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TMI Blog2021 (5) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is owned by him or the assessee has not actually incurred the expenditure for payment of rent. In the instant case no evidence has been brought on record to show that the assessee had paid House Rent during the year. Under the given facts and circumstances of the case, we find no reason to interfere in the finding of Ld. CIT(A) and confirm the finding of Ld. A.O. Thus Ground No.6 of appeal of the assessee is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessee dated 20.09.2018 was not considered. Soft copy of which was also provided on 28.09.2018 through email. 3. On the facts and circumstances of the case and applicable law, Ld. CIT(A)-III, Indore erred in sustaining the addition of ₹ 7,00,000/- by applying the provisions of section 2(22)(e) in respect of the inter company loan transaction between M.L. Securities and Finance Private Limited and Vinay Securities Private Limited. 4. On the facts and circumstances of the case and applicable law, Ld. CIT(A)-III, Indore erred in sustaining the addition of ₹ 7,00,000/- by applying the provisions of section 2(22)(e) without reference to any incriminating material found in this respect during the course of search proceedings conducted in the case of the assessee as well as in the case of M.L. Securities and Finance Private Limited and Vinay Securities Private Limited. 5. On the facts and circumstances of the case and applicable law, Ld. CIT(A)-III, Indore erred in not considering facts of the case in proper perspective. 6. On the facts and circumstances of the case and applicable law, Ld. CIT(A)-III, Indore erred in sustaining addition made by Ld. A.O of ₹ 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns" - (i) where the company makes the payment by way of loans or advances to a concern; (ii) where a member or a partner of the concern holds 10 per cent of the voting power in the company; and (iii) where the member or partner of the concern is also beneficially entitled to 20 per cent of the income of such concern. [As defined in Explanation 3(b) to section 2(22)(e)] Third limb of the same section deals with loans and advances by a company on behalf, or for the individual benefit of such shareholder. 3.Ld. AO applied the 'second limb' of the definition of 'dividend' u/s 2(22(e) for the business transaction of inter-company loan having assessee as their common shareholder. VSPL, the company gave loan to MLSF, a concern, both having the assessee as common shareholder. 4.In the same definition of dividend given in section 2(22)(e), it is also stated that "dividend" does not include - (ii) any advance or loan made to a shareholder or the said concern 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 5.Instant business transaction of inter-company loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recipient of the amount was not the shareholder in the payer company and therefore, provisions of section 2(22)(e) of the Act were not applicable. (H) Even the money which was paid was not in the nature of loan or advance simplicitor, but the amounts were advances for business transaction. [emphasis supplied] While arriving at this finding, Hon'ble Delhi High Court observed that- Para 27 - Precisely, for this very reason, the Courts have held that if the amounts advances are for business transactions between the parties, such payment would not fall within the deeming dividend under section 2922)(e) of the Act.[emphasis supplied] 8.Without prejudice to the above, meaning of "concern" vide Explanation 3(a) was introduced in the section for the first time by the amendment in 1987 which was brought precisely for covering "concerns" within the ambit of section 2(22)(e). 9.Explanatory Notes on the provisions relating to Finance Act, 1987 brought out vide Circular No.495 dated 22nd September, 1987 [168 ITR 91 (St)] issued by the Central Board of Direct Taxes (CBDT) explains the scope and effect of the amendment in the following terms: "10.2 With t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " deemed dividend would be taxed in the hands ola concern where all the following conditions are satisfied." l1.Section 2(22)(e) deals with deeming provisions wherein strict interpretation of the provisions should be applied and since a legal fiction has been created it should be taken to its logical conclusion. The Legislature intends to tax a "concern" for deemed dividend purposes, so be it, as explained by CBOT in Para 10.3 in its above referred circular. 12.0n this issue, the following judgements throw light on the Rules of interpretation: (a) As long back in 1955 the Hon'ble Supreme Court in New Piece Goods Bazar Co. Ud. v. CIT [1950] 18 ITR 516 stated that - "It is elementary that the primary duty of a Court is to give effect to the intention of the Legislature as expressed in the words used by it and no outside consideration can be called in aid to find that intention ". Legislative intent is very specifically spelt out by CSDT in its circular referred above, especially Para 10.3 of the said circular. (b) Decision of Hon'ble Supreme Court in Keshavji Ravji and Co. v. CIT [1990] 183 ITR 1 also lends concurrence to the views ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imb of the amended definition clause, we pface these appeals before the Hon'ble Chief Justice of India in order to constitute an appropriate Bench of three learned judges in order to have a relook at the entire question." Instant case of the assessee relates to 'amounts advanced for business transaction' between VSPL and MLSF, the above observation in National Travel Services (supra) for reference of Ankitech's case (supra) to larger Bench has no bearing. 15.ln respect of disallowance of HRA in AY 2015-16 for ₹ 77,200, it is submitted as under a. Details relating to salary income from Shakti Pumps (India) Ltd were filed in the course of assessment proceedings which included monthly payslips and Form 16 for all the years under consideration. Details of allowances which formed part of salary income were given in the written submission placed on record. [PS 28-42] b.There is nothing incriminating which was found during the course of search in respect of ₹ 77,200 which Ld. AD has treated it as house rent allowance (HRA) claimed exempt u/s 10{13A) for AY 2015-16. It was submitted that in a search assessment, any undisclosed income, which can ultima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as the said concern)] or any payment by any such company on behalf, or for- the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but" dividend" does not include-- (i) a distribution made in accordance with sub- clause (c) or sub- clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; (ia) 1 a distribution made in accordance with sub- clause (c) or sub- clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964 , 2 and before the 1st day of April, 1965 ];] (ii) any advance or loan made to a shareholder 3 or the said concern] 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; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of business as advance or loan for which interest was also paid by MLFS to VSPL for Assessment Year 2016-17. Thus the alleged transaction clearly falls in the exclusion (ii) to section 2(22)(e) of the Act and thus both the lower authorities have erred in treating the alleged sum of ₹ 7 lakhs as deemed dividend in the hands of the assessee for Assessment Years 2015-16 and 2016-17 respectively and therefore addition made at ₹ 7,00,000/- each during Assessment Year 2015-16 and Assessment Year 2016-17 is uncalled for. Thus the respective Ground No. 2, 3, 4 & 5 raised by the assessee relating to addition of deemed dividend u/s 2(22)(e) of the Act are allowed. 10. Now we take up Ground No.6 of assessee's appeal for Assessment Year 2015-16 challenging the finding of Ld. CIT(A) sustaining the disallowance of ₹ 77,200/- claimed by the assessee as House Rent Allowance to be exempted u/s 10(13A) of the Act. We find that the assessee made a claim of exemption for ₹ 77,200/- as exempt for House Rent Allowance u/s 10(13A) of the Act. Ld. A.O called for the details of the House Rent paid during the year. No such evidence was filed. During the hearing before Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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