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TMI Blog2021 (8) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... of such investment is dividend income, which is tax free as per the provisions of the Income Tax Act. Although, the assessee has not earned any exempt income, however, the AO observed that there are investments in the opening and closing balances of the accounts and the income likely to be received from such investment is exempt and interest and other expenses are claimed in the Profit & Loss Account. He, therefore, confronted the same to the assessee and asked the assessee to explain as to why provisions of section 14A r.w.r. 8D should not be applied. 4. The assessee submitted that it has not received any exempt income, therefore, provisions of section 14A r.w.r. 8D are not applicable. However, the AO was not satisfied with the arguments advanced by the assessee and applying the provisions of section 14A of the Act made addition of Rs. 1,42,80,173/- to the total income of the assessee. 4.1. The AO observed from the accounts of the assessee company with sister concerns that there are large number of transactions including payment by the sister concern to the assessee. He observed that the group companies are making the payments to each other on regular basis. Further, the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commodities Ltd.(GCL), are closely held companies. The assessee has substantial holding in JCPL. There are large number of transactions including payments by the JCPL to the assessee. Further, the group companies are also making the payments to each other regularly as per the ledger account submitted. b. The ledger account submitted by the assessee, consists of large number of transactions in respect of shares transactions done by assessee, as client of JCPL, which are not covered u/s 2(22)(e) of the act. However, where there are cheque payments, the same has to be considered as loan/advance for the purpose of section 2(22)(e) of the act. 6. The AO further noted that JCPL, have granted advances in the nature of loan to the assessee, therefore, the payment received from the JCPL by assessee is to be treated as deemed dividend in the hands of the assessee. He accordingly invoking the provisions of section 2(22)(e) of the Act made addition of Rs. 91,47,56,196/- to the total income of the assessee. Thus, the AO determined the total income of the assessee at Rs. 93,00,38,850/- as against the returned income of Rs. 10,02,480/-. 7. In appeal, the learned CIT(A) deleted the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact stated during the course of assessment proceedings and also verified by the AO. Referring to various decisions, he submitted that disallowance u/s 14A r.w.r. 8D of the rules cannot be applied if no exempt income is earned during the year. For the above proposition, he relied on the decision of the Hon'ble Supreme Court in the case of PCIT vs Oil Industries Development Board (2019)103 taxmann.com 326(SC), the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs CIT (2015) 378 ITR 33(Del.), the decision of the Hon'ble Supreme Court in the case of CIT vs M/s Chettinad Logistics Pvt. Ltd. [2018] 95 taxmann.com 250(SC), the decision of the Hon'ble Delhi High Court in the case of PCIT vs Mcdonald's India Pvt. Ltd. (ITA No.725 of 2018) and various other decisions. 12. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the learned CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case, invoking the provisions of section 14A r.w.r. 8D, made addition of Rs. 1,42,80,173/- on the ground that although the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been credited and debited in the accounts of the assessee in association with the said party is on account of business transactions and transacted by the assessee being a client and shareholder of the company. Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of Gaurav Arora, he submitted that the Tribunal vide ITA Nos. 2034, 2035/Del/2016, order dated 17.12.2018 for Assessment year 2011-12 has deleted such addition. He submitted that the Tribunal has upheld the findings of the learned CIT(A) that the transactions in the ledger account of the assessee are in regular course of the business of purchase and sale of the shares/currency/derivates/ commodities etc. and the Ld. DR could not controvert the above factual findings of the learned CIT(A). He submitted that there are two capacity of the assessee i.e. the assessee is surely the shareholder in such companies but at the same point he is their client also. Consequently there are two types of transactions, one business transaction and other transactions which are done in the capacity of shareholder. The transactions carried out between the assessee and the above parties reflect running transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the assessment order, written submissions, case laws relied upon and oral arguments of the Ld. AR. The A.O. in the assessment order, has made an addition of Rs. 91,47,56,196/- u/s 2(22)(e), for the following reasons: (i) The companies namely M/s Jaypee Capital Services Pvt. Ltd.(JCPL), and M/s Gen X Commodities Ltd.(GCL), are closely held companies. The assessee has substantial holding in JCPL. There are large number of transactions including payments by the JCPL to the assessee. Further, the group companies are also making the payments to each other regularly as per the ledger account submitted. (ii) The ledger account submitted by the appellant, consists of large number of transactions in respect of shares transactions done by assessee, as client of JCPL, which are not covered u/s 2(22)(e) of the act. However, where there are cheque payments, the same has to be considered as loan/advance for the purpose of section 2(22)(e) of the act. It is further held by the A.O. that the JCPL, have granted advances in the nature of loan to the assessee. The payment received from the JCPL by assessee is to be treated as deemed dividend in the hands of the assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een further submitted that the even alleged account prepared by the special auditor (in case of JCPL), which has not been followed by the A.O. and has prepared another account. The A.O. has taken alleged loan amount by adopting lesser of the payment made by JCPL to the appellant/concerns and net balance available on a particular date. Therefore, it is, submitted that even the alleged