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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 ..... 2018 (7) TMI 567 - SC ORDER] has held that in absence of any exempt income, no disallowance u/s 14A r.w.r. 8D can be made. Since, the assessee in the impugned assessment year has admittedly not received any exempt income or dividend income, therefore, the order of the learned CIT(A) in deleting the disallowance made by the AO u/s 14A r.w.r 8D is upheld and the grounds raised by the Revenue on this issue are dismissed. Deemed dividend addition u/s 2(22)(e) - as per AO assessee has failed to demonstrate that the money advanced by the companies to it was in the nature of trade advance and therefore the learned CIT(A) was not justified in deleting the addition - HELD THAT:- 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 [ 2019 (3 ) TMI 1289 - ITAT DELHI] 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) - 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies are making the payments to each other on regular basis. Further, the companies also are having cross shareholding with each other. From the various details furnished by the assessee, he observed the details of share holding of the companies which are as under:- (i) Gen-X Commodities Ltd (Formerly Arora Timber Ltd) Percentage of Share Holding AY Gaurav Arora Gaurav Arora(HUF) Futurtz Next Services Ltd 2006-07 24.67 36.37 2007-08 24.67 40.16 17.42 2008-09 42.72 46.83 2009-10 42.72 46.83 2010-11 42.72 46 .83 2011-12 42.72 46.83 2012-13 42.72 46.83 (ii) Futurtz Next Services Ltd (Formerly Jaypee Commodities Ltd) Percentage of Share Holding AY Gaurav Arora Gaurav Saurabh Arora 2006-07 55.33 36.17 2007-08 91.49 2008-09 91.49 2009-10 91.49 2010-11 91.49 2011-12 91.49(Tiil 08.12.2008) 91.49 (After 08.12.2008) 2012-13 91.49 (iii) Jaypee Capital Services Ltd Percentage of Share Holding AY Gaurav Arora Gaurav Arora(HUF) Futurtz Next Services Gex X Commodities Saurav Arora 2006-07 57.59 20.02 2007-08 79 20.02 2008-09 59.20 23.05 14.82 2009-10 42 24.75 22.73 10.52 2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) on the ground 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 only. According to him these transactions are trading/business transactions, therefore, provisions of section 2(22)(e) will not applicable. 8. Aggrieved with such order of the learned CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds of appeal:- a. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in deleting the disallowance u/s 14A read with rule 8D of the Income Tax Rules ignoring the fact that the provisions of section 14A are mandatory. b. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts is not appreciating the content of CBDT Circular no. 05/2014 dated 11-02-2014 which clarifies that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in particular year has not earned any exempt income. c. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts by deleting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be received from such investment is exempt and the assessee has claimed interest and other expenses in the profit & loss account. We find the learned CIT(A) deleted the addition on the ground that no dividend income was received by the assessee during the year and therefore, in view of the decision of the Hon'ble Delhi High Court in the case of CIT vs Holcim India Pvt. Ltd., the disallowance u/s 14A of the Act cannot be sustained. 12.1. We do not find any infirmity in the order of the learned CIT(A) in deleting the addition made by the AO u/s 14A r.w.r. 8D of the Rules. It is an admitted fact that the assessee, during the year under consideration, has not earned any exempt or dividend income. It has been held in various decisions that in absence of any exempt or dividend income received during the year under consideration, no addition can be made u/s 14A r.w.r. 8D of the Rules. The Hon'ble Delhi High Court in the case of Chiminvest Ltd. vs CIT (2015) 378 ITR 33 (Del.) has held that in absence of any exempt income, disallowance u/s 14A of the Act of any amount was not permissible. The Hon'ble Supreme Court in the case of CIT vs M/s Chettinad Logistics Pvt. Ltd. (supra) has held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.1. Referring to the CBDT Circular No.19/2017, dated 12.06.2017, he submitted that the CBDT has clarified that the advances which are in the nature of commercial transactions would not fall within the ambit of the word 'advance' u/s 2(22)(e) of the Act. Relying on various decisions, he submitted that since these transactions are regular and routine transactions, therefore, this cannot be termed as loans and advances in pursuance of sections 2(22)(e) of the Act and the same are to be held as business transaction. He also relied on the following decisions:- i. CIT vs Sunil Sethi in ITA No.569/2009, dated 03.02.2010 (Del.) ii. CIT vs Creative Dyeing & Printing Pvt. Ltd. [2009] 318 ITR 476 (Del.) iii. CIT vs Arvind Kumar Jain in ITA No.589 of 2011, dated 30.09.2011 (Del.) iv. Krishan Murari Lal Agarwal vs DCIT [2013] 59 SOT 136 (Agra Trib.) 16. 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 made addition of ₹ 91,47,56,196/- u/s 2(22)(e) fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency/derivatives brokers, with whom the appellant and the groupconcerns maintain client account, in which business transaction of sale and purchase of share/currency/derivatives 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 JCPL. are not in the nature of advance or loan. Therefore, it is claimed that these accounts relates to business transactions of share/currency/derivatives 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 re-casted 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 picked up the figures of cheque received and paid by JCPL. After taking the figure of money received and money paid, the special auditor has worked out the peak balance of the same and tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce transactions. From the above, the following facts emerges: (a) The transactions of cheques received and paid from/to the broker company JCPL, are related to the business transactions of sale/purchase of share/currency/ derivatives 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 the broker company, 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 adopted by the A.O. in assessment order, is not correct. The positive and the negative balances, emerging out of the said accounts, is the result of business activities, which cannot be considered as loans/advances, as to cover the same within the provisions of section 2(22)(e). (b) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the recomm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 u/s 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 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 dividend of ₹ 91,47,56,196/-, is hereby deleted." 18. We do not find any infirmity in the order of the learned CIT(A) on this issue. We find an identical issue had come up before the Tribunal in the case of the related party namely Mr. Gaurav Arora (supra), wherein the Tribunal on identical facts and circumstances has deleted the addition made by the AO by observing as under:- "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the group company GCL. The payment received from the JCPL and FNSL by assessee and group concerns, are to be treated as deemed dividend in the hands of the assessee. The objections/arguments submitted by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 2(22)( e) of the Act. (ii) It is further submitted by the appellant that the ledger account maintained in the books of accounts of these 2 companies, 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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)( 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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