-CALCULATE THE SAME. IN THIS BACKGROUND THE ASSE SSEE HAS RAISED THE INSTANT GROUNDS. 9. WE HAVE HEARD BOTH SIDES IN DETAIL AND PERUSED THE CASE FILE. WE MAKE IT CLEAR THAT THE ASSESSEE HAS ALSO PLACED RELIANCE ON THE CASE LAW CIT V. J.K. CHARITABLE TRU ST (196 ITR 31)(ALL.). HAVING GIVEN OUR THOUGHTFUL CONSIDERATI ON TO THE PLEADINGS OF THE PARTIES, IT EMERGES THAT FROM THE VERY BEGINNING THE ASSESSEE DID NOT OBJECT TO THE COMPUTATION OF A LV PERTAINING TO THE HOUSE PROPERTY IN QUESTION WHICH WAS DECLARE D AS VACANT 1877/MDS/2012 :- 7 -: LEADING TO RE-CALCULATION OF THE LOSS IN QUESTION. THE TOTAL AREA OF THE HOUSE PROPERTY IS 470 SQ. FT. THE ASSESSING OF FICER HAD TAKEN THE VALUE AT THE RATE OF ` .32 PER SQ.FT. THE CIT(APPEALS) HAS MODIFIED THE SAME TO THAT @ ` .25 PER SQ. FT. IN OTHER WORDS, THE ALV OF ` .1.80 LAKHS HAS BEEN REDUCED TO ` .1.41 LAKHS. THE ASSESSEE IN HIS ARGUMENTS HAS NO WHERE BEEN ABLE TO PROVE AS TO HOW THE SAME IS UNREASONABLE. EVEN FROM THE CASE LAW CITED (SUP RA), IT IS NOTICED AT PAGE 39 THAT THEIR LORDSHIPS HAVE OBSERV ED THAT PROPERTIES IN HILL STATIONS DONT FETCH INCOME THRO UGH OUT THE YEAR, BUT ONLY DURING THE TOURIST SEASON. IN LIGHT THERE OF, WE FIND THAT THE CIT(APPEALS) HAS ALREADY GRANTED SUFFICIENT REL IEF TO THE ASSESSEE IN REDUCING THE ALV BY ABOUT 25%. THEREFO RE, WE AFFIRM THE VALUE ADOPTED BY THE THE CIT(APPEALS) OF THE ASSESSEES COTTAGE IN QUESTION AS ` .1.41 LAKHS. ACCORDINGLY, THE RELEVANT GROUNDS ARE DECIDED IN FAVOUR OF THE REVEN UE. 1877/MDS/2012 :- 8 -: 10. NOW, WE COME TO THE GROUNDS RAISED BY THE ASSE SSEE PERTAINING TO THE ISSUE OF DEEMED DIVIDEND WHICH WA S ADDED BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(APPE ALS). RELEVANT FACTS AS NOTICED FROM THE ASSESSMENT ORDER ARE THAT DURING SCRUTINY, THE ASSESSING OFFICER HAD COME A CROSS AN AMOUNT OF ` .53,61,549/- IN ASSESSEES BALANCE SHEET, PAYABL E TO ANOTHER ENTITY BY THE NAME OF M.V. DIABETES CARE PVT. LTD. IN THE NATURE OF SUNDRY CREDITORS. IN HIS LEDGER ACCOUNT, THE ASSESSEE HAD GIVEN THE FOLLOWING NOTE :- DATE PARTICULARS VCH TYPE VCH NO. DEBIT CREDIT 30-4-2007 DR DR.A.RAMACHANDRAN BEING THE VALUE OF FIXED ASSETS BELONGING TO M.V. DIABETES CARE P. LTD. TAKEN OVER BY DR. A. RAMACHANDRAN AS A PART OF FINANCIAL SETTLEMENT JOURNAL 5 53,61,495.08 53,61,495.08 CR CLOSING BALANCE 53,61,495.08 11. ON BEING PUT UP TO NOTICE, THE ASSESSEE WOULD CONTEND BEFORE ASSESSING OFFICER THAT A FINAL SETTL EMENT BETWEEN HIMSELF AND ONE DR. A. RAMACHANDRAN LED TO TAKING O VER OF THE 1877/MDS/2012 :- 9 -: