2019 (8) TMI 1835 - AT - Income Tax

Tribunal Decision: Assesssee's Appeal Partly Allowed, Revenue's Appeal Dismissed

The Tribunal partly allowed the assessee's appeal, dismissing the Revenue's appeal. The Tribunal upheld the addition of bank interest on deposits, allowed ... Addition on account of bank interest on deposits belonging to the society - HELD THAT:- Contention of the assessee that the “interest income” accrued on the deposits of the society is not taxable in the hands of the assessee, stands rejected by the Tribunal over the years. Considering the above written submission on this issue on hand and the order of the Tribunal in assessee’s own case for the assessment year 2010-11 [2017 (12) TMI 1398 - ITAT PUNE] on the identical issue, we are of the opinion, the issue raised by the assessee in ground no.1 should be dismissed. Accordingly, the ground no.1 raised by the assessee is dismissed. Disallowance of business expenditure shown as ‘Exceptional Items’ - HELD THAT:- As it is evident that the expenditure in connection with an abandoned project is an allowable expenditure. It is not the case of the Revenue, that assessee spent on capital assets like the land, building etc. The capital nature of the expenditure in question i.e. IPO expenses is not relevant when it comes to a case of abandoned project like the present one. Therefore, we are of the opinion, the ground no.2 raised by the assessee should be allowed. Deemed dividend addition u/s 2(22)(e) - Correctness of invoking the provisions of section 2(22)(e) - HELD THAT:- As the entire accumulated reserves of (i) M/s Riverview Properties Pvt. Ltd. and (ii) M/s Khiranagar Development Pvt. Ltd. are nothing but the share premium. The same is outside the scope of the “accumulated reserves” within the meaning of section 2(22)(e) of the Act. Thus, in the absence of eligible reserves and surplus with the payer companies, the provisions of section 2(22)(e) of the Act are not correctly invoked by the Assessing Officer in this case. From this point of law, Assessing Officer/CIT(A) are not correct in making the addition u/s 2(22)(e) of the Act. Accordingly, the relevant ground no.3 and additional ground no.1 & 1.1 are allowed in favour of the assessee. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- Disallowance made by the assessee in connection with the clause (ii) of Rule 8D(2) of the Rules. Regarding the Rule 8D(2)(iii), we find same again stands in favour of the assessee by virtue of the order of the Tribunal in assessee’s own case for the assessment years 2009-10 to 2010-11. Accordingly, the relevant ground no.4 and additional ground no.2 – 2.3 are raised by the assessee are allowed. Disallowance u/s 36(1)(iii) - HELD THAT:- Existence of excessive interest free funds and perusing the order of the Tribunal in assessee’s own case for the assessment year 2010-11 [2017 (12) TMI 1398 - ITAT PUNE] we are of the opinion, the issue raised by the assessee in ground no.5 should be allowed in favour of the assessee. Issues Involved:1. Addition on account of bank interest on deposits.2. Disallowance of business expenditure shown as 'Exceptional Items'.3. Addition of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.4. Disallowance under section 14A of the Income Tax Act, 1961.5. Disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Addition on Account of Bank Interest on Deposits:The assessee contested the addition of Rs. 14,33,719/- on account of bank interest on deposits belonging to the society. The Tribunal noted that this issue had been previously adjudicated in the assessee’s own case for the assessment years 2009-10 and 2010-11, where it was decided against the assessee. The Tribunal reiterated its stance that the interest income accrued on the deposits of the society is taxable in the hands of the assessee, thereby dismissing the ground raised by the assessee.2. Disallowance of Business Expenditure Shown as 'Exceptional Items':The assessee claimed an expenditure of Rs. 3,66,34,133/- related to an aborted Initial Public Offer (IPO) as a revenue expenditure. The Assessing Officer disallowed this claim due to lack of supporting documents, and the CIT(A) upheld this disallowance, treating the expenditure as capital in nature. However, the Tribunal allowed the assessee's claim, referencing various judicial precedents which held that expenses incurred on abandoned projects should be allowed as revenue expenditure. The Tribunal found that the expenditure was genuine and related to deposits and processing fees, not capital assets like land or buildings.3. Addition of Deemed Dividend under Section 2(22)(e):The assessee received advances from its subsidiary companies, which the Assessing Officer treated as deemed dividends under section 2(22)(e). The Tribunal noted that the accumulated reserves considered by the Assessing Officer mainly comprised share premium, which cannot be treated as accumulated profits for the purposes of section 2(22)(e). Citing various judicial precedents, the Tribunal concluded that the share premium should not be included in accumulated reserves, thereby allowing the assessee's grounds and deleting the addition made under section 2(22)(e).4. Disallowance under Section 14A:The assessee had made a suo-moto disallowance under section 14A, which the Assessing Officer enhanced. The Tribunal found that the assessee had sufficient interest-free funds to cover the investments yielding exempt income, thus no further disallowance of interest was warranted under Rule 8D(2)(ii). Additionally, the Tribunal held that investments not yielding exempt income should be excluded when calculating disallowance under Rule 8D(2)(iii), aligning with decisions from previous years. Therefore, the Tribunal allowed the assessee's grounds on this issue.5. Disallowance of Interest under Section 36(1)(iii):The Assessing Officer disallowed interest on the grounds that the assessee had diverted borrowed funds for non-business purposes. The CIT(A) partially upheld this disallowance. However, the Tribunal found that the assessee had sufficient interest-free funds to cover the advances given to related concerns, referencing the decision in the assessee’s own case for earlier years. Consequently, the Tribunal allowed the assessee's ground, deleting the entire disallowance of Rs. 12,47,34,896/-.Separate Judgments:The Tribunal delivered a consolidated judgment for both the assessee's and the Revenue's appeals. The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal's findings were consistent with judicial precedents and factual determinations from previous years' assessments.Final Order:The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed. The order was pronounced on the 14th day of August, 2019.