Deputy Commissioner of Income Tax, Circle-16(2), Hyderabad V. Mandava Holdings Private Limited, Hyderabad

ITA 2089/Hyd/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5885 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2014-2015
• Appeal Filed On: 10-12-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Earning of tax free income; Deemed dividend; Rule 8D
• Section: 154; 2(22)(e); 14A; 143(1)

Judgement Text

ITA No 2089 of 2017 Mandava Holdings P Ltd Hyderabad Page 1 of 7 आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA No.2089/Hyd/2017 Assessment Year: 2014-15 Dy. C.I.T. Circle 16(2) Hyderabad Vs. M/s. Mandava Holdings (P) Ltd, Hyderabad PAN:AAFCM4964M (Appellant) (Respondent) Assessee by : Shri A.V.Raghuram, Advocate Revenue by: Shri Rajendra Kumar, CIT(DR) Date of hearing: 13/07/2022 Date of pronouncement: 19/07/2022 ORDER Per R.K. Panda, A.M This appeal filed by the Revenue is directed against the order dated 19.9.2017 of the learned CIT (A)-4, Hyderabad relating to A.Y.2014-15. 2. Facts of the case, in brief, are that the assessee company is engaged in the business of core investment and filed its return of income admitting total loss at (-) Rs 1,91,29,508/-. Subsequently, the assessee filed revised return of income on 30.11.2014 declaring total loss of Rs.1,43,53,566/-. The return was processed u/s 143(1) of the I.T. Act. Subsequently, the case was selected for scrutiny and the statutory notices were issued to the assessee. During the course of assessment proceedings, the ITA No 2089 of 2017 Mandava Holdings P Ltd Hyderabad Page 2 of 7 Assessing Officer noted from the balance sheet that the assessee company has investments to the tune of Rs.228,71,96,925/- as on 31.3.2014. He, therefore, asked the assessee to explain as to why the provisions of section 14A should not be applied. Rejecting the various explanations given by the assessee and applying the provisions of section 14A r.w.Rule 8D, the Assessing Officer disallowed the amount of Rs.1,66,03,554/- by computing as under: Amount (in Rs.) I Expenditure directly related to exempt income II Apportionment of expenditure not directly related to exempt income A Interest expenditure 5,12,46,738 B Average value of investments which does not form part of total income 202,02,20,950 C Average Total Assets 1572,19,49,135 Expenditure not directly related to exempt income (A*B/C 65,52,449 III ½% of average value of investment 1,00,51,105 Total expenditure to be disallowed u/s 14A of the I.T. Act 1,66,03,554 3. In appeal, the learned CIT (A) deleted the addition made by the Assessing Officer by observing as under: “5.3 T have carefully considered the facts of the case, assessment order and submissions of the appellant company. In this regard reliance is placed on the Hon'ble ITAT, Hyderabad, decision in the case of Prathista Industries Ltd., vs. DCIT, Cir. 16(3), Hyderabad, in ITA No.1302/Hyd/2015 for the A.Y. 2011-12, wherein it was held as under.: "We find that section 14 A clearly stipulates that the expenditure incurred for earning of any income which does not form part of the total income alone can be disallowed. In the case before use, when the assesssee has not earned any exempt income, there can be no disallowance u/s 14A of the Act. The Hon'ble Delhi High Court in the case of Cheminvest Ltd., reported in (2015) 378 ITR 33(Del.) has held that section 14A will not apply where no exempt income iss received or receivable during the relevant assessment year" ITA No 2089 of 2017 Mandava Holdings P Ltd Hyderabad Page 3 of 7 Respectfully following the Hon'ble ITAT decision in the above mentioned case, the addition made by the Assessing Officer deleted since there is no dividend income during this assessment year”. 4. Aggrieved with such order of the learned CIT (A), the Revenue is in appeal before the Tribunal by raising the following grounds of appeal: 1. The CIT (A) erred in deleting the disallowance u/s 14A of Rs.1,66,03,554/- 2. The CIT(A) erred in ignoring CBDT's Circular No.5 of 2014 dated 11.02.2014, 3. The CIT(A) erred in ignoring the supreme Court decision in the case of CIT Vs Walfort share of stock Brokers P Ltd[326 ITR 11, wherein it was held that the mandate of section 14A was to curb the practice of claiming deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of exempt income without making any apportionment of expenses incurred in relation to exempt income. 4. The CIT (A) erred in Rs.24,03,77,392/ deleting the addition u/s 2(22)(e) of deemed dividend of 5. The CIT (A) erred in did not have accepting the contention of the assessee that the assessee accumulated profits as on the date of giving the loan i.e.25.11.2013. loan. 6. The CIT (A) erred in law in CIT ignoring the Gujrat High Court decision in the case of vs MB Stockholding (P) Lid (2015)(64 taxman.com 138), wherein it was held that as laid down by the Supreme Court in the case of Associated Banking Corporation of India Ltd vs CIT(56 ITR 1) the profit accrues when the books are closed and that the current profit is not to be included as part of accumulated profits. 7. The CIT(A) erred in accepting the contention of the assessee that the adjustment made in the security premium a/c on account of the approval of the Company's petition filed on 04.03.2014 by the High Court vide its order dated 21.10.2014 with the appointed date as 01.07.2013 had a bearing on the working of accumulated profits. 8. Any Other Ground that may be urged at the time of hearing”. 