DCIT, Coimbatore V. CAI Industries P. Ltd., Coimbatore

ITA 2510/CHNY/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 1362 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 29-08-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KUMAR AJEET
• Keywords: Proportionate interest; Deemed dividend; Rule 8D
• Section: 2(22)(e); 14A

Judgement Text

आयकर अपीलीय अिधकरण, ‘डी’ ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI Įी महावीर ͧसंह, उपाÚय¢ एवं Įी मनोज क ु मार अĒवाल, लेखा सदèय के सम¢ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.:2510/CHNY/2019 िनधाᭅरण वषᭅ /Assessment Year: 2014-15 The DCIT, Corporate Circle – 2, No.67-A, Race Course Road, Coimbatore -641 018. v. M/s. CAI Industries Pvt. Ltd., 1547-A, Avinashi Road, Peelamedu, Coimbatore – 641 004. PAN: AABCC 2146F (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri Kumar Ajeet, CIT ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri S. Sridhar, Advocate स ु नवाई कȧ तारȣख/Date of Hearing : 19.05.2022 घोषणा कȧ तारȣख/Date of Pronouncement : 25.05.2022 आदेश /O R D E R PER MAHAVIR SINGH, VP: This appeal by the Revenue is arising out of order of Commissioner of Income Tax (Appeals)-1, Coimbatore in Appeal No.256/16-17 dated 10.06.2019. The assessment was framed by the ACIT, Corporate Circle-2, Coimbatore for the assessment year 2014-15 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 27.12.2016. 2 ITA Nos.2510/Chny/2019 2. The first issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO of treating the loan received from Rajshree Automotive Pvt. Ltd., as deemed dividend u/s.2(22)(e) of the Act. The AO noted on perusal of ledger account of the assessee that it had received money from Rajshree Automotive Pvt. Ltd., and the assessee company & Rajshree Automotive Pvt. Ltd., are having same person as Managing Director namely Ms. Jaishree Varadaraj. The assessee also noted that the share holding pattern of the assessee CAI Industries Pvt. Ltd., with Rajshree Automotive Pvt. Ltd., is to the extent of 18.39% and accordingly the provision of section2(22)(e) of the Act is applicable. Hence, the AO treated the loan amount of Rs.4,69,61,476/- as deemed divided and added to the returned income of the assessee. Aggrieved, assessee preferred appeal before CIT(A). 3. The CIT(A) noted that the issue is settled by the Tribunal decision in assessee’s own case for the assessment year 2013-14 in ITA No.356/Mds/2017, order dated 21.09.2017, wherein the same amount was under consideration and the Tribunal deleted the disallowance by observing in para 5.5 as under:- 5.5 We have heard the rival submissions and carefully perused the materials on record. From the facts of the case, it is apparent that both the assessee and its sister company are dealers in automobiles of different nature and engaged in business with close proximity. The combined endurance to market the 3 ITA Nos.2510/Chny/2019 products in the same vicinity results in close commercial ties between the assessee company and its sister company. As a result both the companies were maintaining current accounts in order to achieve their respective business targets. Therefore it cannot be said that, the interdependence for meeting several business commitments of the assessee and its sister concerns does not result in commercial nexus between the assessee company and its sister concerns. As pointed out by the Ld.AR some expenses were met by both the companies which were reimbursed by either company. These facts are not disputed. Moreover at the close of the financial year the current account maintained by the assessee with its sister concern showed nil balance. In this situation, we are of the view that the decision of the Jurisdictional High Court in the case CIT vs. C. Subba Reddy would be most appropriate, wherein it was held that “when no benefit has accrued to assessee and credit was a result of business transaction and was neither in nature of loan or deposit hence, provisions of Sections 2(22)(e) of the Act do not stand attracted.” Further in the case of the assessee the circular No.19/2017 supra is also very relevant. Considering these aspects of the case, we are of the considered view that provisions of Section 2(22)(e) of the Act will not be applicable in the case of the assessee. Therefore we hereby direct the Ld.AO to delete the addition made by invoking the provisions of Section 2(22)(e) of the Act. 4. The ld.counsel for the assessee also stated that the CIT(A) also relying on the Hon’ble