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TMI Blog2020 (6) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... d by assessee company for business purposes, there was no reason to apply provisions of Section 2(22)(e). It is clear from the Orders of the authorities below that assessee has been taken the plea consistently that provisions of Section 2(22)(e) of the I.T. Act, 1961, would not apply in the case of the assessee company because assessee company is maintaining the running transactions with its subsidiary company which are clear from PB-5 to 12 which are ledger account of this year as well as earlier year and subsequent year and the same are in the nature of mutual and current account. Therefore, deeming provisions of Section 2(22)(e) of the I.T. Act, 1961, would not apply. - Decided in favour of assessee. - ITA.No.5188/Del./2019 - - - Dated:- 24-6-2020 - Shri Bhavnesh Saini, Judicial Member And Shri Anil Chaturvedi, Accountant Member For the Assessee : Shri Kapil Goel, Advocate For the Revenue : Shri Jagdish Singh, Sr. D.R. ORDER PER BHAVNESH SAINI, J.M. This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-34, New Delhi, Dated 18.03.2019, for the A.Y. 2013-2014. 2. We have heard the Learned Representatives of both the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same facts before the Ld. CIT(A). It was also submitted that the transactions between the assessee company and its subsidiary company are in the nature of current account transactions, therefore, case of assessee would not fall within the provision to Section 2(22)(e) of the I.T. Act, 1961. It was submitted that it is a trite Law that current account transactions are outside the purview of deemed dividend and hence, same cannot be recorded as deemed dividend. It is submitted that no part of the current account can be treated as loans and advances as the amount is constantly moving one and the balances reflected in the current/running account are momentary in nature and subject to frequent changes. Several decisions of different Benches of the Tribunal and various High Courts were relied upon on this proposition that the amount in question could not be treated as dividend in view of the fact that the amount fell in clause (ii) of Section 2(22)(e) of the Act and it is specifically excluded from the definition of the dividend. The assessee in support of this contention also enclosed statement of current account to show that current account transactions are outside the purview of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year under appeal. The assessee submitted that current account transactions are outside the purview of deemed dividend and cannot be regarded as deemed dividend. The assessee also submitted that the impugned amount which was received by assessee from subsidiary company could not be treated as deemed dividend in the view of the fact that the said transaction fall under Clause-ii of Section 2(22)(e) of the I.T. Act, 1961 and specifically excluded from the definition of Dividend . Section 2(22)(e), Sub-Clause-ii provides that Dividend does not include any advance or loan made to a share holder [or the said concern] by the Company in the ordinary course of its business where the lending of money is a specific part of business of the Company. As per the said provision of Clause-ii of Section 2(22)(e) of the I.T. Act, 1961 any advance or loan made by the Company to a shareholder or a concern in which the share holder has substantial interest would not be regarded as dividend if the advance or loan was made by the lending Company in the ordinary course of its business and lending of money was substantial part of the business of the lending company. The assessee further submitted befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany from the group companies has been covered as deemed divided to the extent of ₹ 47,08,000/- by the A.O. 19. The addition was challenged before the Ld. CIT(A). Written submissions of the assessee-company is reproduced in the appellate order, in which the assessee-company explained that when the group of companies have been promoted by (i) Shri Dinesh Pandey, (2) Shri Pramod Pandey and (3) Smt. Kusum Pandey, consisting of the following entities along with assessee-company viz., (a) Saamag Construction Ltd., (b) Saamag Infrastructure Ltd., (c) Saga Developers Pvt. Ltd., (d) Pyramid Realtors Pvt. Ltd., (e) Max Buildtech Pvt. Ltd., (f) Hamshir Exim Pvt. Ltd., (g) Logic Construction Pvt. Ltd., and (h) Banyan Infrastructure Pvt. Ltd., All these companies are engaged jointly in the business of real estate development i.e, acquisition of land, development thereof, construction of residential apartments, commercial complexes etc., It is a known fact that under the respective State Land Laws parcels of land can be acquired by one entity with restrictions on the area of land. It is an accepted practice in