ASSETS OF M/S. M.V. DIABETES CARE PVT. LTD. WHICH W AS PAYABLE TO THE AFORESAID ENTITY BY THE ASSESSEE. AS THE CASE FILE SUGGESTS, THE ASSESSEES FURTHER EXPLANATION WAS AS UNDER :- 3. AS PER MUTUAL SETTLEMENT BETWEEN DR. A RAMACHANDRAN AND DR. VIJAY VISWANATHAN THE FOLLOWIN G FIXED ASSETS WERE TAKEN OVER BY DR. A. RAMACHANDRAN. ASS ETS OF M.V. DIABETES CARE P. LTD AT BOK VALUE .43,38,060.20. 4. MOTOR CAR FROM M.V. HOSPITAL DIABETES P LTD TRA NSFERRED THROUGH M.V. DIABETES CARE P LTD AT ITS BOK VALUE .10,23,399.72. 5. THE LIABILITY FOR THE ABOVE ASSETS IS PAYABLE TO M.V. DIABETES CARE P LTD BY DR. VIJAY VISWANATHAN. THE ASSESSING OFFICER VERIFIED THE ASSESSEES CLAIM AND CAME TO THE CONCLUSION THAT HE HAD HELD SHARE HOLDINGS OF M /S. M.V. DIABETES CARE PVT. LTD. AND M/S. M.V. HOSPITALS (P) LTD TO THE EXTENT OF 30% AND 30.99% RESPECTIVELY. HE ALSO OB SERVED THAT THE SAID ENTITIES HAD ACCUMULATED PROFITS AND IN HI S OPINION, THE INSTANT CASE ATTRACTED APPLICABILITY OF DEEMED DI VIDEND UNDER SEC.2(22)(E) OF THE ACT. 1877/MDS/2012 :- 10 - : 12. ON THIS, THE ASESSEES SUBMISSION WAS THAT THE RE WAS NO ACTUAL CASH ADVANCE OR LOAN AVAILED FROM THE ENT ITIES. TO BUTTRESS THE SAME, HE PLACED RELIANCE IN CASE LAW O F CIT V. G. VENKATARAMAN (101 ITR 673) AND STATED THAT IT WAS O NLY A CASE OF LIABILITY CREDITED WITHOUT ANY PAYMENT SO AS TO INVITE EXIGIBILITY OF DEEMED DIVIDEND PROVISION. HOWEVER, IN THE AS SESSMENT ORDER, THE ASSESSING OFFICER DID NOT AGREE WITH THI S ASSESSEES CONTENTIONS AND HELD THAT THE AMOUNT IN QUESTION OF ` .53,61,549/- IS LIABLE TO BE ADDED AS DEEMED DIVIDEND IN HIS I NCOME. 13. THE CIT(APPEALS) HAS ALSO CONFIRMED THE ADDITI ON. 14. WE HAVE HEARD BOTH PARTIES AT LENGTH AND PERUS ED THE RELEVANT FINDINGS AVAILABLE IN THE CASE FILE. THE ASSESSEE ALSO PLACED RELIANCE ON THE CASE LAW IN ITAT, CHENNAI IN ITA NO.1300/MDS/2012 DECIDED ON 29.1.2013 TITLED AS SHR I C. KATHIRVEL V. ACIT. SIMILARLY, THE REVENUE DRAWS SU PPORT FROM THE CASE LAW (2005) 19 TAXMANN.COM 89 (CHENNAI) ACIT V. GURBINDER SINGH. AS FAR AS THE RELEVANT FACTS ARE CONCERNED, ADMITTEDLY NO PAYMENT HAS PASSED IN QUESTION TO THE ASSESSEE. 1877/MDS/2012 :- 11 - : THE ASSESSING OFFICER HAS ALSO NOT DISPUTED THE FAC TUM OF FINAL SETTLEMENT BETWEEN THE ASSESSEE AND THE OTHER PERSO N BY THE NAME DR. A. RAMACHANDRAN (SUPRA) LEADING TO TAKING OVER OF THE ASSETS STATED HEREIN ABOVE. IN THESE FACTS, WE FIN D FROM THE CASE LAW CITED BY THE ASSESSEE THAT THE ISSUE HAS BEEN D ECIDED AGAINST THE REVENUE AS UNDER:- 5. WE HAVE HEARD RIVAL CONTENTIONS