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TMI Blog2019 (4) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out that search and seizure operation was conducted on 15.7.2008 at the residential and business premises of Jindal group of cases and the assessee was also covered. That thereafter assessment order was passed u/s 153B(1)(b) r.w.s. 143(3) of the Act for all the impugned years making similar additions. It was common ground therefore that common issues arose in all the said appeals. They were therefore heard together and are being disposed of by this common & consolidated order. We shall first be taking up the appeal of the assessee in ITA No.44/Chd/2014. ITA No.44/Chd/2014 (A.Y. 2006-07): 3. Ground Nos. 1 and 2 raised by the assessee read as under: "1. That the Worthy CIT (A) has also erred in dismissing the grounds of appeal pertaining to objection of assessee with regard to reference to the Special Auditor in terms of section 142 (2A). 2. That the Worthy CIT (A) has erred in not considering that the conditions for reference to the special audit have not been fulfilled and since the assessee had not been maintaining any personal books of accounts, no complexity was there for the purpose of referring the case to the special audit and, as such, the assessment having be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; Sunita Jindal = 600 shares, Roshan Lal Jindal = 1200 shares Amit Jindal = 600 shares, Ashok Jindal = 1200 shares, Roshan Lal Jindal = 1200 shares Total Heera moti Spicy Products Hiramoti agro products Swami Devi Dayal Hitech Education society 100% 20% Member 50000 113322 395000 50000 19998 79000 1,48,998 7. The A.O. held that as per the aforesaid details, the conditions enumerated in section 2(22)(e) of the Act, of the impugned payments being in the nature of deemed dividend, stood fully satisfied in the case of the assessee and confronted the same to the assessee. In response, due reply was filed by the assessee stating that the impugned advance did not qualify as deemed dividend u/s 2(22)(e) of the Act since they had been made out of business expediency and in the ordinary course of business. Finding the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held that where transactions are in the nature of commercial expediency, there is no question of deemed dividend: 1) CIT Vs. Creative Dyeing & Printing P. Ltd., 318 ITR 476 2) M/s Bagmane Constructions Pvt. Ltd. Vs. ACIT, ITA No.446/Bang/2010 10. Copies of the orders were also placed before us and it was pointed out that against the decision of the Hon'ble Delhi High Court in the case of Creative Dyeing & Printing P. Ltd. (supra) the Revenue had gone in appeal before the Hon'ble Supreme Court, which had in turn dismissed the SLP filed by the Revenue. The Ld. counsel for assessee further drew our attention to the submissions made proving commercial expediency of the transactions as reproduced in para 8.4 of the assessment order as under: "8.4 in response to the said show cause notice, the counsel of the assessee vide its letter no. nil dated 06.06.2011 field a written reply. In the written submission the assessee reiterated that the amounts debited to the firm M/s Heera Moti Agro Products, in the books of the company M/s Heera Moti Health Care product Ltd & M/s Himland Agro Foods (India) Ltd were provided out of commercial/ business expediencies and there was no inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and they were, therefore, clearly not in the nature of trade advances or advances given in the ordinary course of business and were clearly in the form of loans and advances which were covered by section 2(22)(e) of the Act to be treated as deemed dividend. Our attention was drawn to the relevant findings of the A.O. at para 8.7 of the order as under: "8.7 The ledger accounts (copy enclosed) produced by the assessee in support its contention reveal the following transactions between the companies (in which the assessee is a substantial shareholder) and the concerns in which the assessee is substantial partner. A perusal of ledger account filed by the assessee and admission in her written reply reveals that the transactions between the two concerns are of the following nature: * The funds were transferred from the company to the firm to keep the keep the cash credit a/c within limit. * The funds were transferred by the away of transfer entries transfer because of common parties in books of account of both the parties * The funds were transferred to the bank account of the concern by the way of bank transfer or through cheques. The above indicates that the funds have been transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us. The issue before us relates to the provisions of section 2(22)(e) of the Act which defines the term "dividend" and as per the said clause any payment made by a company by way of advance or loans to a shareholder who is the beneficial owner of shares holding not less than 10% of voting power or to any concern in which such shareholder is a member having substantial interest is to be treated as dividend. Thus the qualifying conditions for treating any payment is dividend as per the provisions of section 2(22)(e) of the Act are; i) the payment is in the nature of loan or advance; ii) the payment is made to a shareholder who has not less than 10% voting power interest he company; iii) or the payment is made to another company in which such shareholder has substantial interest, which has been defined as being beneficial and entitled to not less than 20% income of the said company. 