2020 (12) TMI 117

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....(22)(e) of the Act. 4. The assessee company is engaged in the business of construction, development and sale of all types of housing projects, commercial projects and related activities. 5. The first issue contested by the assessee relates to the disallowance of interest expenditure u/s 36(1)(iii) of the Act. The AO noticed that the assessee has taken interest bearing loans from various persons to the tune of Rs. 29.16 crores. It was also noticed that the assessee has given interest free loans to related concerns to the tune of Rs. 10.26 crores. Further, he assessee had also claimed interest expenditure of Rs. 1,54,10,932/-. Hence the AO proposed to disallowed a part of interest expenditure. When questioned, the assessee offered following explanations:- (a) The interest free loans were given to subsidiary companies, which are also engaged in the real estate development activities only. Hence it is in furtherance of business activities of the assessee. (b) The assessee has got interest fee funds in the form of "Advances from customers" and it has been used to give interest fee loans. Hence it should be presumed that interest free funds have been used to give interest free loan....

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.... is disputed. In the present case, undisputedly the Assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in the tax-free securities. In view of this factual position, as per the judgment of this Court in the case of Reliance Utilities & Power Ltd. (supra), it would have to be presumed that the investment made by the Assessee would be out of the interest-free funds available with the Assessee. We therefore, are unable to agree with the submission of Mr Suresh Kumar that the Tribunal had erred in dismissing the Appeal of the Revenue on this ground. We do not find that question (A) gives rise to any substantial question of law and is therefore rejected." (** 313 ITR 340) It may be noticed that the above said decision was made in the context of the disallowance made u/s 14A of the Act. However, the Hon'ble Bombay High Court has followed the decision rendered by it in the case of Reliance Utilities and Power Ltd, wherein the question was disallowance made u/s 36(1)(iii) of the Act. It may also be noticed that the decision rendered in the case of HDFC Bank Ltd (supra) has been followed by the jurisdictional Hon'ble Karnataka Hig....

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....tructions (P) Ltd (2015)(57 taxmann.com 120)(Kar) and CIT vs. M/s Shree Balaji Glass Manufacturing P Ltd (2016)(72 taxmann.com 118)(Cal.) 6.3 The AO did not accept the contentions of the assessee. As noticed earlier, the "Reserves & Surplus" of Rs. 22.66 crores included "Surplus in P & L a/c" of Rs. 4,42,41,971/-. Accordingly, the AO held that the loan to the extent of Rs. 4,42,41,971/- is assessable as deemed dividend income u/s 2(22)(e) of the Act. Accordingly he assessed the same as deemed dividend. 6.4 The Ld CIT(A) noticed that the assessee has received loans from APMS to the extent of Rs. 5,11,38,000/- and repaid a sum of Rs. 4,99,88,354/-. Accordingly, the Ld CIT(A) held that the net amount of Rs. 11,49,646/- only as deemed dividend u/s 2(22)(e) of the Act. Aggrieved, by the decision so rendered by Ld CIT(A), both the parties are in appeal before us. 6.5 We notice that the decision taken by Ld CIT(A) to give set off amounts repaid is against the decision rendered by Hon'ble Supreme Court in the case of Miss P Sarada vs. CIT (229 ITR 444)(SC). In the above said case, Hon'ble Supreme Court held that the loan or advance taken from the company may have been ultimately repaid ....

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....s prepared under the Companies Act. Further, the term "accumulated profits" has been defined under Explanation 2 to sec.2(22)(e) of the Act. As submitted by Ld D.R, the said definition does not provide for exclusion of any amount from the "accumulated profits". (b) Reversal of Deferred tax liability is nullifying the effect of provision created earlier, meaning thereby, the net monetary effect would be nil, when it is reversed. For example, if Rs. 100/- is transferred to Deferred tax liability in any of the earlier years and if the same is reversed now, then both the transactions get neutralised and hence the same shall not have any effect on "accumulated profits". Accordingly, no adjustment need be made in the year of reversal. 6.10 Accordingly, the accumulated profit amount determined by the AO at Rs. 4,42,41,971/- is justified and accordingly we hold that the AO was justified in assessing the same as deemed dividend u/s 2(22)(e) of the Act. Accordingly, we reverse the order passed by Ld CIT(A) on this issue. 7. The remaining issue contested by the revenue relates to the addition made u/s 14A of the Act. 7.1 The AO noticed that the assessee has made investment of Rs. 14,72,6....