5. We have heard the rival arguments made by both the sides and perused the records. We find the Assessing Officer in the instant case made addition of Rs.1,66,03,554/- by invoking the provisions of section 14A r.w. Rule 8D. We find the learned ITA No 2089 of 2017 Mandava Holdings P Ltd Hyderabad Page 4 of 7 CIT (A) deleted the addition the reasons of which are already reproduced in the preceding paragraphs. We find the Finance Act 2022 has drastically amended the provisions of section 14A and a Coordinate Bench of the Tribunal has held the amendment to be retrospective in nature i.e. w.e.f. 1.4.1962. We, therefore, in the interest of justice deem it fit and proper to restore the issue to the file of the Assessing Officer with a direction to decide the issue afresh in the light of the amendments to the provisions of section 14A by the Finance Act, 2022 and decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the Revenue are accordingly allowed for statistical purposes. 6. Grounds of appeal 4 to 7 filed by the Revenue relate to the order of the learned CIT (A) in deleting the addition of Rs.24,03,77,392/- made by the Assessing Officer u/s 2(22)(e) of the I.T. Act. 7. Facts of the case in brief are that the Assessing Officer, during the course of assessment proceedings, observed that the assessee company is in receipt of amount of Rs.130,00,00,000/- in the form of inter corporate deposit (ICD) from its subsidiary company namely M/s. Nuziveedu Seeds Ltd (NSL) in which assessee is having a beneficial shareholding of 56.20%. As all other conditions attracting deemed dividend u/s 2(22)(e) of the Act are prevalent in this case, he asked the assessee to explain as to why the provisions of section 2(22)(e) of the Act should not be attracted. Rejecting the various explanations given by the assessee and observing that the provisions of section 2(22)(e) of the Act are squarely applicable to the facts of the present case, since the assessee company is holding more than 10% of the ITA No 2089 of 2017 Mandava Holdings P Ltd Hyderabad Page 5 of 7 shares with voting powers in M/s. Nuziveedu Seeds Ltd, the Assessing Officer made disallowance of Rs.24,03,77,392/- to the total income of the assessee. 8. In appeal, the learned CIT (A) deleted the addition by observing as under: “6.3 I have carefully considered the assessment order and submissions of the appellant. The appellant submitted that, the Assessing Officer has taken the reserves as positive by working out year end but it should be as per the date of advances, the reserves are negative. Further, this amount was taken as loan and the same was repaid within the year. Therefore, reliance is placed upon the CBDT Circular No. 19/2017, dated 12th June, 2017 which was stated as under: Section 2(22)clause (e) of the IT Act, 1961(the Act) provides that "dividend" includes any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial Owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause 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. Therefore, the submissions of the appellant are accepted and also ss per above CBDT circular, wherein it is clarified that trade advances which are in the nature of commercial transactions would not fall within the amb1t of the word advance' in section 2(22)(e) of the IT Act Hence, in the instant case the deemed dividend will be applicable since it is an advance and also Assessing Officer is directed to delete the addition in respect of dee dividend u/s 2(22)(e) of the IT Act Hence, the ground of appeal is allowed”. 9. Aggrieved with such order of the learned CIT (A), the Revenue is in appeal before the Tribunal. 10. We have considered the rival arguments made by both the sides. It is the submission of the learned DR that the learned CIT (A) without either verifying himself or without calling for a ITA No 2089 of 2017 Mandava Holdings P Ltd Hyderabad Page 6 of 7 remand report from the Assessing Officer has accepted the claim of the assessee that on the date of granting of advances the reserves are negative. Further, a perusal of Para 6.3 of the order of the learned CIT (A) shows that he has mentioned that the deemed dividend will be applicable in the instant case. However, despite saying so, the learned CIT (A) has directed the Assessing Officer to delete the deemed dividend u/s 2(22)(e) of the Act. Although the submission of the learned Counsel for the assessee is that it is a typographical error, however, we find neither the assessee nor the Assessing Officer moved any rectification application u/s 154 of the I.T. Act before the learned CIT (A) for rectification of the typographic error. Considering the totality of the facts and in the interest of justice, we deem it fit and proper to restore the issue to the file of the Assessing Officer with a direction to decide the issue afresh in the light of the CBDT Circular No.19/07 dated 12.06.2017 and as per fact and law. Needless to say the Assessing Officer while deciding the issue shall give due opportunity of being heard to the assessee. We hold and direct accordingly. Grounds raised by the Revenue on this issue are accordingly allowed for statistical purposes. 11. In the result, appeal filed by the Revenue is allowed for statistical purposes. Order pronounced in the Open Court on 19 th July, 2022. Sd/- Sd/- (LALIET KUMAR) JUDICIAL MEMBER (R.K. PANDA) ACCOUNTANT MEMBER Hyderabad, dated 19 th July, 2022. Vinodan/sps ITA No 2089 of 2017 Mandava Holdings P Ltd Hyderabad Page 7 of 7 Copy to: S.No Addresses 1 M/s. Mandava Holdings (P) Ltd, 8-2-684/2/Assessee NSL Icon, 4 th Floor, Road No.12 Banjara Hills, Hyderabad 2 Dy.CIT, Circle 16(2) 2 nd Floor, B Block, IT Tower, Masab Tank, Hyderabad 3 CIT (A)- 4,Hyderabad 4 Pr. CIT-4, Hyderabad 5 DR, ITAT Hyderabad Benches 6 Guard File By Order