14. The present case before us falls in the third category, the loans and advances having been made by a company in which the assessee has beneficial interest to another company in which the assessee has substantial interest. The fact of the assessee being a beneficial shareholder in the company givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goodwill and ultimately the business of the other concerns in the group. Therefore the advances made in the present case to tide over short term deficiencies of fund ,in our view ,qualified as advances for business purpose. We draw support to our above view from the judgment of the Hon'ble Jurisdictional High Court in the case of Bright Enterprises Pvt. Ltd. (supra), as pointed out by the Ld. counsel for assessee, wherein it has been held that helping the group concerns by way of providing funds is purely in the nature of commercial expediency. The relevant findings of the Hon'ble High Court in this regard are as under: "The following facts, therefore, stand established. M/s Kolkatta Hotels Private Limited is a sister concern of the appellant by virtue of the appellant holding 88.75% of its equity shares. The appellant invested a huge amount of about Rs. 18 crores in the sister concern. The appellant and its sister concern are in the same business. For the point under consideration, it may not have made any difference even if they were not in the same business. However, the fact that they are in the same business is a further aspect in the appellant's favour. The parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further establish the findings. 11. The Tribunal's observation that there is nothing on record that the money advanced by the appellant to its sister company had been used as a measure of commercial expediency, was not justified. The appellant furnished all the documents in this regard. The appellant expressly stated that the amounts had been utilized for commercial activity. This assertion was never denied. The appellant was not required to do anything further to establish its assertion that its sister company had utilized the amounts for the purposes of its business. The finding of the Tribunal is not based on any material. It is important to note that the Tribunal had not even suggested that such a case was put to the appellant or its authorized representative and that despite the same the appellant failed to establish the same. 12. The view of the Tribunal that the CIT (Appeals) had not considered the decision of the Supreme Court in S.A. Builders Ltd. vs. Commissioner of Income-Tax (Appeals) and another (supra) in "right spirits" and that the CIT had wrongly interpreted the judgment is not well-founded. In S.A Builder vs. CIT (supra), the Supreme Court observed:- "It is tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has utilized the borrowed amount in its own business or has advanced the same as interest free loan to its sister concern. What is relevant is whether the amount, so advanced was as a measure of commercial expediency or not. It is not necessary that the amount so advanced is earning profit or not but there must be some nexus between expenses and the purpose of business." It is important to note that the Division Bench in arriving at its conclusion followed the judgment of the Supreme Court in S.A. Builders Ltd. vs. Commissioner of Income-Tax (Appeals) and another (supra). The Division Bench, in fact, after remanding the matter, expressly directed the Tribunal to consider the matter in the light of the principles laid down by the Supreme Court in S.A. Builders Ltd. vs. Commissioner of Income-Tax (Appeals) and another (supra). 14. The appellant's case meets each of the tests stipulated by the Division Bench. In fact, it meets a higher test. When a holding company invests amounts for the purpose of the business of its subsidiary, it must of necessity be held to be an expense on account of commercial expediency. A financial benefit of any nature derived by the subsidiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision in Phaltan Sugar Works Ltd. vs. CIT (1995) 127 CTR (Bom) 359 : (1994) 208 ITR 989 (Bom) in which it was held that deduction under s. 36(1)(iii) can only be allowed on the interest if the assessee borrows capital for its own business. Hence, it was held that interest on the borrowed amount could not be allowed if such amount had been advanced to a subsidiary company of the assessee. With respect, we are of the opinion that the view taken by the Bombay High Court was not correct. The correct view in our opinion was whether the amount advanced to the subsidiary or associated company or any other party was advanced as a measure of commercial expediency. We are of the opinion that the view taken by the Tribunal in Phaltan Sugar Works Ltd. (supra) that the interest was deductible as the amount was advanced to the subsidiary company as a measure of commercial expediency is the correct view, and the view taken by the Bombay High Court which set aside the aforesaid decision is not correct. 