Apeejay Pvt. Ltd. Vs DCIT (ITAT Kolkata)
ITAT Kolkata held that there is no finding that interest bearing funds have been applied for purpose of making investment. Further, on account of sufficient availability of interest free funds, interest disallowance under rule 8D(2)(ii) unjustified.
Facts- The assessee is a private limited company engaged in the business of operating business centres and letting out. Case selected for scrutiny through CASS followed by issuance of notice u/s. 143(2) and 142(1) of the Act. The major issues for consideration by AO were with regard to disallowance under Section 14A of the Act as well as deemed dividend u/s. 2 (22)(e) of the Act.
AO observed that during the year the assessee company had received a sum of Rs. 21,92,55,967/- from another group concerned Apeejay Tea Limited. AO further noticed that both the companies, namely, assessee company i.e., Apeejay Pvt. Ltd and Apeejay Tea Limited, have a common shareholder, namely, Kathua Steel Works Pvt. Ltd., holding shares at 58.64% in Apeejay Tea Limited and 99.96% in the assessee company.
Since accumulated profits for distribution in the books of Apeejay Tea Limited, were to the tune of Rs. 239.33 Crores, AO invoked the provisions of Section 2(22)(e) of the Act. Though the assessee stated that addition for deemed dividend can be made only in the hands of the shareholder and assessee not being a shareholder, addition for deemed dividend is uncalled for, but AO was not satisfied and he made the addition in the hands of the assessee as deemed dividend.
As far as the disallowance u/s. 14A of the Act is concerned, the AO after considering the disallowance suo moto offered by the assessee further made interest disallowance under Rule 8D(2)(ii) as well as disallowance under Rule 8D(2)(iii) of the Income Tax Rules, 1962 at 0.5% of the average value of investment.
CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- Held that that there is no finding of the revenue authorities at any stage indicating specifically that interest bearing funds have been applied for the purpose of making investments. In absence of any such finding, we find that the judgement of the Hon’ble Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra), are squarely applicable on the facts of the present case and, therefore, on account of sufficient availability of interest free funds, we find no merit in the finding of the ld. AO making interest disallowance under Rule 8D(2)(ii) of the Rules. Thus, the finding of the ld. CIT(A) is set aside and disallowance made under Rule 8D(2)(ii) for the impugned assessment years are hereby deleted.
Held that addition for deemed dividend can be made only in the hands of the shareholder of the lending company and since assessee is not a shareholder being a beneficial owner of shares holding not less than 10% of the voting power in the lending company, namely, Apeejay Tea Limited., Section 2(22)(e) of the Act cannot be invoked in the case of assessee in appeal before us.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the separate but identical orders of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the ld. CIT(A)”], passed u/s 250 of the Income-tax Act, 1961 (hereinafter the ‘Act’), even dated 19/12/2023 for the Assessment Year 2013-14, 2014-15, 2016-17, 2017-18.
2. As the issues involved in all these appeals are identical and pertains to same assessee, they were heard together and are being disposed off by way of this common order.
3. The assessee has raised the following grounds of appeal:-
Assessment Year : 2013-14
“1. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 16,73,473/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income.
2. a) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who rejected the explanation of the appellant against the applicability of the provisions of section 2(22) (e) of Income Tax Act, 1961.
b) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in in confirming the action of AO who considered loan of Rs. 2 1,92,55,967/- received from M/s. Apeejay Tea Ltd. as deemed dividend within the meaning of section 2(22)(e) of Income Tax Act, 1961.
3. That the appellant craves leave to add, alter, adduce or amend any ground on or at the time of hearing of the appeal.”
Assessment Year : 2014-1 5
1. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 18,00,595/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income.
2. a) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who rejected the explanation of the appellant against the applicability of the provisions of section 2(22) (e) of Income Tax Act, 1961.
b) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in in confirming the action of AO who considered loan of Rs. 47,07,00,000/- received from M/s. Apeejay Tea Ltd. as deemed dividend within the meaning of section 2(22)(e) of Income Tax Act, 1961.
3. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who made addition of Rs. 27,126/- for so-called delayed deposit of employees contribution to PF u/s 2(24)(x) read with section 36(1)(va) of Income Tax Act, 1961.
4. That the appellant craves leave to add, alter, adduce or amend any ground on or at the time of hearing of the appeal.”
Assessment Year : 2016-17
1. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 65,23,307/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income.
2. a) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who rejected the explanation of the appellant against the applicability of the provisions of section 2(22) (e) of Income Tax Act, 1961.
b) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in in confirming the action of AO who considered loan of Rs. 5,15,00,000/- received from M/s. Apeejay Tea Ltd. as deemed dividend within the meaning of section 2(22)(e) of Income Tax Act, 1961.
3. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who made addition of Rs. 53,507/- for so-called delayed deposit of employees contribution to PF u/s 2(24)(x) read with section 36(1)(va) of Income Tax Act, 1961.
4. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who proceeded on erroneous belief and misconception of law in disallowing interest on income tax and service tax of 4,23,358/-.
5. That the appellant craves leave to add, alter, adduce or amend any ground on or at the time of hearing of the appeal.”
Assessment Year : 2017-18
1. a) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who rejected the explanation of the appellant against the applicability of the provisions of section 2(22) (e) of Income Tax Act, 1961.
b) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in in confirming the action of AO who considered loan of Rs. 1,15,00,000/- received from M/s. Apeejay Tea Ltd. as deemed dividend within the meaning of section 2(22)(e) of Income Tax Act, 1961.
2. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 1,40,266/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income.
3. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who proceeded on erroneous belief and misconception of law in disallowing interest on delayed deposit of TDS for Rs. 91,306/-.
4. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who made addition of Rs. 34,631/- for so-called delayed deposit of employees contribution to PF u/s 2(24)(x) read with section 36(1)(va) of Income Tax Act,
5 . That the appellant craves leave to add, alter, adduce or amend any ground on or at the time of hearing of the appeal.”
4. For the purpose of adjudication we take up the facts for AY 2013- 14 and the same are that the assessee is a private limited company engaged in the business of operating of business centres and letting out. It e-filed its return for AY 2013-14 on 28/09/2013 declaring income of Rs.4,38,82,870/-. Case selected for scrutiny through CASS followed by issuance of notice under section 143(2) and 142(1) of the Act. The major issues for consideration by the assessing officer were with regard to disallowance under section 14A of the Act as well as deemed dividend under section 2 (22)(e) of the Act. The ld. AO observed that during the year assessee company has received a sum of Rs. 21,92,55,967/- from another group concern Apeejay Tea Limited. The ld. AO further noticed that both the companies, namely, assessee company i.e., Apeejay Pvt. Ltd. and Apeejay Tea Limited, have a common shareholder, namely, Kathua Steel Works Pvt. Ltd., holding shares at 58.64% in Apeejay Tea Limited and 99.96% in the assessee company. Since accumulated profits for distribution in the books of Apeejay Tea Limited, were to the tune of Rs. 239.33 Crores, the ld. Assessing Officer invoked the provisions of section 2(22)(e) of the Act. Though the assessee stated that addition for deemed dividend can be made only in the hands of the shareholder and assessee not being a shareholder, addition for deemed dividend is uncalled for, but the ld. Assessing Officer was not satisfied and he made the addition in the hands of the assessee as deemed dividend.
5. As far as the disallowance under section 14A of the Act is concerned, the ld. AO after considering the disallowance suo moto offered by the assessee further made interest disallowance under Rule 8D(2)(ii) as well as disallowance under Rule 8D(2)(iii) of the Income Tax Rules, 1962 (hereinafter the ‘Rules’) @ 0.5% of the average value of investment. Along with other minor disallowances, income of the assessee assessed at Rs.26,51,61,720/-. We further notice that for the AY 2014-15, 2016-17 and 2017-18, almost identical additions/adjustments towards deemed dividend under section 2(22)(e) of the Act and disallowance under section 14A of the Act and minor other disallowances were made and the same can be deciphered from the following chart:-
