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TMI Blog2020 (6) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in law, in confirming addition of an amount of Rs. 29,63,061/- on account of claim of depreciation on building. (ii) That the disallowance has been confirmed rejecting the contention of the assessee that the building has not been transferred during the year, therefore the depreciation on the same is allowable during the year. (iii) That the disallowance has been confirmed misinterpreting the Sale Deed made on transfer of property. 3. Without prejudice to the above and in the alternative, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the value of the block of building taken at Rs. 2,87,14,500/- by the AO is wrong as the sale consideration of the property was agreed upon at Rs. 2,00,00,000/- only. " ITA No. 2396/Del/2017 : "1. Whether on the facts & circumstances of the case, the Ld. CIT(A) has erred in law & on facts in deleting the disallowance u/s 14A read with rule 8D of the Income Tax Rules amounting to 2,12,74,766/- made by the AO ignoring the fact that the provisions of section 14A are mandatory. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts by deletin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmation of the addition of Rs. 29,63,061/- on excess claim of depreciation on building. The ld. Assessing Officer is in appeal before us on deletion of the disallowance u/s 14A of the Act of Rs. 2,12,74,766/- and against the deletion of addition of Rs. 94,32,600/- on account of deemed dividend under Section 2(22)(e) of the Act. 05 We first come to the ground No. 1 of the appeal of the Assessing Officer against deletion of disallowance u/s 14A of the Act of Rs. 2,12,74,766/-. The ld. Assessing Officer noted that assessee has substantial amount of investment in the shares of the companies, which can have tax-free dividend income. The assessee was asked about details of exempt income and other expenditure for disallowance u/s 14A of the Act. Assessee submitted that it has not received any exempt income during the year and, therefore disallowance u/s 14A of the Act cannot be made. The ld. Assessing Officer rejected the contentions of the assessee and computed disallowance u/s 14A of the Act applying the provisions of Rule 8D of the Income Tax Rules. The learned CIT (Appeals) deleted the same for the reason that during the year the assessee has not earned any exempt income there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance but it was in the nature of business transactions. Along with that reply a copy of ledger from F.Y. and the net summarized position was submitted. It was further submitted that the word "advance" has to be read in conjunction with the word "loan' The word loan involves positive act of lending coupled with acceptance by the other side as loan. On the other hand meaning of the term, "advances" may or may not include lending. Trade advances are in the nature of money transacted to give effect to a commercial transaction, therefore, it is not covered u/s 2(22)(e) of the Act. 6.2 The reply of the assessee is carefully considered. From the copy of account filed along with the above reply, it is found that there are many transactions of payment by company JCSL to the assessee. There are some entries of cheque payment and cheque receipt. The accounts also includes the entries having narration of settlement posting" which indicates that the relevant debit and credit entry is the result of said transaction at that day. Since, the share / F & O / Currency transactions done by the assessee as a client of JCSL are in the normal course of business activity as done by the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointing the words is clear i.e. the transfer of fund may be as advance or as a loan Therefore, there is no force on the argument of the assessee that the word loan and advance should he read in conjunction and advance should be of the nature of loan. (iii) Section 2(22)(e) does not say that in order to come in the category of deemed dividend, loan or advances should he of a particular minimum duration. A loan for a few days would be within its ambit. Thus, duration of loan is not material [Walchand & Co. Vs. CIT (1975) 100 ITR 598 (Bom)]. The withdrawal over and above credit balance is to be treated as deemed dividend. For example, when company has accumulated profits, withdrawal by a shareholder over and above the credit which he has with the company would be deemed dividend when the shareholder had no credit balance in any other account [CIT Vs. P. Sarada (1985) 46 ITR (Mad) 326 : (1985) 154 ITR 387 (Mad) : TC A1R 306]. (iv) The assessee company is a share and currency broker. Its business dealing either in share and in commodities own behalf re in "PRO" account or on behalf of clients. In respect of PRO trading, it gets the direct benefit of profit and loss whereas, in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouncements for the proposition that the fiscal laws should be strictly construed and (he true test is always the language used. In the ease of Gurudev Datta VKSSS Maryadit v. State of Maharashtra.. AIR 2001 SC 1980). their Lordships of the apex court held as under (head-note). "It is a cardinal principle of interpretation of statute that the words of statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is some-thing in the context or in the object of the statute to suggest to the contrary. The golden rule is that the words‟ of a statute, must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the