Madras High Court decision in the case of CIT vs. Subba Reddy, (2016) 97 CCH 0157 and Sunil Kapoor vs. CIT, 375 ITR 1 deleted the addition by observing in para 6.4 as under:- “6.4 I have perused the facts of the case and past judicial precedents. The facts and circumstances are similar for the Assessment year 2014-15. It is pertinent to note that the Honorable ITAT has relied on the Madras High Court’s decision in the case of CIT vs. Subba Reddy, (2016) 97 CCH 0157. They have also relied on the Boards’ Circular No.F.279/MISC/140/2015/ITJ dated 12.01.2017. The Honorable ITAT has also cited the Madras High Court’s decision in the case of Sunil Kapoor vs. CIT, 375 ITR 1. It is therefore decided that since the case is covered by favourable decision of the ITAT in the Appellant’s own case, the appeal for this year is decided favourable to the appellant as the facts are similar.” 4 ITA Nos.2510/Chny/2019 5. When this was confronted to ld.CIT-DR, he could not controvert the above fact situation that the issue is not covered. 6. As the issue is covered in regard to deemed dividend assessed by AO u/s.2(22)(e) of the Act, as the same land was under consideration by Tribunal in immediate preceding year i.e., assessment year 2013-14, hence taking a consistent view and taking the issue as covered in favour of assessee, we confirm the order of CIT(A) and dismiss this issue of Revenue’s appeal. 7. The next issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance made by AO on expenses relatable to exempt income u/s.14A r.w.rule 8D(2)(iii) of the Income Tax Rules, 1962. For this Revenue has raised following Ground No.vii:- (vii) The ld.CIT(A) erred in deleting the disallowance u/s 14A r.w.Rule 8D(2)(iii) of Rs.32,213/-, even in the order of the Hon’ble ITAT in the assessee’s case for the A.Y.2013-14 itself, on which the CIT(A) relied upon, the addition made u/s 14A r.w.Rule 8D(2)(iii) was upheld by the Tribunal.” 8. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO made disallowance under Rule 8D(2)(iii) i.e., 0.5% of average value of investment of Rs.32,213/-. The CIT(A) deleted the addition by relying on the 5 ITA Nos.2510/Chny/2019 Tribunal decision in assessee’s own case in ITA No.356/Mds/2017, order dated 21.09.2017 by observing as under:- “5.1 Disallowance of Rs.4,67,182/- u/s.14A The AO applied the provisions of Rule 8D and quantified proportionate interest expenditure of Rs.4,34,969/-and administrative expenditure of Rs.32,213/- for disallowance u/s.14A. During the year the appellant company received a total amount of Rs.1080/- as dividend, on an investment of Rs.64,42,600/- in shares. The appellant explained that the entire investments in shares were made years back, out of the appellant company’s own surplus. The Hon’ble ITAT, Chennai, in a detailed appellate order in ITA No.356/Mds/2017 dated 21.09.2017 passed for the AY 2013-14, on the basis of similar facts and reasons deleted the disallowance. As the reasons, facts and grounds in relation to the disallowance of Rs.4,67,182/- for the AY 2014-15 are similar to the facts relating to AY 2013-14 and since the ITAT has given a finding of fact, I hold that the disallowance is not warranted. Hence the disallowance of Rs.4,67,182/- made u/s.14A by the AO is deleted.” We noted that the Tribunal in immediate preceding year in ITA No.356/Mds/2017, order dated 21.09.2017 deleted the addition in regard to disallowance under Rule 8D(2)(ii) but sustained the disallowance under Rule 8D(2)(iii) to the extent of Rs.32,213/-. Even now, the ld.counsel for the assessee agreed that the order of CIT(A) to the extent of same investment made of Rs.64,42,600/- can be considered for making disallowance u/s.8D(2)(iii) and hence, the order of CIT(A) can be reversed. In view of the above, we are of the view that this issue is covered by Tribunal’s order in earlier year against the assessee and hence, we reverse the order of CIT(A) to 6 ITA Nos.2510/Chny/2019 the extent of disallowance of Rs.32,213/- deleted by CIT(A) under Rule 8D(2)(iii). This issue of Revenue’s appeal is allowed. 9. In the result, the appeal filed by the Revenue is partly allowed. Order pronounced in the open court on 25 th May, 2022 at Chennai. Sd/- Sd/- (मनोज कुमार अᮕवाल) (MANOJ KUMAR AGGARWAL) लेखा सद᭭य /ACCOUNTANT MEMBER (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 25 th May, 2022 RSR आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकर आयुᲦ (अपील)/CIT(A) 4. आयकर आयुᲦ /CIT 5. िवभागीय ᮧितिनिध/DR 6. गाडᭅ फाईल/GF.