2013 (11) TMI 818 - AT - Income Tax

Tribunal restricts additions on profits, upholds interest expenses, dismisses Revenue's appeals.

Shri Prakash Jhunjhunwala And Others Versus Asst. CIT, Central Circle, Mumbai

Shri Prakash Jhunjhunwala And Others Versus Asst. CIT, Central Circle, Mumbai - TMI Issues Involved:1. Addition of deemed dividend under section 2(22)(e) of the Income Tax Act.2. Deletion of additions made on protective basis in the hands of recipient concerns.3. Disallowance/addition on account of notional interest in respect of property located at Ambey Valley, Lonawala.4. Allowability of interest expenses.Detailed Analysis:1. Addition of Deemed Dividend under Section 2(22)(e):The primary issue revolves around the addition of deemed dividend under section 2(22)(e) of the Income Tax Act made in the assessment of Shri Sunil P. Mantri. The assessee held 85.50% shares in M/S Sunil Mantri Reality Ltd, which advanced loans to various concerns where the assessee also held shares. The Assessing Officer (AO) treated these amounts as deemed dividends in the hands of Sunil P. Mantri, given his substantial control over the lender company. The Ld.CIT(A) confirmed these additions but restricted them to the extent of accumulated profits of the lender concern. The Tribunal upheld this decision, directing the AO to restrict the additions based on the accumulated profits of M/s Sunil Mantri Realty Ltd as of 31.03.2007 and 31.03.2008 for the relevant assessment years 2008-09 and 2009-10.2. Deletion of Additions Made on Protective Basis in the Hands of Recipient Concerns:The Ld.CIT(A) deleted the additions made on a protective basis in the hands of the recipient concerns, following the principle that deemed dividends should be taxed in the hands of the shareholder and not the concerns. This decision was based on the Special Bench ruling in ACIT Vs. Bhaumik Colour P. Ltd. and the Bombay High Court's decision in CIT Vs. Universal Medicare P. Ltd. The Tribunal upheld this view, confirming that the intention of section 2(22)(e) is to tax dividends in the hands of the shareholder.3. Disallowance/Addition on Account of Notional Interest in Respect of Property Located at Ambey Valley, Lonawala:The AO estimated the gross annual value of the property at 7% of the cost of acquisition and determined the income from house property after allowing a 30% standard deduction under section 24(a). The Ld.CIT(A) confirmed this estimation. The Tribunal found no merit in the assessee's contention for a lower annual value, as the assessee failed to provide municipal valuation to substantiate the claim. Thus, the gross rent estimation by the AO was deemed reasonable, and the decision of the Ld.CIT(A) was upheld.4. Allowability of Interest Expenses:The Tribunal upheld the Ld.CIT(A)'s decision that the assessee is eligible for the claim of deduction in respect of interest paid on borrowed capital, as the fact of interest payment was undisputed.Resultantly:1. The appeals by Sunil P. Mantri (ITA No. 5402/M/2011 & ITA No. 5407/M/2011) are partly allowed, with directions to restrict additions based on accumulated profits.2. The cross appeals by the Revenue (ITA No. 5702/M/2011 & 5703/M/2011) are dismissed.3. The other four appeals by the Revenue (ITA No. 5689/M/2011, ITA No. 5682/M/2011, ITA No. 5704/M/2011, and ITA No. 5681/M/2011) are dismissed.4. The cross objections by the assessees (C.O.132/M/2012, C.O. 134/M/2012, C.O.135/M/2012, and C.O. 136/M/2012) become infructuous and are dismissed.Order Pronounced:The order was pronounced in the open court on November 14, 2013.