9911796707
TMI Blog2021 (5) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved by the order of CIT(A), Revenue is now in appeal before us and has raised the followed grounds: (I) "On the facts and in the circumstances of the case and in law the Ld CIT(A) has erred in deleting the addition made on account of deemed dividend of Rs. 2,41,5000/- u/s 2(22)(e) by ignoring the facts that the assessee has not been able to substantiate with plausible documentary evidences that the loan was taken in the ordinary course of trading advances and no direct nexus was established by the assessee between the loan advanced to him and the trade obligation of the lender company M/s Ramsan Communication Ltd. with the assessee. (II) On the facts and in circumstances of the case and in law, the Ld CIT(A)has erred in deleting the addition made u/s 40(a)(ia) of the Act Rs. 3,93,035/- by ignoring the fact that the assessee has failed to deduct TDS on payment of Rs. 3,93,035/- towards testing charges payable to RITES Ltd as mandated u/s 194J of the I.T. Act, 1961. (III) The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing. 4. First ground is with respect to the deleting of addition of deemed dividend made u/s 2(22)(e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficial to the Company, received from such shareholder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. It was held that gratuitous loan or advance given by a Company to those classes of shareholders thus would come within the purview of section 2(22)(e) but not the cases where the loan or advance is given in return to an advantage conferred upon the Company by such shareholder. In the case of ACIT -vs.- M/s. Zenon (India) Pvt. Limited, a loan taken by the assessee was treated by the Assessing Officer as deemed dividend under section 2(22)(e), but on appeal, it was noted that interest at the rate of 9% per annum was paid by the assessee on such loan, which was a consideration beneficial to the company and therefore addition was deleted by CIT(A). This order was upheld by Tribunal in order dated 29.6.2015 ITA No. 1124/Kol/2012 by relying on the decision in the case of Pradip Kumar Malhotra (supra). Infact, both the above orders were followed in the case of Sangita Jain v. ITO ITA No. 1817/Kol/2009 AY 2006-07 and identical addition was deleted. Therefore having regard to the aforesaid judicial pronouncements it is held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther payments made from 14.8.2006 of Rs. 1,25,50,000/ - to 28.10.2006 whereby balance increased from Rs. 5,13,96,756/- to Rs. 6,03,96,756/-. Subsequently, there were repayments made by MIL to MSL other than the figure of Rs. 54,98,908/- being advance given from 3.9.2007 to 30.3.2007. It is thus evident that there are mutual transactions between two group companies and the account being the two companies is current account transaction. It is thus held that once the transactions between two companies are current account transactions which are entered in the ordinary course of business, the same cannot be classified as advance or loan under section 2(22)(e) of the Act. 25. The Mumbai Bench of the Tribunal in the case of NH Securities Ltd. vs. DCIT 11 SOT 302 has held as under. "37. In the light of the discussion made in paragraphs above, it is to be seen that payments made by a company through a running account in discharge of its existing debts or against purchases or for availing services, such payments made in the ordinary course of business carried on by both the parties could not be treated as deemed dividend for the purpose of section 2(22)(e). The deeming provisions of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of ours is in accordance with the legislative intention of introducing Section 2(22)(e) and which has been extensively dealt with by this Court in the judgment in Raj Kumar's case(supra). This Court in Raj Kumar's case (supra) extensively referred to the report of the Taxation Enquiry Commission and the speech of the Finance Minister in the Budget while introducing the Finance Bill. Ultimately, this Court in the said judgment held as under: "10.3 A bare reading o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction between the parties, namely, the assessee company and M/s. Pee Empro Exports Pvt. Ltd. was not such to fall within the definition of deemed dividend under Section 2(22)(e). The present appeal is therefore dismissed. 21.6 As regards the nomenclature in the balance sheet, the Hon'ble Delhi High Court in the case of CIT v. Arvind Kumar Jain in ITA NQ. 589/2011 dated 30.9.2011 held as under: "6 Learned counsel for the appellant hammered the fact that the amount was shown by the assessee himself in his books of accounts as unsecured loan" and, therefore, the order of the Assessing Officer was correct. 