AT LENGTH AND GONE THROUGH THE RELEVANT FINDINGS AS WELL AS CASE LAWS CITED. BOTH THE PARTIES BEFORE US ARE NOT RAISING ANY DISP UTE ON FACTS. ADMITTED FACTUAL POSITION, WHICH EMERGES IS THAT ON 25 TH MARCH 2006, THE ASSESSEE HAD GOT A FLAT BY TRANSFE R FROM THE COMPANY IN QUESTION IN WHICH HE HIMSELF IS A DIRECTOR. SIMILARLY, IT IS ALSO EVIDENT THAT AN AMO UNT OF 9,16,506/- HAD BEEN DEBITED IN THE ASSESSEES CURRE NT ACCOUNT ON 31 ST MARCH, 2006. THE ISSUE BETWEEN THE PARTIES IS ONLY QUA APPLICABILITY OF SEC.2(22)(E) I.E. DIVI DEND BY WAY OF DEEMING FICTION. THE ASSESSEES CLAIMS THAT BOT H TRANSACTIONS ARE NOT COVERED BY THE ABOVE SAID PROV ISION, WHICH IS DISPUTED BY THE REVENUE. AT THIS STAGE, TH EREFORE, WE FIND IT APPROPRIATE TO REPRODUCE THE RELEVANT ST ATUTORY PROVISION, WHICH READS AS FOLLOWS:- SEC.2(22)(E): ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A P ART OF THE ASSETS OF THE COMPANY OR OTHERWISE) [MADE AF TER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOA N TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFIC IAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIX ED 1877/MDS/2012 :- 12 - : RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN P ER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUC H SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH H E HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUS E REFERRED TO AS THE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS A PERUSAL OF THE ABOVE PROVISION MAKES IT CLEAR THA T THE INTENTION OF INSERTION OF THE ABOVE PROVISION IS TO TAX DIVIDEND SOUGHT TO BE PAID BY A PRIVATELY HELD COMPANY TO IT S DIRECTORS BY WAY OF LOAN OR ADVANCE. IN ORDER TO CHECK THE CIRCUMVENTION OF THE TAXING PROVISION IMPOSING TAX ON DIVIDEND, THE LEGISLATURE INCORPORATED THIS PROVIS ION OF TAXING NOT ONLY DIVIDEND BUT ALSO DEEMED DIVIDEND. IN OTH ER WORDS, THE LEGISLATURE THOUGHT IT PROPER TO TAX THE PROFIT S ACCUMULATED BY A COMPANY TO ITS SHAREHOLDER INCLUDI NG A BENEFICIAL OWNER ANY PAYMENT MADE BY WAY OF LOAN OR ADVANCE. IN OUR OPINION, SINCE IT IS TAXING STATUT E BY DEEMING FICTION, IT DESERVES TO BE CONSTRUED MOST S TRICTLY, WITHIN THE FOUR CORNERS OF THE LANGUAGE AND EXPRESS IONS USED. ON THIS ANALOGY, WE PROCEED FURTHER AND FIN D THAT THE SAID PROVISION CONTAINS SOME SPECIFIC WORDS LIKE A NY PAYMENT BY A COMPANY, OF ANY SUM, BY WAY OF ADV ANCE OR LOAN TO A SHAREHOLDER . . . . ETC. MEANING THEREBY THAT IN ESSENCE, THIS PROVISION IS ONLY APPLICABLE IN AN IN STANCE WHEN THE COMPANY CONCERNED MAKES PAYMENTS OF ANY