30. Similarly, the view taken by the Bombay High Court in Phaltan Sugar Works Ltd. vs. CIT (1994) 122 CTR (Bom) 344 : (1995) 215 ITR 582 (Bom) also does not appear to be correct. 31. We agree wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the all companies in the group also, the impugned advances, we unhesitatingly hold, are for the purpose of business only and not in the nature of loans and advances simpliciter benefiting any substantial or beneficial shareholder only. We, therefore, hold that the impugned advances in the present case amounting to Rs. 69,998/- do not qualify as loans and advances for the purpose of treating them as deemed dividend as per the provisions of section 2(22)(e) of the Act. The addition made in this regard is, therefore, directed to be deleted. Ground of appeal No.3 raised by the assessee is, therefore, allowed. 18. Ground No.4 raised by the assessee reads as under: "4. That the Worthy CIT (A) has erred in restricting the addition amounting to Rs. 10,36,124/- out of addition of Rs. 28,16,098/- made by the Assessing Officer on account of unexplained cash credit u/s 68 as per 10.1.2 of her order." 19. Brief facts relevant to the issue are that the Special Auditors appointed had pointed out that page Nos.1 to 65 of Annexure-A-2 Delta 2 was a diary maintained by the assessee regarding day-to-day cash receipts and payments. It was pointed out by the auditors that the assessee had main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2007-08 also wherein the Department had also come up in appeal challenging the restriction of addition and where the Department has raised additional ground seeking restoring the matter to the A.O. since the evidences filed by the assessee explaining the entries in the diary, were not confronted to the A.O. The Ld. counsel for assessee contended that the issue be adjudicated in assessment year 2007-08 and the decision rendered therein be applied to the present ground also. The Ld. DR did not object to the same. Accepting the request of the Ld. counsel for assessee we shall be adjudicating this ground alongwith ground raised by the assessee and Revenue in assessment year 2007-08 in ITA No.45/Chd/2014 and ITA No.108/Chd/2014 respectively. 22. The assessee has raised additional ground before us vide its letter dated 10.10.2015, which were revised vide letter dated 23-07-16 and reads as under: "1. That the Worthy Commissioner of Income Tax(Appeals) has erred in confirming the addition on various issues as per ground of appeal despite the fact that no incriminating evidence was found during the course of search conducted on 15.07.2008 by the department on account of various addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly was furnished by the assessee and the A.O., therefore, added the said sum to the income of the assessee as per the provisions of section 40(a)(ia) of the Act. 30. The matter was carried in appeal before the CIT(A) who upheld the order of the A.O. stating that the brand was registered in the name of M/s Heera Moti Spices Pvt. Ltd. who was charging 4.1% royalty on the total turnover and since no TDS was deducted on the same, the addition had been rightly made by the A.O. u/s 40(a)(ia) of the Act. 31. Before us the Ld. counsel for assessee contended that the brand charges had been reflected as income by the recipient of the same and had also been paid taxes on the same. The prescribed certificate of an accountant u/s 201(1) of the Act , in Form No.26A, in this regard was filed before us. The Ld. counsel for assessee, therefore, contended that in view of the amended provisions of section 40(a)(ia) of the Act as per which where taxes have been paid by the recipient of the incomes, the assessee cannot be treated as an assessee in default for not having deducted TDS on the same and no addition, therefore, can be made u/s 40(a)(ia) of the Act. The Ld. counsel for assessee stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e directions to redecide the issue by following the reasons for decision given by the CIT(A) for assessment year 2003-04 wherein identical addition had been deleted. The Ld. counsel for assessee pointed out that in the said case it was brought to the notice of the I.T.A.T. that in assessment year 2003-04 the entire balance outstanding in the name of sundry creditors had been added back which had been deleted by the Ld.CIT(A) noting that the said addition was not tenable since trading results had otherwise been accepted by the A.O. for the impugned year and, therefore, it defied logic to add back entire balance in the account. It was also noted that many of the parties were having running account prior to 1.4.2002 and CIT(A), therefore, held that by adding back entire balance of sundry creditors the entire trading results of the assessee would