courts are bound to give effect to that meaning irrespective of consequences. It is said that the words themselves best declare the intention of the law giver. The courts have adhered to the principle that effort should he made to give meaning to each and every word used by the Legislature and it is not a sound principle of construction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been said.' Statutes should be construed, not as theorems of Euclid‟ Judge Learned Hand said, hut words must be construed with some imagination of the purposes which he behind them While interpreting a provision the court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary, to see Rishuhh Agro Industries Ltd. v. P.N.B. Capital Services Ltd. [2000] 101 Comp Cas 2S4 (SC): [2000] 5 SCC 515. The legislative causus omissus cannot be supplied by judicial interpretative process. Two principles of construction one relating to casus omissus and the other in regard to reading the statute as a whole appear to be well-settled. Under the first principle a casus omissus cannot be supplied by the court except in the ease of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to deemed dividend under the provisions of section 2(22 (e). The assessee company is a shareholder in M s Jay pee Capital Services P. Ltd. with a shareholding of 40.85% shares. Along with being a shareholder the assessee company 'was also a client of the above mentioned company The assess company through M s day pee Capital Services Ltd. had engaged in trading of shares and securities and has a current account running for the same. 8.2 On perusalof the account of the company with the assessee n is very much clear that the amount which has been credited and debited m the account of the assessee in association with the said two parties is on the account of business transactions and transacted by the as if it being a client and not as a director shareholder of the company 8.3. While drafting the assessment the Ul.AO has basically confused himself with the two capacity of the assessee i.e. the assessee is sure!) the shareholder in such companies hut at the same point he is their client also Consequently there are 2 types of transactions, one business transaction and other transactions, which are done in the capacity of shareholder. But over here the Id.AO has wrongly treated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated company Hence there is no doubt that a shareholder can enter into a business transaction with a company and theses transactions are not covered under the provisions of Sec.2(22)(e). That is the tax authorities cannot blindly deem every payment by company to shareholder as loan and advance for the purpose of deemed dividend u/s 2(22)(e). The AO should first try to understand the nature of transactions executed between the same before forming any opinion. 8.10 In the ease under consideration, despiteof all material bought on record and providing every relevant explanation, the ld. AO has not given any weight to the nature of transactions and the nature of business relationship shared between the shareholder and company in order to evaluate the transaction in terms of normal business transaction or loan and advances for deemed dividend. Hence the action of AO of making an addition even with/nit giving any regard to its nature is unjust and not tenable in law. 8.11 Moreover, your Honor will also agree to the fuel that nowhere the assessee has shown the amount transacted with the Ms Jay pee Capital Services P. Ltd. as loan and advances, intact /ram the perusal of ledger account, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions are trading business transactions, accordingly, provisions of Section 2(22)(e), do not apply to the facts of the case of the appellant. Accordingly. the addition made by the A.O. on account of deemed dividend of Rs. 19,34,21,760 is hereby deleted. 8.16 Hence the contention of AO is not at all tenable in law and should be set aside. 8.17 Your honor in new of the above facts and the position of law, it is prayed that the additions made be deleted and such other relief be given which your honor may deem fit. " Besides the above, the appellant has also relied upon the following ease laws/decisions:- * Ishwar Chand Jindal Vs. AC1T. 12015] 61 Taxmann.com 428 Delhi- TI'rib.) Delhi I ribunat * CIT Vs. Arvind Kumar Jain, 201 1 (9)TM1 363 * CIT Vs. Creative Dyeing &. Printing (P.) Ltd . [2009] 184 Taxman 483 (Delhi). High Court of Delhi * CIT Vs. Ambassador Travels (IF) Ltd.. [2008] 173 Taxman 407 (Delhi), High Court of Delhi * Smt. Radha Daga Vs. the Asst. Commissioner of Income lax. 2014(6) I'M I 642, IT AT, Chennai * Mr. Purushottam Das Mhnani Vs. DCFF. 2014 (12)TM1 801. 11 A ! Kolkata * Commissioner of Income lax. Agra Vs. Atul Engineering Udyog, Nuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count without following any accounting norms. For the purpose of making the alleged addition by the A.O.. the method adopted is discussed as under: (a) The A.O., while recasting the account, has picked up the figures of cheque received and paid by JCSL. After taking the figures of money received and money paid, the A.O. has worked out the peak balance of the same and treated it as deemed dividend in the hands of the appellant. The A.O., while recasting the account, has picked up the figure of payments made by JCSL during the year and the negative balance appearing after the payments. Lower of the two figures i.e. amount paid by the company and the negative balance appearing after the payment, has been