SU M I.E. DEFINITE MONETARY AMOUNT BY WAY OF ADVANCE OR LOAN TO ITS SHAREHOLDER/BENEFICIAL OWNER. UNDISPUTEDLY, IN THE INSTANT CASE, NEITHER OF THE TRANSACTIONS (SUPRA) CAN BE CA LLED AS LOAN OR ADVANCE WHEREIN THE COMPANY HAS PARTED WITH ANY 1877/MDS/2012 :- 13 - : DEFINITE MONETARY CONSIDERATION IN FAVOUR OF THE AS SESSEE. HENCE, IN OUR OPINION, THE ESSENTIAL INGREDIENTS OF ABOVE SAID DO NOT STAND SATISFIED BY THE REVENUE BEFORE S UBJECTING THE TRANSACTIONS TO THE RIGOUR OF THIS DEEMING PROV ISION IN HAND. WE REITERATE THAT WE ARE DEALING WITH A DEEMI NG FICTION WHERE THERE IS NO SCOPE OF ENLARGEMENT OF THE TAXIN G NET BY WAY OF FURTHER EXPANSION OF THE LANGUAGE USED AS AS SERTED BY THE REVENUE. IN THE LIGHT THEREOF, WE HOLD THA T THE TRANSACTION DATED 25 TH MARCH, 2006 IS A BUSINESS TRANSACTION, WHICH IS OUTSIDE PURVIEW OF SEC 2(22) (E). SIMILARLY, SO FAR AS TRANSACTION DATED 31 ST MARCH, 2006 IS CONCERNED, THE CIT(A) HAS CATEGORICALLY HELD THAT I T DOES NOT GIVE RISE TO ANY MONETARY RIGHT OR BENEFIT TO THE A SSESSEE. TO CONTROVERT THE SAID FINDING, THE REVENUE HAS NOT BEEN ABLE TO SUPPORT ITS CONTENTION BY LEADING ANY COGEN T EVIDENCE BEFORE US. CONSEQUENTLY, WE ACCEPT THE CONTENTION OF THE ASSESSEE IN ITA NO.1300/MDS./12 O N MERITS REGARDING APPLICABILITY OF SEC.2(22)(E) AND REJECT THE ONE RAISED BY THE REVENUE. TAKING CUE FROM THE SAME AND IN VIEW OF THE FACT THAT THERE HAS NOT BEEN ANY PAYMENT OF A SUM OR ADVANCE PASSED TO THE ASSESSEE, WE ARE OF THE OPINION THAT THE AUTHOR ITIES BELOW HAVE ERRED IN INVOKING THE PROVISION OF SEC.2(22)(E ) OF THE ACT. SO FAR AS THE CASE LAW CITED BY THE REVENUE (SUPRA) IS CONCERNED, THE FACTS THEREIN ARE NOT AKIN TO THOSE IN HAND AS IN THE SAID CASE 1877/MDS/2012 :- 14 - : THE PAYMENT HAD PASSED TO THE CONCERNED ASSESSEE AN D THE DISPUTE ONLY WAS REGARDING JOURNAL ENTRY. IN VI EW THEREOF, THE SAME IS NOT APPLICABLE QUA THE PECULIAR FACTS OF TH E PRESENT CASE. CONSEQUENTLY, THE IMPUGNED ADDITION OF DEEMED DIVID END STANDS DELETED. 15. THIS LEAVES US WITH THE GROUNDS PERTAINING TO DISALLOWANCE UNDER SEC.14A READ WITH RULE 8D OF I.T . RULES. RELEVANT FACTS ARE THAT IN THE ASSESSMENT ORDER, TH E ASSESSING OFFICER HAD MADE DISALLOWANCE OF ` .5,78,293/- QUA INTEREST AMOUNT PAID TO LAXMI VILAS BANK BY THE ASSESSEE. T HE PLEADINGS ALSO REFER TO ANOTHER SUM OF ` .58,497/- WHICH HAS BEEN DISALLOWED/ADDED AFTER INVOKING THE PROVISIONS OF R ULE 8D(2)(III) OF THE I.T. RULES. IT IS NOTICED FROM THE CASE FIL E THAT THE ASSESSEES SHARE HOLDINGS IN M/S. M.V. DIABETES CAR E