account prepared by the A.O.. does not reflect the correct nature of the account, as same is prepared without following any accounting principles and ignoring the nature of each transaction. It is argued that the A.O. cannot ignore the nature of business transactions entered into by the assessee/group concerns with JCPL, which are relating to share/currency/derivatives and therefore, it is wrong on part of the A.O. to consider running account of business transactions as loans and advances, so as to consider the same as deemed dividend u/s 2(22)(e) of the Act. (iii) It is further submitted by the appellant that the ledger account maintained in the books of accounts of JCPL, copy of which was submitted before the A.O. as well as in the appellate proceedings, shows that the same is a running account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince 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 case (supra) deals with that part of the definition of deemed dividend u/s 2(22)(e) which states 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 since M/s. Pee Empro Exports (P.) Ltd. is not into the business of lending of money, the payments made by it to the assessee-company would therefore be covered by section 2(22)(e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce' 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 M'hat 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the issue in dispute are reproduced are as under :- "8.3 Findings: The findings are as under: 8.4 I have carefully considered the assessment order, written submissions, case laws relied upon and oral arguments of the Ld. AR. The A.O. in the assessment order, has made an addition of Rs. 7,88,99,522/- u/s 2(22)( e), for the following reasons: (i) The companies namely M/s Jaypee Capital Services Pvt. Ltd.(JCPL), M/s Futurz Next Services Ltd.(FNSL) and M/s Gen X Commodities Ltd.(GCL), are closely held companies, in which assessee has substantial share holding. There are large number of transactions including payments by the 2 companies JCPL and FNSL to the assessee. Further, the group companies are also making the payments to each other regularly as per the ledger account submitted. (ii) The ledger account submitted by the appellant, consists of large number transactions in respect of shares transactions done by assessee, as client of JCPL and FNSL, which are not covered u/s 2(22)(e) of the act. However, where there are cheque payments, the same has to be considered as loan/advance for the purpose of section 2(22)( e) of the act. It is further held by the A.O. that the 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns entered into by the appellant/concern with these companies. This fact is evident from the amount of Rs. 7,43,00,000/-, computed by the A.O. in the case of JCPL and Rs. 45,99,522/-, in the case of FNSL on the basis of alleged re-casted copy of account, as against the actual copy of account maintained in the books of accounts of these 2 companies. (c) It has been further submitted that the even alleged account prepared by the special auditor, which has not been followed by the A.O. and has prepared another account. The A.O. has taken alleged loan amount by adopting lesser of the payment made by the 2 companies to the appellant/concerns and net balance available on a particular date. Therefore, it is, submitted that even the alleged account prepared by the A.O., does not reflect the correct nature of the account, as same is prepared without following any accounting principles and ignoring the nature of each transaction. It is argued that the A.O. cannot ignore the nature of business transactions entered into by the assessee with these companies, which are relating to share / currency / derivatives /commodities and therefore, it is wrong on part of the A.O. to consider running acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re nowhere prohibited under any existing law and not covered u/s 2(22)(e) of the act. (c) The transactions entered into are in the regular course of business and it is not a case where it has been alleged by the A.O. that transactions of sale/purchase of share / currency / derivatives / commodities, are not genuine. In fact, these purchase and sale transactions, have not even doubted by the special auditor in the audit report as well as by the A.O. in assessment order. The special auditor and A.O. has re-casted the ledger account by not considering the business transaction of sale/purchase of share / currency / derivatives / commodities, 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 case (supra) deals with that pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-clause (e) of section 2(22) of the Act, which is pari materia with clause (e) of section 2(6A) of the 1922 Act, plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner that they assist the shareholders in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately be 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 view, 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' mayor 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 repaym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d those companies are in the nature of trading transactions which are beyond the ambit of deemed dividend in view of the decisions of the Hon'ble Jurisdictional High Court in the case of CIT vs. Creative Dyeing & Printing (P.) Ltd. (Supra). The Ld. CIT(A) has followed the above decision of the Hon'ble Delhi High Court. In our opinion, the Ld. CIT(A) has not committed any error in following the above decision of the Hon'ble Delhi High Court. Accordingly, we uphold the same. The ground of appeal of the Revenue is dismissed." 19. Since, the facts of the present appeal are identical to the facts of the related party decided by the Tribunal in the case of Gaurav Arora (supra), therefore, respectfully following the same we hold that regular/routine transactions cannot be termed as loans and advances so as to attract the provisions of section 2(22)(e) of the Income Tax Act, 1961. Since, the learned CIT(A) while deleting the addition has thoroughly discussed the issue and has given a finding that these are trading/business transactions, therefore, in absence of any contrary material brought to our notice by the learned DR against the factual finding given by the learned CIT(A) as above, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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