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TMI Blog2018 (7) TMI 1545X X X X Extracts X X X X X X X X Extracts X X X X ..... nal assessment in this case was completed u/s. 143(3) of the Act on 14.11.2012 at returned income at Rs. 7,19,410/-. Notice u/s. 148 of the Act was issued on 24.1.2013, after recording reasons and objections were filed by the assessee were also disposed of vide order dated 17.2.2013. Notice u/s. 142(1) of the Act alongwith questionnaire was issued on 20.12.2013. In response to the same, the A.R. of the assessee attended the proceedings from time to time and filed the necessary details/ clarifications. The AO reassessed the income of the assessee Rs. 1,10,19,412/- after making addition of Rs. 1,03,00,000/- as deemed dividend u/s. 2(22)(e) of the Act vide his order dated 11.3.2014 passed u/s. 148 of the Act. Against the reassessment order dated 11.3.2014, the assessee appealed before the Ld. CIT(A), who vide his impugned order dated 1.9.2014 deleted the addition u/s. 2(22)(e) of the Act on the ground that the said amount was advanced for the business purposes and hence a commercial transaction not covered within the meaning of deemed dividend u/s. 2(22)(e) of the Act. 4. Aggrieved with the ld. CIT(A)'s order, the Revenue is in appeal and assessee has filed Cross Objection. 5. Ld. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M where Hon'ble ITAT Delhi held that mere repayment of money borrowed by the shareholder will not escape him from the provisions of section 2(22)(e), and thus, it can be treated as deemed dividend. 6. Sunil Kapoor Vs CIT f2015l 63 taxmann.com 97 (Madras)/[2015] 235 Taxman 279 (Madras) where Hon'ble Madras High Court held that where assessee, holding 60 per cent shares of a company, took personal loan from accumulated surplus of said company, said amount would be treated as deemed dividend under section 2(22)(e), after reducing therefrom amount repaid by assessee during year 7. Shashi Pal Aqarwal Vs CIT T20151 54 taxmann.com 289 (Allahabad)/[2015] 229 Taxman 307 (Allahabad)/[2015] 370 ITR 720 (Allahabad) where Hon'ble Allahabad High Court held that where lending of money was not part of business of lending companies, loan/advance given to assessee-shareholder would be treated as deemed dividend under section 2(22)(e) 8. Star Chemicals (P.) Ltd Vs CIT T72 Taxman 279. 203 ITR 11, 114 CTR 1851 where Hon'ble Bombay High Court held that provisions of section 2(22)(e) would apply to a company which had taken loan from its subsidiary. 9. CIT v Sunil Chopra f20111 12 taxmann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and hence a commercial transaction. The AO has quoted the explanation at Pg 10 para (g) and Pg 12 para (b) where records as under: Page 10 "(g) To Sum up M/s Super Plastic Coats Limited had advanced (advance against Business transaction and Material amounting to Rs. 1.0 Crores) to Northern Strips Limited and M/s Northern Strips Limited had advanced against business transactions amounting to Rs. 3.0 Lacs to Allied Poles India Limited and not the assessee whose case is supposed to be reassessed under section 147 read with Section 148 of the Act. It may be placed on record that Section 2(22)(e) of the Act provided the payment to the assessee who is registered Share holder not in the case of assessee who had not received the payment." Page 12 (b) It may be placed on record that M/s Super Pastic Coats Private Limited and M/s Northern Strips Limited are engaged in similar trade and activities. It had already been stated during assessment proceedings of both the Companies (the assessment proceedings in both the company case have been completed under section 143(3) of the Act and under your charge) that these amount was given as advance against material. The same fact was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan. [Para 10.4]. Keeping the aforesaid rule in mind, the word 'advance', which appears in the company of the word 'loan', can only mean such advance which carries with it an obligation of repayment. Trade advance, which is in the nature of money transacted to give effect to a commercial transaction, would not fall within the ambit of the provision of section 2(22)(e). This interpretation would alloy the rule of purposive construction with noscitur a sociis.