7. It is trite law that mere nomenclature of entry in the books of accounts is not determinative of the true nature of transaction. See Commissioner of Income Tax vs. India Discount Co. Ltd. 75 ITR 191 (SC), Commissioner of Income Tax vs Provincial Farmers (P) Ltd. 108 ITR 219 (Cal) and KCP Ltd. vs. CIT 245 ITR 421 In the present case after going through the relevant evidence as well as account maintained between the parties, it has been established that the payment made were the result of trading transaction between the parties and the amount was not given by way of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , development rebate, dividends and deemed dividends, if any. The amount cannot be augmented by the repayments of the loan and the amount of the loan must be deemed to> be dividend to the extent of the balance remaining out of the 'accumulated profits'. 10. In Roshan Lai's case (supra), it was held that accumulated profits will necessarily be comprised of the amount available for being distributed as profits, that profits can accumulate even within a single year, that accumulated means earned bit by bit and accumulated, and that the entire amount which is available for distribution as profits on a particular date would be the accumulated profits and any amount paid as advance or loan to the shareholder to the extent of this amount of accumulated profits will be dividend within the meaning of section 2(6A)( e). It is also held that the accumulated profits cannot be reduced by the amount of dividend subsequently declared. 11. In Smt. Tarulata Shyam's case (supra), it was held by the Supreme Court that the statutory fiction created by section 2(6A)( e) would come into operation at the time of payment of advance or loan to a shareholder and tax is attracted to the loan or advance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the observations in the case of P.K Badiani ( supra) would indicate that the accumulated profits should be reduced by the amount of loan or advance, immediately on making such loan or advance. Only if this is done, the subsequent loans or advances can be tested by verifying the accumulated profits on the dates on which they are made. As pointed out in the decisions refer- red to above, the repayments of the advances or loans will have no effect either on the advance or loan treated as dividend or on the accumulated profits as reduced by such advance or loan. As such, it does not seem to be neither practicable nor proper to postpone the whole process of ascer taining the accumulated profits till the department chooses to treat a particular advance as deemed dividend. If the contention of the department is accepted, then if the ITO ignores the advances in earlier years and then goes down on the assessee in an assessment year in which he has drawn substantial advances, it will amount to allowing the department to take advantage of its omissions to assess the earlier loans and advances as deem-ed dividends and to allow such omissions to bloat the accumulated profits, so that the wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of CIT(A). We further find that identical issue arose in assessee's own case in A.Y. 2011-12 wherein the Co-ordinate Bench of Tribunal had deleted the addition by observing as under: "8.1 We have considered the rival contentions and perused the material on record. The Ld. Counsel for assessee submitted that since it was a commercial transaction and similar transactions were entered into in earlier and subsequent assessment year and no addition have been made on account of deemed dividend against the assessee, therefore, rule of consistency do apply. The assessee further claimed that the assessee has entered into an agreement to sell with M/s. Ramsan Communication Limited for sale of the industrial land in Delhi. They wanted to shift their business to Delhi, therefore, advance of Rs. 1.12 crores was treated against the purchase of industrial plot. The assessee deducted TDS on the interest paid (PB-95), therefore, it was a commercial transaction entered into between into between assessee and M/s. Ramsan Communication Limited. Section 2 (22) (e) of the IT Act was inserted to bring within the purview of taxation all those amounts which are actually a distribution of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is dismissed. 11. Ground No.2 is with respect to deleting the addition made u/s 40(a)(ia) of the Act. 12. During the course of assessment proceedings, AO noticed that assessee debited Rs. 4,82,249/- as "Testing & Inspection charges" which included payment of Rs. 3,93,035/- to RITES Ltd. He also noticed that no TDS was deducted on the payment of Rs. 3,93,035/- to RITES Limited. AO was of the view that the provision of Section 194J of the Act are applicable and since assessee has not deducted TDS, the amount of Testing charges on which no TDS was deducted needs to be disallowed by invoking the provision of Section 40(a)(ia) of the Act. He accordingly disallowed Rs. 3,93,035/-. Aggrieved by the order of AO, assessee carried the matter before the CIT(A) who by following the order of Hon'ble Delhi High Court in the case of CIT vs. Ansal Landmark Township reported in 376 ITR 635 directed the AO to verify the claim of the assessee that Rs. 3,93,035/- has been declared as income by RITES Limited and thereafter decide the issue in line with the aforesaid decision of Delhi High Court. Aggrieved by the order of CIT(A), Revenue is now before us. 13. Before us, Learned DR supported the or ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