PVT. LTD. AS ON 31.3.2007 WAS OF ` .54,80,495/-. IN THE PREVIOUS YEAR, RELEVANT TO THE IMPUGNED ASSESSMENT YEAR, THE ASSES SEE INCREASED HIS SHARE HOLDINGS BY ACQUIRING THE SHARE S WORTH 1877/MDS/2012 :- 15 - : ` .1,24,37,925/-. THE ASSESSEE TOOK A LOAN AND PAID THE INTEREST OF ` .5,78,203/-. THE ASSESSING OFFICER ADDED THE SAID AMOUNT BY INVOKING SEC. 14A OF THE ACT FOR HAVING INCURRED F OR THE PURPOSE OF EARNING OF EXEMPT INCOME. 16. IN APPEAL, THE ASSESSEES ARGUMENT WAS THAT SI NCE HE HAD NOT CLAIMED THE AMOUNT OF EXPENDITURE IN HIS PR OFIT AND LOSS ACCOUNT OR IN THE INCOME STATEMENT, THE ASSESSING O FFICER HAD WRONGLY INVOKED THE PROVISIONS OF SEC.14A OF THE AC T. IT TRANSPIRES THAT THE CIT(APPEALS) HAS DIRECTED THE A SSESSING OFFICER TO VERIFY THE FACTS AND OBSERVED THAT IN CA SE, IT TURNS OUT THAT NO CLAIM OF EXPENDITURE HAD BEEN MADE, THE DI SALLOWANCE WOULD STAND DELETED. 17. BEFORE US THE ASSESSEE ARGUES THAT ONCE NO EXPENDITURE IS CLAIMED NO DISALLOWANCE COULD HAVE B EEN MADE. THE SAME IS CONTESTED BY THE REVENUE. AFTER GIVING OUR THOUGHTFUL CONSIDERATION WE ARE OF THE VIEW THAT IN PRINCIPLE, THE CIT(APPEALS) HAS AGREED WITH THE ASSESSEES CONTENT IONS. FOR THIS REASON ONLY, HE HAS DIRECTED THE ASSESSING OFF ICER TO VERIFY 1877/MDS/2012 :- 16 - : THE FACTS. IN THESE CIRCUMSTANCES, WE SEE NO REASO N TO INTERFERE WITH THE DIRECTIONS ISSUED BY THE CIT(APPEALS). 18. COMING TO THE OTHER DISALLOWANCE/ADDITION OF ` .58,497/- MADE BY THE ASSESSING OFFICER AND CONFIRM ED BY THE CIT(APPEALS), IT IS REVEALED FROM THE PAPER BOOK FI LED BY THE ASSESSEE THAT THE ASSESSEE HAD DECLARED AN AMOUNT O F ` .2,23,475/- AS EXEMPT IN THE NATURE OF DIVIDEND A MOUNT RECEIVED IN PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. THE A.O. AS WELL AS CIT(APPEALS) RELIED ON R ULE 8D(2)(III) OF INCOME TAX RULES AND DISALLOWED THE ABOVE SAID A MOUNT @ 0.5% OF AVERAGE INVESTMENT. IN THIS BACKDROP OF FA CTS AND ON THE BASIS OF SETTLED LEGAL POSITION OF LAW THAT RUL E 8D IS APPLICABLE FROM IMPUGNED ASSESSMENT YEAR, WE UPHOLD THE DISALLOWANCE/ADDITION IN QUESTION OF ` .58,497/-. 19. GROUNDS 4.1 AND 4.2 ARE TREATED AS ONLY CONSEQ UENTIAL IN NATURE. 1877/MDS/2012 :- 17 - : 20. ACCORDINGLY, THE ASSESSEES APPEAL STANDS PART LY ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 17 TH JUNE, 2013, AT CHENNAI. SD/- SD/- ( DR. O.K. NARAYANAN ) VICE PRESIDENT ( S.S. GODARA ) JUDICIAL MEMBER DATED: 17 TH JUNE, 2013. JLS. COPY TO: 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(APPEALS) 4) THE CIT, (5) THE D.R., 6) GUARD FILE.