be abnormal. Accordingly, the Ld.CIT(A) allowed assessee's appeal relating to assessment year 2003-04 but for the assessment year 2007-08 fresh credit additions were found to be in order and addition made by the A.O. was confirmed by the CIT(A). It was pointed out from the order that the I.T.A.T. held that having deleted addition made in asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his order for assessment year 2003-04, there should not be any reason to confirm the addition against the assessee in assessment year under appeal, because the facts are identical. the assessee pleaded that purchases have been made from various parties and assessee has running accounts with them. All entries are shown in the books of account which have been seized by the department. The assessee has produced the chart in the Paper Book from assessment year 2002-03 to 2008-09 to show that these are running accounts with various parties since long. According to ld. counsel for the assessee, even in some of the cases of the group, who were trade creditors in assessment year under appeal, are assessed by the same Assessing Officer, therefore, facts should have been verified from their record available with the Revenue Department. In assessment year under appeal also, trading results have been accepted by Assessing Officer, therefore, for balance trading amount, the ld. CIT(Appeals) should not have confirmed the addition. The parties have running accounts with the assessee and if similar addition is made, it would give entire trading results of the assessee, to be abnormal. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer on account of unexplained cash credit u/s 68 as per 10.1.1 of her order." 41. It was pointed out that the Revenue has also raised ground of appeal No.ii and also an additional ground on this issue as under: 42. Ground No.ii raised by the Revenue reads as under: "(ii) Whether on the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 50,37,348/- made by the AO on account of seized documents as pages 165 of Annexure-2 of Delta 2 and pages 1-54 of Annexure-7 of Delta 2?" 43. The additional ground raised by the Revenue vide its letter dated 17.04.2018 reads as under: "Whether on the facts and in the circumstances of the case, the CIT(A) erred in law while giving relief without affording an opportunity to the AO for examination of additional evidence produced during appellate proceedings which were not filed before the AO earlier and without invoking the provisions of Rule 46A of the Income Tax Rules,1962." 44. The issue in the above grounds relates to the addition made on account of a seized document, admittedly reflecting cash transactions of receipts and payment undertaken by the assessee, which in the absence of any plausib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal of the assessee in ITA no 44 & 45/Chd/14 is therefore partly allowed for statistical purposes. 51. We now take up the appeal of the Revenue in ITA No.108/Chd/2014. 52. Ground No.(i) raised by the Revenue reads as under: "(i) "Whether on the facts and in the circumstances of the case, the CIT(A)has erred in deleting the addition of Rs. 1,00,000/- made by the AO on account of deemed Income u/s 2(22)(e) of the IT. Act, 1961?" 53. In the above ground the Revenue has challenged deletion of addition made on account of deemed dividend u/s 2(22)(e) of the Act on account of loans and advances given to Swami Devi Dayal Hi-tech Education Academy. The A.O. had made addition of the advances made by M/s Heera Moti Health Care Product Ltd. in which the assessee was a beneficial shareholder holding 10.34% shares of Swami Devi Dayal Hi-tech Education Academy in which the assessee was a member holding that it had substantial interest in it since documents seized during the course of search showed that the funds of the society had been utilized by the members of the society and their family members. The Ld.CIT(A) deleted the impugned addition stating that the transaction was outside the sco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in Herra Moti Health Care Product Ltd. & Heera Moti Spicy Pvt. Ltd., who had advanced the impugned sum, is not disputed. What is required to be seen is whether the assessee was beneficially entitled to 20% or more of the income of Swami Devi Dayal Hi-tech Education Academy. It is not disputed that Swami Devi Dayal Hi-tech Education Academy is a charitable trust registered u/s 12AA of the Act. That the assessee is a trustee in the said trust has also not been disputed and the fact that there are no interest of any member of the said society in the Trust is also not disputed. In the said circumstances, we are left with no option but to agree with the Ld.CIT(Appeals) that second limb or requirement of section 2(22)(e) of the assessee having substantial interest in the concern to which loan or advance has been given has not been established and, therefore, the said advance cannot be treated as deemed dividend in the hands of the assessee. The arguments of the Ld. DR that the documents seized during the course of search show that the funds had been utilized by the members of the