No Deemed Dividend on Enterprise Loans Between Holding and Subsidiary Underneath Part 2(22)(e): ITAT Ruling

Part 2(22)(e) applies solely to gratuitous loans or advances to shareholders, to not reciprocal and business-related transactions

The Revenue Tax Appellate Tribunal (ITAT), Mumbai Bench, delivered a ruling upholding aid granted by the CIT(A) on a number of contentious points together with deemed dividend, depreciation on time-share property, and fee expenditure.

The bench dismissed the Income’s appeals for Evaluation Years 2015-16 and 2016-17 in ITA Nos. 242 & 243/Mum/2023, holding that the findings of the decrease appellate authority had been sound, factual, and legally constant.

The assessee firm, Status Vacation Resorts Pvt. Ltd., is engaged in creating, advertising and working time-share resorts beneath the “Status” group. It holds and operates resorts, sells “time-share weeks” to members, and likewise earns fee revenue and administration charges from its subsidiaries and affiliate entities.

In the course of the scrutiny evaluation, the Assessing Officer (AO) noticed that the loans and advances to subsidiary entities had been allegedly within the nature of deemed dividend beneath Part 2(22)(e); depreciation claimed on time-share weeks was disallowed, stating that these don’t represent tangible constructing property; fee bills had been handled as unverifiable as a result of sure brokers didn’t reply to departmental verification notices beneath Part 133(6).

Primarily based on these observations, the AO made substantial additions to the returned revenue.

The CIT(A)-54, Mumbai, nonetheless, deleted all additions after detailed examination of contracts, accounting information, and supporting proof. The Division appealed earlier than ITAT Mumbai.

On attraction, the Tribunal, comprising Prashant Maharishi (Accountant Member) and Kavitha Rajagopal (Judicial Member) emphasised that the “industrial substance” take a look at should prevail over mere type of fee and “The quantities superior to and obtained from subsidiaries had been trade-related, backed by contractual obligations, and adjusted by way of operating accounts. Such reciprocal dealings, carried out within the regular course of enterprise, can’t be characterised as loans attracting Part 2(22)(e).”

On the problem of whether or not inter-company transactions represent deemed dividend (Part 2(22)(e)), the Bench famous that the AO had not established any private profit or shareholder benefit, which is a sine qua non for invoking deemed dividend provisions. Thus, the addition was deleted.

On the problem of depreciation on time-share weeks (Part 32), the Tribunal noticed “The assessee has demonstrated that the price of building of the resort items equivalent to time-share weeks is capitalised as a part of the constructing block, used for the enterprise of resort operations and time-share gross sales. Depreciation allowable beneath Part 32 is thus rightly claimed.”

The Bench famous that “possession” beneath Part 32 consists of not simply authorized title however efficient management and use of an asset for enterprise, citing the precept laid down by the Supreme Court docket in Mysore Minerals Ltd. v. CIT (1999). Therefore, the depreciation disallowance was dismissed as untenable.

On the problem of disallowance of fee bills (Part 37(1)), the Tribunal acknowledged “As soon as fee funds are by way of verifiable banking transactions, supported by agreements, confirmations, and subjected to TDS, mere non-response to summons doesn’t justify disallowance. The onus shifts again to the Division to determine falsity, which it has did not do.” Accordingly, the deletion of disallowance beneath Part 37(1) was upheld.

The Tribunal discovered that the CIT(A) has accurately appreciated the info and regulation in deleting the additions. Accordingly, the Income’s appeals had been dismissed, affirming full aid to the assessee for each AYs 2015-16 and 2016-17.