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TMI Blog2018 (9) TMI 1014X X X X Extracts X X X X X X X X Extracts X X X X ..... oth the companies are business transactions and the revenue could not place any evidence to controvert the same. Business transactions does not attract the rigor of deemed dividend u/s 2(22)(e) of the act. - Decided in favour of assessee - I.T.A.No.187/Viz/2018 and 188, I.T.A.No.189/Viz/2018 And 190/Viz/2018 - - - Dated:- 12-9-2018 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER For The Appellant : Shri Ch.Sanjeev, DR For The Respondent : Shri M Madhusudan, AR ORDER PER D.S. SUNDER SINGH, Accountant Member: These appeals are filed by the revenue against the order passed by the Commissioner of Income Tax [(Appeals)] [CIT(A)], Guntur-1 dated 05.03.2018 for the assessment year 2008-09 and 2009-10. Since the issues involved in these appeals are common, they are clubbed, heard together and disposed off in a common order for the sake of convenience as under. 2. Sri Madala Sudhakar and Smt. Madala Sakunthala are the Directors and the shareholders of M/s Janachaitanya Housing Pvt. Ltd., (hereinafter referred to as JHPL) and M/s Srusti Infrastructure Pvt. Ltd., (hereinafter referred to as SIPL). Sri Madala Sudhakar i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The objects and business activity of both the companies are identical and the properties were acquired in the name of SIPL in the normal course of business. There was no personal benefit derived by the directors directly or indirectly from the advances made by the SIPL for purchase of lands. The arrangement was made in the business interest and to stabilize the SIPL in the market. Since none of the directors have benefited in any manner and the properties were conveyed through conveyance deeds, the assessee argued before the AO that there is no case for taxing the same as deemed dividend and relied on the following decisions and requested not to tax the same as deemed dividend. (a) CIT Vs. Ankitech (P) Ltd. 340 ITR 14 (Del) (b) CIT Vs. A.R.Magnetics (P) Ltd. (2013) 220 Taxman. 209 (Del) 2.1. Not being convinced with the explanation of the assessee the AO relied on plethora of decisions which upholds the constitutional validity of section 2(22)(e) and taxed the same as deemed dividend u/s 2(22)(e) of the Act, in the hands of both the shareholders of SIPL for the assessment year 2008-09 and 2009-10. 3. Aggrieved by the order of the AO, the assessee went on appeal before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Fruits Ltd. (228 Taxmann 243) and argued before the Ld.CIT(A) that where the subsidiary company advanced money to purchase raw material or to make payments to meet the business liabilities, the provisions of deemed dividend are not applicable. The Ld.CIT(A) considering the decision of Hon ble Delhi High Court in the case of Ankitech(P) Ltd. (340 ITR 14) (Del), A.R.Magnetics Pvt. Ltd. (220 Taxman 209) (Del) , Daisy Packers (P) Ltd. (220 Taxman 331) and Creative Dyeing Printing Pvt. Ltd. held that the transactions of the SIPL with the JHPL are the business transactions and accordingly held that the business or trade transactions are out of the purview of the provisions of section.2(22)(e) of the Act. The Ld.CIT(A) also followed the decision of Hon ble Supreme Court in the case of SA Builders (158 Taxman 74) to hold that the transactions between two sister companies should be seen as business transaction unless the loans made available were siphoned by the directors or shareholders for personal use. The Ld.CIT(A) further relied on Circular No.19/2017 dated 12.06.2017 and accordingly held that there is no case for taxing the amounts advanced to SIPL as deemed dividend in the hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amounts advanced by the JHPL for purchase of lands, therefore argued that the transactions are purely business transactions, hence, the provisions of deemed dividend does not attract in this case. The assessee also relied on the decisions which was discussed by the Ld.CIT(A) in detail in his order. 6. We have heard both the parties and perused the material placed on record and gone through the orders of the lower authorities. In this case, the assessee had purchased lands at Kandukur village to the extent of 38.7750 acres for a sum of ₹ 3,10,20,000/- on 17.11.2007 and 4.8500 acres on 14.12.2007 for a sum of ₹ 48,50,000/- aggregating to ₹ 3,58,70,000/- as at the end of the year 31.03.2008. Similarly, a sum of ₹ 2,04,44,000/- was paid on 28.07.2008 for purchase of 8.00 acres of land. The entire amount of ₹ 5,63,14,000/- was paid by JHPL directly to the land owners by cheque. The amount was paid by cheque and the lands were registered in the name of assessee company. The assessee company and the lending company are sister concerns carrying on identical business. Sri Madala Sudhakar and Smt. Madala Sakunthala, both are Directors and the shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholders for their personal use. It is established by the assessee before the Ld.CIT(A) that the funds were used by the company for the purpose of business. Since the funds were placed at the disposal of the sister concern for developing the lands and to deliver the product in time frame, there is no doubt to hold that the amounts were advanced on commercial expediency. It is accepted that the borrowing company has delivered the product to the borrowing company after developing the land and offered the resultant profit the tax. Therefore, we agree with the finding of the Ld.CIT(A) that the transaction between the two companies in the form of purchase and sale of land is purely business and trade transaction and beyond the purview of the deemed dividend u/s 2(22)(e) of the Act. The Ld.CIT(A) relied on the plethora of judicial decisions discussed in this order apart from the following decisions to hold that the business transactions does not attract the provisions of deemed dividend u/s 2(22)(e) of the Act. 1. Hon ble High Court of Delhi in the case of CIT vs. Arvind Kumar Jam ITA No.589/2011 [2011-ITRVHC-DEL-270] has held that if the payments are made by a company to its share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to come within the ambit of s.2(22)(e). In the present case, the amount was withdrawn by the assessee from the company only to meet her short term cash requirements. By virtue of offering personal guarantee and collateral security for the benefit of the company, the liquidity position of the assessee had gone down. In the strict sense, the amount forwarded by the company tot eh assessee was not in the shape of advances or loans. The arrangement between the assessee and the company was merely for the sake of convenience arising out of business expediency 2. Hon'ble High Court of Calcutta in the case of Pradip Kumar Malhotra vs. CIT ITA No.219/2003 [2011-ITRVHC- KOL-274] has held that nongratuitous advances to substantial shareholder is not deemed dividend u/s 2(22)(e). It was held: The phrase by way of advance or loan' s. 2(22)(e) must be construed to mean those advances or loans which a shareholder enjoys simply on account of being a person who is the beneficial owner of shores. If such loan or advance is given to such share holder as a consequence of any further consideration received from the shareholder, then such advance or loan cannot be said to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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