society, and therefore, assessee derived personal benefit is of no consequence since the requirement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash to this extent had not been reflected in the books of the assessee. No details were furnished by the assessee during assessment proceedings, nor any cash flow statement filed and, therefore, the A.O. made addition of the impugned sum to the income of the assessee. During appellate proceedings the assessee filed a detailed cash flow statement reflecting repayment of the impugned sum, after considering which the CIT(A) allowed the assessee's appeal on this count and deleted the addition made. 60. Before us the Ld. DR contended that the additional evidence furnished by the assessee before the Ld.CIT(A) in the form of cash flow statement was not confronted to the A.O. and, therefore, the CIT(A) had erred in allowing relief to the assessee on the basis of this cash flow statement which was not in accordance with the provisions of Rule 46A of the Income Tax Rules, 1962. The Ld. DR contended that the issue, therefore, needed to be restored back to the A.O. and thereafter be adjudicated. 61. The Ld. counsel for assessee did not object to the same, nor was he able to controvert the fact that the cash flow statement was not confronted to the A.O. during appellate proceedings. 62. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income Tax Act as per para 8.2 of her order." 70. It was common ground that the facts and issue involved in this ground was identical to ground No.5 raised by the assessee in his appeal in ITA No.45/Chd/2014. Since the issue in the said case has been restored back to the A.O. for fresh adjudication,at para 32 of our order above, in the light of the pleading and evidences filed by the assessee to the effect that since taxes have been paid by the recipient of income no disallowance was warranted u/s 40(a)(ia) in the case of the assessee, the decision rendered therein shall apply mutatis mutandis to this ground also. This ground of appeal No.4 raised by the assessee is, therefore, allowed for statistical purposes. 71. Ground No.5(a) & (b) raised by the assessee reads as under: "5 a). That the Worthy CIT (A) has erred in restricting addition of Rs. 3,98,000/- out of addition of Rs. 7,27,000/-(Being excess of payment of Rs. 7,27,000/- over cash receipts of Rs. 3,29,000/-) made by the Officer on account of unexplained expenditure u/s 69 C as per para 9.2 of her order. b). That the Worthy CIT(A) has also erred in directing the Assessing Officer to apply gross profit rate of 20.17% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax(Appeals) has erred in confirming the addition on account of sundry creditors as outstanding in the books of accounts despite the fact that no evidence was found during the course of search that the creditors were not existing 2. That the addition is otherwise not sustainable because of number of judgements in favour of assessee" 78. The same was not pressed before us and, is therefore dismissed as not pressed. In effect the appeal of the assessee is partly allowed for statistical purposes. 79. We now take up the appeal of the assessee in ITA No.47/Chd/2014. 80. Ground No.1 and 2 raised by the assessee reads as under: "1. That the Worthy CIT (A) has also erred in dismissing the grounds of appeal pertaining to objection of assessee with regard to reference to the Special Auditor in terms of section 142 (2A). 2. That the Worthy CIT (A) has erred in not considering that the conditions for reference to the special audit have not been fulfilled and since the assessee had not been maintaining any personal books of accounts, no complexity was there for the purpose of referring the case to the special audit and, as such, the assessment having been completed beyond the limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us vide its letter dated 10.10.2015 which reads as under: "1. That the Worthy Commissioner of Income Tax(Appeals) has erred in confirming the addition on account of sundry creditors as outstanding in the books of accounts despite the fact that no evidence was found during the course of search that the creditors were not existing 2. That the addition is otherwise not sustainable because of number of judgements in favour of assessee" 89. The same was not pressed before us and, is therefore dismissed as not pressed. In effect the appeal of the assessee is partly allowed for statistical purposes. 90. We now take up the appeal of the assessee in ITA No.1171/Chd/2016. 91. The present appeal has been filed against the confirmation of penalty levied u/s 271(1)(c) of the Act and the grounds raised by the assessee are as under: "1. That the Worthy C1T (A)-3, Gurgaon has erred in upholding penalty u/s 271(1)(c) levied by the Assessing Officer on the following amounts: - i). Unexplained cash credit Rs. 38,12,800/- ii). Sundry Creditors Rs. 9,52,812/- 2. That the Worthy CIT (A) has erred in not considering that the penalty u/s 271(1)(c) is not leviable as there is neither any co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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