taken as the deemed dividend by the A.O.. The A.O. has adopted pick and choose, whereby he picked up only the debit entries of the cheque payments, but has ignored the debit and credit side of the transactions relating to purchase and sale of share currency derivatives. (b) Both the above-alleged accounts extracted by the A.O. did not take into consideration, the business transactions entered into by the appellant/concern with this company. This fact is evident from the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, are not genuine. The A.O. has re-casted the ledger account by not considering the business transaction of sale/purchase of share/currency/derivatives, which is not correct, since deemed dividend cannot be computed by way of pick and choose of few transactions, rather an account has to be considered in its entirety. The above view is also supported by the ratio laid down in the decision by Jurisdictional High Court of Delhi in the case of CIT Vs. Creative Dyeing & Printing (P.) Ltd.. [2009] 184 TAXMAN 483 (DELHI), as under: " 11. The counsel for the appellant has very strenuously urged that neither the Tribunal nor the judgment of this Court in Raj Kumar's ease (supra) deals with that part of the definition of deemed dividend u/s 2(22)(e) which stales that deemed dividend does not include an advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the company [section 2(22)(e)(ii)] i.e. there is no deemed dividend only if the lending of moneys is by a company which is engaged in the business of money lending. Dilating further the counsel for the appellant contended that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gitimately he dividend in the hands of the shareholders, money in the form of an advance or loan. 10.5 If this purpose is kept in mind then, in our new. the word 'advance ' has to be read in conjunction with the word 'loan' Usually attributes of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan: it generally carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning the term 'advance‟ may or may not include lending. The word "advance' if not found in the company of or in conjunction with a word 'loan' may or may not include the obligation of repayment. If it does then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term "advance'. The rule of construction to our minds, which answers this conundrum, is noscitur a sociis. The said rule has been explained both by the Privy Council in the case of Angus Robertson v. George Day [1879] 5 AC 63 by observing 'it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asstt. Year 2011-12 are that the assessee filed return of income on 17.3.2012 declaring total income of Rs. 46,51,720/-. Subsequently on account of search and seizure action u/s 132 of the Income Tax Act 1961 ( in short the Act) carried out on 30.3.2012, a notice u/s 153A of the Act was issued and assessment was completed on 31.3.2015 u/s 153A of the Act after making addition of Rs. 7,88,99,522/- on account of deemed dividend u/s 2(22)(2) of the Act. On further appeal, Ld. CIT(A) deleted the addition. Aggrieved the Revenue is in appeal before the Tribunal raising grounds as reproduced above. 4. Before us, Ld. DR relying on the order of the AO submitted that assessee has failed to demonstrate that the money advanced by the companies to him was in the nature of trade advance and, therefore, Ld. CIT(A) is not justified in deleting the addition. 4. We have heard the submissions of the Ld. DR and perused the relevant material on record including the impugned order of the Ld. CIT(A). In the case ,assessee is having substantial share holding in few companies namely M/s. Jaypee Capital Services Ltd. (JCSL) ; M/s. Futurz Next Services Ltd. (FNSL) & M/s. Gen X Commodities Ltd. The AO not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant during the appellate proceedings are discussed as under:- (i) The 2 companies JCPL and, FNSL, are share / currency / derivatives/commodities brokers, with whom the appellant and the group concerns maintain client account, in which business transaction of sale and purchase of share/currency/derivatives/commodities have taken place during the year under consideration. In the appellate proceedings, appellant has submitted that the accounts of the assessee and other concerns, in which he is substantially interested, with these 2 companies, are not in the nature of advance or loan. Therefore, it is claimed that these accounts relates to business transactions of share / currency / derivatives / commodities only, which is evident from the copy of accounts filed in the assessment proceedings, as well as in the appellant proceedings. (ii) It has been further submitted that the special auditor as well as the A.O., have extracted the alleged account and recasted account without following any accounting norm. For the purpose of making the alleged addition by the A.O., the method adopted is discussed as under: (a) The special auditor, while recasting the account, has pick ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as in the appellate proceedings, shows that the same is a running account of purchase/sale. The cheque payments & receipts are relating to transactions of share/currency/derivatives/commodities and there is no loan/advance transactions. Conclusion: In view of the above discussion, the following facts emerges: (a) The transactions of cheques received and paid from/to the 2 broker companies JCPL and FNSL, are related to the business transactions of sale/purchase of share / currency / derivatives / commodities