real estate business to have a number of entities of the same group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial transactions cannot in any circumstances be treated as loans or advances received by the assessee. The assessee-company also relied upon decision of Hon ble Delhi High Court in the case of CIT vs. Raj Kumar 318 ITR 462 (Del.) in which the Hon ble High Court interpreted the term Advance to mean such advance which carries an obligation of repayment. Here in, the sums of monies expended are towards purchase of land for the real estate business, such land being registered in the name of the member company. It was, therefore, held that a 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 provisions of Section 2(22)(e) of the I.T. Act . The assessee-company also relied upon decision of the Hon ble Bombay High Court in the case of CIT vs. Nagin Das M. Kapadia 177 ITR 393 (Bom.) in which it was held that the words Loans or Advances can be applied to loans or advances simplicitor and not to those transactions carried-out in the course of business. 20. The Ld. CIT(A), however, did not accept the contention of assessee-company and noted that even if it is considered that these advances ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ojects including an integrated township at Village Shahpur Bameta, Ghaziabad. All the group companies maintained current account with each other and transferred the money as and when needed to each other. During the year under consideration also, the assessee had transferred certain money to other group companies and similarly the other group companies had also transferred certain money to the appellant from time to time as and when need arose. 14.1 The AO was of the view that because the assessee had made advances to its sister concerns and the shareholders are common shareholders, hence whatever advance has been made by the assessee to other concerns having common shareholders, the same has to be assessed as deemed dividend u/s 2(22)(e) of the IT Act and then made the additions on protective basis in the hands of payer company, i.e. the assessee. 14.2. However, on appeal the Ld. CIT(A) accepted the assessee s arguments that as far as deemed dividend as contemplated u/s 2(22)(e) of the Act is concerned, the same cannot be considered in the hands of payer company and then deleted the additions as made by the AO. 14.2.1 However, looking into the accounts, the Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Legislature has deemed such a loan as dividend . Hence, sec. 2(6A)(e) must necessarily receive a strict construction . (p. 173). 14.3.2. The Hon ble Supreme Court, while considering the provision of Section 2(6A)(e) of the Indian Income-tax Act, 1922, which is parimateria to the provisions of Section 2(22)(e) of the IT Act, in the case of Navneet Lal C. Javeri vs. K.K. Sen, AAC in 56 ITR 198 at pages 207-208 of the Report had judicially noticed the purpose and the object of the insertion of such provision under the IT Act in the following words: In dealing with Mr. Pathak s argument in the present case, let us recall the relevant facts. The companies to which the impugned section applies are companies in which at least 75 per cent of the voting power lies in the hands of persons other than the public, and that means that the companies are controlled by a group of persons allied together and having the same interest. In the case of such companies, the controlling group can do what it likes with the management of the company, its affairs and its profits within the limits of the Companies Act. It is for this group to determine whether the profits made by the company sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. (2005) 1 SOT 142 (Mum), Seamist Properties Ltd. vs. ITO (2007) 11 SOT 302 (Mum), M.S. Securities Ltd. vs. DCIT ITA No. 3036/Del/2005, Delhi Tribunal Bench order dated 9th May 2008 in the case of Creative Dyeing Printing Pvt. Ltd. vs. ITO which has been affirmed by Delhi High Court reported in 318 ITR 476 (Del). 14.3.4. Under the provisions of section 2(22)(e) of the IT Act, the legislature has uses the expression by way of advances or loans which shows that it is not all the payments received from the sister company was to be treated as deemed dividend but only the payments which bear the characteristics of loans and advances are to be considered under the provisions of Section 2(22)(e) of the IT Act. Under the law, all the loans and advances are debts, but all debts are not loans and advances as contemplated u/s 2(22)(e) of the IT Act. 14.3.5. Under the Income-tax Act, the term loans and advances has not been defined. Hence, it has to be understood in commercial sense and in the manner in which the Court has interpreted the same. The expression loan was under consideration before the various Hon ble High Courts and the Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies Act. Therefore, moneys given by the company to other bodies corporate is a loan within the meaning of section 370 of the Companies Act must be negatived. Therefore, the petitioners would well be entitled to the relief. 