[Para 10.9]" 9. Further reliance in this regard is placed on the following judgments: * Delhi High Court in the case of CIT v. Sunil Sethi in ITA No. 569/2009 dated 03.02.2010 After hearing the counsel for the appellant / revenue, we are unable to agree with her submission that the Tribunal had erred in deleting the said addition. This is so because we are of the view that the finding was one which was purely of fact. The Tribunal observed that the only basis on which the provisions of Section 2(22)(e) were contested by the assessee was that the amount of Rs. 30 lakhs, which had been given by the company to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected running business relationship and there was a running account maintained by the assessee showing those transactions as in the books of accounts, though the amount was shown as "unsecured loan". - It is trite law that mere nomenclature of entry in the books of accounts is not determinative of the true nature of transaction. See Commissioner of Income Tax Vs. India Discount Co. Ltd. (1969 - TMI - 5158 - SUPREME Court) - the payment made were the result of trading transaction between the parties and the amount was not given by way of loan or advance. - Decided against the revenue. * ITAT Agra Bench in the case of Krishan Murari Lai Agarwal v. DCIT [2013] 59 SOT 136 Deemed dividend u/s 2(22)(e) - Disallowance u/s 56 rws 2(22)(e) - Commercial transaction versus loan or advances - Held that:- sub-clause (e) of Section 2(22) lays down that dividend includes any payment by a closely held company of any sum by way of advance or loan to a shareholder who comes in the category described in that sub-clause or to a concern in which such shareholder has a substantial interest. Dividend under the sub-clause also includes any payment by such company on behalf or for the individual ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hern Strips Pvt. Ltd. and further 29.79% shares in M/s Super Plastic Coats Ltd.. M/s Super Plastic Coats Ltd. is holding 99.40% shares of M/s Allied Poles India Ltd. and Assessee holds 0.05% shares of M/s Allied Poles India Ltd. Therefore, the AO has held that by virtue of holding in M/s Super Plastic Coats Ltd., the assessee holds substantial interest in Allied Poles India Ltd. and therefore, the provisions of section 2(22)(e) of the Act are applicable in the hands of the assessee of the loan of Rs. 1 Crore received by M/s Northern Strips Pvt. Ltd. and Rs. 3 lacs by M/s Allied Poles India Ltd. Looking at the brief nature of transaction, it is important to note that the amount of Rs. 1 Crore was received by M/s Northern Strips Pvt. Ltd. from M/s Super Plastic Coats Ltd. in its current account with Karnataka Bank Ltd. on 19.10.2009 and on the same date M/s Northern Strips Pvt. Ltd. paid Rs. 1 Crore to M/s Super Plastic Coats Ltd. This fact is evident by the amount credited in the bank account of M/s Super Plastic Coats Ltd. on 20.10.2009. Therefore, it is apparent to note that on the same date there is a transaction of Rs. 1 Crore received from M/s Northern Strips Pvt. Ltd. and on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icular case the Hon'ble Supreme Court has held that when the loans are given to the parties on various dates and subsequently when adjustment of accounts was made on the last day of the accounting year would not alter the position that assessee received notional dividends on various dates and therefore, the Hon'ble Supreme Court held that the same is covered under the definition of deemed dividend. In that particular case the assessee has withdrawn a sum of Rs. 93,027/- from 03.7.1972 to 22.3.1973. The letter dated 03.4.1972 was relied upon written by another party that the above amount given as a loan to that assessee may be debited to the extent of Rs. 1 lakh from his account and consequently there was no outstanding of the concerned assessee on the last day of the accounting year. The Hon'ble Supreme Court held that on each date of the withdrawal there was a debit balance in the account of the assessee which was ultimately squared up at the end of the accounting year and therefore, it cannot be said that advances were not given to the assessee. In the present case the transactions of Rs. 1 Crore and another transaction of Rs. 3 lacs were squared up on the same date. There was no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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