carried out during the year under consideration, which cannot be segregated. If the transactions of cheque received and paid are taken out of the alleged client accounts, then there is no meaning of trading transactions. In the type of business transaction entered by the appellant with these 2 broker companies, the transfer of funds/money on both the sides, is part and parcel of the business done, otherwise it will not be possible to settle the accounts. It is not possible to settle the trading transactions without transfer of the funds/money. Therefore, the method adopted by the special auditor in the audit report, which has not been considered and also the method ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no deemed dividend only if the lending of moneys is by a company which is engaged in the business of money lending. Dilating further the counsel for the appellant contended that since M/s. Pee Empro Exports (P.) Ltd is not into the business of lending of money, the payments made by it to the assesseecompany would therefore be covered by section 2(22)(e)( ii) and consequently payments even for business transactions would be a deemed dividend We do not agree. The Tribunal has dealt with this aspect as reproduced in para (9) above. The provision of section 2(22)( e)( ii) is basically in the nature of an explanation. That cannot however, have bearing on interpretation of the main provision of section 2(22)( e) and once it is held that the business transactions does not fall within section 2(22)(e), we need not to go further to section 2(22)(e)( ii). The provision of section 2(22)(e)( ii) gives an example only of one of the situations where the loan/advance will not be treated as a deemed dividend, but that's all The same cannot be expanded further to take away the basic meaning, intent and purport of the main part of section 2(22)(e). We feel that this interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . George Day [1879] 5 AC 63 by observing 'it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them' and our Supreme Court in the case of Rohit Pulp & Paper Mills Ltd v. Collector of Central Excise AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha AIR 1960 SC 610." (p. 165) 12. Therefore, we hold that the Tribunal was correct in holding that the amounts advanced for business transaction between the parties, namely, the assessee company and M/s. Pee Empro Exports (P) Ltd. was not such to fall within the definition of deemed dividend under section 2(22)(e). The present appeal is therefore dismissed In view of the above, I hold that the transactions in the client ledger accounts, are transactions entered in the ordinary course of business and are relating to sale/purchase of share/currency/derivatives/commodities only. Therefore, I further hold that since these transactions are trading/business transactions, accordingly, provisions of section 2(22)(e), do not apply to the facts of the case of the appellant. Accordingly, the addition made by the A.O. on account of deemed di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. As the title of the property was not clear, it was mortgaged to Dena Bank. Thus, the physical possession of the property was not given. Therefore, the assessee did not record sales of the above property in the books of accounts. The Assessing Officer noted that property was sold for Rs. 2 crores. However, the Stamp Duty value of the same is Rs. 2,87,14,500/-. He thus noted that assessee as opening written down value of the building block is of Rs. 3,51,97,290/- and the full value of the consideration of the property sold is Rs. 2,87,14,500/-. Therefore, on difference of Rs. 64,82,790/- on which assessee is eligible for depreciation @ 10% amounting to Rs. 6,48,279/-. The assessee has claimed depreciation of Rs. 3519729/- on building and, therefore, excess depreciation claim of Rs. 29,63,061/- was disallowed. 14 On appeal before the learned CIT (Appeals) he noted that assessee has received the full value of the consideration before the Sale Deed was executed on 12.07.2012. He further held that merely some defect in the title or irregularities at the time of execution of the Sale Deed, which are later on rectified. He, therefore, held that the transfer and the possession of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt of transfer for the purposes of section 48‟ only. Therefore, we direct the learned assessing officer to reduce the written down value of the asset only by Rs. 2 crores, which has been received by the assessee on sale of the above property. Accordingly ground number 2 and 3 are disposed off holding that assessee has requested to reduce Written down value of Building block by Rs. 2 crores being the actual sale consideration instead of Rs. 2 8714500 being the Stamp duty value of the property is acceded to. Thus, opening double DVD of the block building stood at Rs. 3 5197290/- is required to be reduced by Rs. 2 crores only, thereby the WDV remains of Rs. 1, 51,97,290/- on which the assessee would be entitled to the depreciation @ 10 % amounting to Rs. 15,19,729/-, against which the assessee has claimed depreciation of Rs. 35,19,729/- therefore difference of the depreciation excess claimed by the assessee is Rs. 20 lakhs instead of Rs. 2963061/-. Thus excess depreciation disallowance of Rs. 20 lakhs is confirmed. Accordingly ground number two and three of the appeal of the assessee is partly allowed 18 In the net result, the appeal of the assessee is partly allowed. 19 Thus ..... 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