14.3.10. The expression loans advances has also been used in the Interest Tax Act. Under the Interest Tax Act, the tax is leviable on interest. The interest has been defined under Interest Tax Act under section 2(7) of the Act in following words: (7) interest means interest on loans and advances made in India and includes (a) commitment charges on unutilized portion of any credit sanctioned for being availed of in India; and (b) discount on promissory notes and bills of exchange drawn or mode in India; but does not include (i) any amount chargeable to income-tax, under the Income Tax Act, under the head Interest on Securities ; (ii) discount on treasury bills; (and) (iii) interest on any term loan sanctioned before the 18th day of June 1980 where the agreement under which such loan has been sanctioned provides for the repayment thereof during a period of not less than three years. Explanation. For the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases: 28 SOT 383 (Mum Trib) Bombay Oil Industries Ltd. vs. DCIT 367 ITR 78 (P H) CIT vs. Suraj Dev Dada 167 ITD 100 (Mum Trib) Ravindra R. Fotedar vs. ACIT IT Appeal Nos. 958 959 of 2015 dated 21.12.2015 DCIT vs. Schutz Dishman Biotech (P) Ltd. (Guj) 14.3.14. Under the provisions of section 2(22)(e) of the IT Act, the expression used is company in either case possesses accumulated profits . In the case of Bhim Singh Jaipur vs. ACIT in ITA No. 89/JP/2008 as well as in the case of Madhuwanti Singh Jaipur vs. ACIT in ITA No. 88/JP/2008 reported in 42 Taxword 132, it has been held by the Tribunal, after considering the judgment of Delhi High Court in the case of R. Dalmia vs. CIT in 133 ITR 169, the expression possess means that there must be physical availability of the accumulated profits capable of disbursement and in case if the investment made by the payer company in their assets are already more than the accumulated profits shown in balance sheet, then it cannot be said that payer company possesses accumulated profits. In the instant case, all the payer companies are having investment in the real estate more than their accumulated profits shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal of the assessee are allowed. 24. In the result, ITA.No.2053/Del./2017 of the Assessee is allowed. 9.1. The ITAT, Mumbai Bench in the case of Mr. Girish Vazirani, Mumbai vs., ITO, Ward-9(2)(1), Mumbai in ITA.No.83/Mum/2013, Dated 14.11.2014 held as under : 5. We found that similar issue has been considered by the Hon ble Punjab and Haryana High Court in the case of Shri Suraj Dev Dada, reported in 367 ITR 78, wherein it was held that assessee having running account with the company, the provisions of Section 2(22)(e) of the Act were not attracted as this provisions was inserted to stop the misuse by the assessee by taking the funds out of the company by way of loans advances instead of dividends and thereby avoid tax. 6. Applying the proposition of law as discussed above to the facts of the present case, we found that assessee was having debit balance only for 17 days out of 365 days. On all other dates, assessee was having credit balance and peak of such credit was ₹ 8,49,700/-. It is also a matter of record that assessee has not charged any interest in respect of temporary advance given to the company. Accordingly, we do not find any merit in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions in the current account between the assessee company and the subsidiary company in earlier as well as in subsequent year and the assessee company on most of the occasions have made payment to the subsidiary company, which have been returned by assessee company for business purposes, there was no reason to apply provisions of Section 2(22)(e) of the I.T. Act, 1961. It is clear from the Orders of the authorities below that assessee has been taken the plea consistently that provisions of Section 2(22)(e) of the I.T. Act, 1961, would not apply in the case of the assessee company because assessee company is maintaining the running transactions with its subsidiary company which are clear from PB-5 to 12 which are ledger account of this year as well as earlier year and subsequent year and the same are in the nature of mutual and current account. Therefore, deeming provisions of Section 2(22)(e) of the I.T. Act, 1961, would not apply. Thus the rule of consistency shall have to be followed by the Income Tax Authorities as is held by the Hon ble Supreme Court in the case of Radhasoami Satsung 193 ITR 321 (SC). The ledger account of the assessee company and the subsidiary company would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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