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of <h1>Tribunal directs AO on interest disallowance & deemed dividends under Income-tax Act.</h1> The appeal was allowed in part, with specific directions to the Assessing Officer (AO) regarding the disallowance of interest and the treatment of deemed ... - Issues Involved:1. Confirmation of addition on account of interest against interest-free advances to M/s. Shivarpan Sales (P) Ltd.2. Confirmation of addition on account of interest against interest-free advances to Smt. Kalpana Pandey, Sri Kartick Pandey, and M/s. Greenland Enclave (P) Ltd.3. Confirmation of disallowance of interest expenditure on account of advance made to Shri Jaideep Khaitan.4. Confirmation of addition as deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961.Summary:Issue 1: Interest-Free Advances to M/s. Shivarpan Sales (P) Ltd.The assessee disputed the addition of Rs. 30,105 made by the Assessing Officer (AO) on account of interest against interest-free advances to M/s. Shivarpan Sales (P) Ltd. The AO disallowed the interest, stating that the advances were made from interest-bearing loans without business exigency. The CIT(A) confirmed the AO's action. The Tribunal observed that part of the loan was given out of non-interest-bearing funds and directed the AO to disallow interest only on the portion of the advance made from interest-bearing funds. Ground No.2 of the appeal was allowed in part.Issue 2: Interest-Free Advances to Smt. Kalpana Pandey, Sri Kartick Pandey, and M/s. Greenland Enclave (P) Ltd.The assessee disputed the addition of Rs. 50,698 on account of interest against interest-free advances to the aforementioned individuals and entity. The AO disallowed the interest, stating that the advances were made from interest-bearing loans. The CIT(A) confirmed the AO's action. The Tribunal confirmed the disallowance for advances to Smt. Kalpana Pandey and Sri Kartick Pandey but directed the AO to disallow interest only on the portion of the advance to M/s. Greenland Enclave (P) Ltd. made from interest-bearing funds. Ground No.3 of the appeal was allowed in part.Issue 3: Disallowance of Interest Expenditure on Advance to Shri Jaideep KhaitanThe assessee disputed the disallowance of Rs. 2,37,452 out of interest expenditure on account of an advance made to Shri Jaideep Khaitan. The AO disallowed the interest, stating that the advance was made from interest-bearing funds without business purposes. The CIT(A) confirmed the AO's action. The Tribunal upheld the CIT(A)'s order and rejected ground No.4 of the appeal.Issue 4: Addition as Deemed Dividend u/s 2(22)(e)The assessee disputed the addition of Rs. 89,41,505 as deemed dividend u/s 2(22)(e). The AO considered loans from associate concerns as deemed dividends. The CIT(A) deleted the addition of Rs. 2,36,50,000 from M/s. Tanuj Holdings Pvt. Ltd., recognizing it as an NBFC. The CIT(A) limited the addition from M/s. Tolly Nirman Pvt. Ltd. to Rs. 8,41,566 and from M/s. Prasad Group Resources Pvt. Ltd. to Rs. 89,41,505. The Tribunal held that the principal business of M/s. Prasad Group Resources Pvt. Ltd. was granting loans and advances, thus not attracting the provisions of Section 2(22)(e). Ground No.5 of the appeal was allowed.Conclusion:The appeal was allowed in part, with specific directions to the AO regarding the disallowance of interest and the treatment of deemed dividends.
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