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12-04-2019, Microfinish Valves, Section 2(22)(e), 40(a)(i), Tribunal Bangalore

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2 months 1 week ago #9132 by amit
Section - 2(22)(e), 40(a)(i), 43B, 56
Order Date - 12-04-2019
Favouring - Partly
Court - Tribunal Bangalore
Appellant - Microfinish Valves Private Limited
Respondent - ACIT
Justice - N.V. VASUDEVAN VP & JASON P. BOAZ AM
Citation - 419Taxpundit167
Appeal No. - IT(IT)A No.1449/Bang/2015
Asstt. Year - 2011-12

Order

PER : Jason P Boaz

This appeal by the assessee is directed against the order of the CIT(A), Hubli, dated 10.09.2015 for Assessment Year 2011-12.

2. Briefly stated, the facts of the case are as under:

2.1 The assessee, a company, engaged in the business of manufacture of valves, filed its return of income for Assessment Year 2011-12 on 30.10.2011 declaring income of Rs.21,08,87,466/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short ‘the Act’) and the case was subsequently selected for scrutiny for this Assessment Year. The assessment was concluded under section 143(3) of the Act vide order dated 24.03.2014 wherein the assessee’s income was determined at Rs.24,66,57,560/-; in view of the following additions / disallowances:

(i) Deemed Dividend under section 2(22)(e) - Rs.3,30,00,000/-
(ii) Disallowance under section 40(a)(i) - Rs. 8,18,734/-
(iii) Disallowance under section 43B - Rs. 25,461/-
(iv) Capitalisation of Expenditure claimed as repairs - Rs. 14,20,430/-
(v) Disallowance of interest relating to WIP - Rs. 4,97,738/-
(vi) Difference in receipts as per 26AS - Rs. 7,263/-
(vii) Foreign exchange fluctuation - Rs. 468/-

2.2 Aggrieved by the order of assessment dated 24.03.2014 for Assessment Year 2011-12, the assessee preferred an appeal before CIT(A)-Hubli; which was dismissed vide the impugned order dated 10.09.2015.

3. The assessee, being aggrieved by the order of the CIT(A)-Hubli dated 10.09.2015 for Assessment Year 2011-12, has filed this appeal before the Tribunal wherein it has raised the following grounds:

1. Ld. CIT(A). on the facts and in law, erred in confirming addition of Rs. 3,30,00,000/- made by the Assessing Officer u/s 2(22)(e) of the Act. CIT(A) ought to have appreciated that provisions of section 2(22)(e) could not have been invoked, among others, for the reason that:-

(a) Said sum of Rs. 330 lacs was received by the Appellant Company as "Inter Corporate Deposit" (ICD) and not as "Advance or Loan";

(b) Appellant Company is not a Legal Registered Shareholder and Beneficial Shareholder of M/s Microfinish Trading Pvt Ltd. (MTPL) which had placed the ICD with the Appellant Company;

(c) At the beginning of the relevant previous year, MTPL did not have accumulated profits;

(d) Without prejudice, lending of money is substantial part of the business of MTPL.

2. Ld. CIT(A) erred in confirming and not deleting disallowance of Rs. 8,18,734/-u/s 40(a)(i) of the Act.

3. Ld. CIT(A) erred in confirming disallowance of Rs. 14,95,189/- out of Expenditure incurred by the Appellant Company on Repairs to Building, holding it as Capital Repairs, though depreciation is allowed at Rs. 74,759/-

4 Ld. CIT(A) erred in confirming disallowance of Rs. 4.97.738/- out interest expenditure. considered as part of cost of New Project being set up by the Appellant Company even when interest of Rs. 85,753/- was already allocated by the Appellant itself.

5. Ld. CIT(A) further erred in confirming addition of Rs. 7.263/- made by AO based on reconciliation difference between books and report in 26AS.

The Appellant craves leave to add to. alter or amend any of the grounds of appeal.

4. Ground No.1 – Deemed Dividend under section 2(22)(e) of the Act

4.1 In this ground (supra), the assessee contends that the authorities below erred in making / confirming the addition of Rs.3.30 Crores under section 2(22)(e) of the Act. According to the assessee, the CIT(A) ought to have appreciated that the provisions of section 2(22)(e) of the Act could not have been invoked, inter alia, for the reasons that (i) the said amount of Rs.3.30 Crores was received by the assessee as an ‘inter corporate deposit’ (ICD) and not as an ‘advance on loan’; (ii) that the assessee is not a shareholder of M/s. Microfinish Trading Pvt. Ltd., (MTPL), which had placed the ICD with the assessee and (iii) that at the beginning of the relevant previous year, MTPL did not have accumulated profits. The learned AR for the assessee submitted that this issue is covered in favour of the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for Assessment Year 2012-13 in ITA No. 1706/Bang/2017 dated 16.11.2018.

4.2 Per contra, the learned DR for Revenue supported the orders of the authorities below.

4.3.1 The issue for consideration before us, as raised in this ground (supra) is with regard to the action of the authorities below in bringing to tax a sum of Rs.3.30 Crores as deemed dividend under section 2(22)(e) of the Act. We find that the facts and circumstances of the case on hand are similar to the similar issue considered by the Co-ordinate Bench of this Tribunal in the assessee’s own case in Assessment Year 2012-13 (supra). In its order in ITA No.1706/Bang/2017 dated 16.11.2018, the Co-ordinate Bench, following, inter alia, the decision of the Special Bench of ITAT, Mumbai, in the case of Bhoumik Color Labs (ITA No.5030/M/04, 118 ITD 1 (SB) (Mum)), at paras 11 to 15 thereof, has held as under:

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