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2021 (7) TMI 81 - AT - Income TaxDeemed dividend u/s 22(22)(e) - HELD THAT - We are of the considered view that the case of the assessee is squarely covered as the assessee and its subsidiary were in the same business. The money had been taken to purchase a land, which was common purpose and a current account was being maintained between the assessee and its subsidiary. Accordingly, we direct to delete the addition made u/s Section 2(22)(e) of the Act qua the issues. Disallowance u/s 40A(3) - assessee had to make payment in cash as the seller was not ready to accept payment through cheques - HELD THAT - We are of the considered view that we find merit in the contention of the assessee and we direct to delete the addition made u/s Section 40(A)(3) of the Act qua this issue.
Issues Involved:
1. Addition under Section 2(22)(e) of the Income Tax Act. 2. Disallowance under Section 40A(3) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Addition under Section 2(22)(e) of the Income Tax Act: The primary issue revolves around the addition of ?58,78,803/- under Section 2(22)(e) of the Income Tax Act, which pertains to deemed dividends. The assessee contended that the addition was erroneous because the company was not a shareholder in M/s Skyways Industrial Estate Pvt. Ltd. The Tribunal noted that Section 2(22)(e) defines 'dividend' to include any payment by a company to a shareholder holding not less than ten percent of the voting power, or to any concern in which such shareholder has a substantial interest. The Tribunal observed that the assessee company was not a shareholder in M/s Skyways Industrial Estate Pvt. Ltd., as evidenced by the shareholder list. Consequently, the question of any advance or loan to a shareholder did not arise, and the deeming provision of Section 2(22)(e) was not applicable. The Tribunal also noted that Mrs. Manju Gupta, who held substantial interest in M/s Skyways Industrial Estate Pvt. Ltd., was a majority stakeholder in the assessee company, and the addition had already been made in her case. The Tribunal relied on the decision of the Rajasthan High Court in the case of M/s Hotel Hilltop, which held that deemed dividend liability could be attracted in the hands of the individuals being shareholders, not in the hands of the firm. The Tribunal concluded that the transactions between the assessee and M/s Skyways Industrial Estate Pvt. Ltd. were intercorporate current account business transactions, and no amount had gone to the shareholder. Therefore, the addition under Section 2(22)(e) was deleted. 2. Disallowance under Section 40A(3) of the Income Tax Act: The second issue pertained to the disallowance of ?42,00,000/- under Section 40A(3) of the Income Tax Act, which prohibits cash payments exceeding a specified limit. The assessee argued that the payment was made in cash because the cheques issued were dishonored, and the seller was not ready to accept payment through cheques. The cash payment was necessitated to honor the registered sale deed agreement. The Tribunal considered the rival contentions and noted that the payment was made to Smt. Santosh Devi for the purchase of land. The Tribunal referred to the decision of the ITAT Jaipur Bench in the case of M/s Vijayeta Buildcon Pvt. Ltd. and the judgment of the Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh, which emphasized that genuine and bona fide transactions are not taken out of the sweep of Section 40A(3). The Tribunal observed that the identity of the payee and the genuineness of the transaction were established, and the payment was made under exceptional circumstances. The Tribunal concluded that the assessee had demonstrated business expediency and genuine difficulty in making the payment through cheques. Therefore, the disallowance under Section 40A(3) was deleted. Conclusion: The Tribunal allowed the appeals of the assessee, deleting the additions made under Section 2(22)(e) and Section 40A(3) of the Income Tax Act. The Tribunal emphasized that the transactions were genuine business transactions carried out in the ordinary course of business and that the deeming provisions and disallowances were not applicable in the given circumstances.
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