TaxTMI 
TaxTMI 
2016 (2) TMI 625
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....of deemed dividend under Section 2(22)(e). 3. On the facts and circumstances of the case, learned Commissioner of Income Tax(Appeals) has erred in law in deleting the addition of Rs. 72,618/- under section 36(1)(iii) of the I.T. Act. 4. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal. 3. The facts in brief are that a search and seizure action under section 132 of the Income-tax Act, 1961 (for short "the Act") was carried out at the assessee's of 'Tulip Group' including the assessee and thus notice under section 153A of the Act was issued to the assessee for filing return of income for the assessment years involved. In response to the notice under Section 153A of the Act issued on 28.04.2010, the assessee filed return declaring income of Rs. 16,93,882/- on 29th October, 2010. Subsequently, notices under Section 143(2)/142(1) of the Act were issued and certain disallowances/additions were made by the ld. Assessing Officer. Aggrieved with the additions/disallowances the assessee filed appeal before the learned Commissioner of Income Tax (Appeals), who partly allowed the appeal of the asses....
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.... substantially interested. 3. The shareholder was a beneficial owner of shares ( other than shares entitled to fixed rate of dividend) holding not less than 10% of the voting power . 4. The company was having accumulated profit. 5.3 But in the fact of the case of the assessee, the payment was received in a year prior to the relevant previous year and at that relevant point of time of receiving the advance, the assessee was not the beneficial shareholder of M/s. Sharda Enterprises Pvt. Ltd. and thus the conditions of Section 2(22)(e) of the Act are not fulfilled in the case of the assessee. The finding of the ld. CIT(A) on the issue are therefore well reasoned. The relevant para of the finding of the CIT(A) is reproduced as under: "4.3.1 In this ground the appellant is agitating against addition of Rs. 55,14,626/- as deemed dividend u/s 2(22)(e) of IT Act 1961. The AO has dealt with this issue at para 5 of his order. It is not in dispute that the appellant became a share holder of Sharad Enterprises Pvt. Ltd. during the year. It is also not in dispute that the appellant did not receive any advance from Sharad Enterprises Pvt. Ltd. during the year. The A....
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....ve been diverted for investment activity. It is seen that the appellant company's capital base is small and not enough to cover the amount covered by the investment of Rs. 9.74 crores. The share capital plus reserves and surplus stood at Rs. 3.04 crores as on 31.03.2006 which infact increased from Rs. 14.29 lakhs to Rs. 3.04 crores during the same period. However the appellant had non-interest bearing business funds. The total Sundry creditors increased from Rs. 5.10 crores to Rs. 11.08 crore and advances from customers increased from Rs. 61.30 Lakhs to Rs. 2.60 crores. 4.4.2 The appellant company had taken TOD (Temporary Over Draft) from Central Bank of India on which it has paid Rs. 72,618/- Bank of Punjab. The AO has not established in his order-that the borrowed funds have been diverted for making investment. In fact the AR has submitted that except for the TOD no loan was raised and just Rs. 72,618/- was expended on the same. An investment of Rs. 4.5 crores has been made during the previous year relevant to current assessment year and no fresh loans have been raised. There are fresh funds in the form of sundry creditors & advances from customers which more or less....
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....st payment of Rs. 66,50,248 made during the year was related to the said loan of Rs. 4.57 crores taken during the financial year 2008-09 and has nothing to do with the investment made by the company. He, therefore, stressed that the action of the Assessing Officer in taking the interest expenditure for calculating disallowance under rule 6D was wrong and submitted that no expenses were directly linked with the investment of the company. The ld. CIT(A) considered the submissions of the Authorized Representative and gave his findings, which is reproduced as under: " 4.1.2 I have considered the submissions of the AR and the facts of the case. There is merit in the AR's submission that the interest bearing fund have not been used for the investments activity of the company. Hence it would not be proper to take the interest expenditure for calculating disallowance under Rule 80. The AO also has not given any finding in the assessment order that he was not satisfied with the correctness of the claim of the assessee that no expenditure was incurred for investment activity. This is the requirement of law as held in the case of Maxopp Investment Ltd. (Supra). Thus the disallowa....