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TMI Blog2022 (8) TMI 217X X X X Extracts X X X X X X X X Extracts X X X X ..... o sister concern (Jaypee Technoplast Pvt. Ltd. which are stately engaged in rendering different services and also, one is time based on seamless basis while other is essentially service based, the comparison is rightly claimed to be unjustifiable. We thus find merit in the plea of the assessee for lack of sound basis for determination of fair market value and consequent inapplicability of Section 40A(2)(b). Addition of deemed dividend u/s 2(22)(e) - assessee (partner firm) obtained loan from the sister concern and one of the partners of the firm, Ms. Anita Jain holding profit sharing ratio of 25% in the firm (recipient of loan) is also holding 14.52% shares in the lender company - HELD THAT:- As in the case of Pradip Kumar Malhotra [ 2011 (8) TMI 16 - CALCUTTA HIGH COURT] has observed that advances given by lender firm was not for the individual benefit of the shareholder but for business purposes and therefore such transactions could not fall within the sweep of deeming fiction created under Section 2(22)(e) of the Act. This reason on a standalone basis is sufficient to exclude the applicability of Section 2(22)(e) of the Act on the money received by the assessee firm. Als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e four appeals are interconnected pertaining to same assessee and have been heard together. We shall proceed with the captioned appeals hereunder: ITA No.4446/Del/2016 (Assessment Year 2012-13) 3. The grounds of appeal raised by the assessee reads as under: 1. That on the facts and circumstances of the case and in law, the learned Commissioner of Income-Tax (Appeals) erred in upholding the addition of Rs.3,12,600/- out of Rs.10,43,211/- incurred on Moulds Manufacturing Repair expenses, by applying section 40A(2)(b) of the Act. 1.1 That the Learned Assessing Officer as well as the Learned Commissioner of Income Tax (Appeals) failed to appreciate and distinguish the services rendered by the related party and other parties. 1.2 That the observation of the Learned Commissioner of Income Tax (Appeals) that the AO has compared the CNC / AMC changes for Moulds in the market, being factually incorrect and not based on any evidence, the disallowance made in assessment deserves to be deleted. 2. That on the facts and circumstances of the case and in law, the learned Commissioner of Income-Tax (Appeals) erred in upholding the addition of Rs. 25,43,262/- u/s. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Secondly, the CIT(A) has observed that the Assessing Officer has made disallowance towards excessive payment to relative party under Section 40A(2)(b) on the basis of fair market value but however the source of fair market value is in unknown territory. Except for the comparison with the amount paid to Kalsi Mould and Dyes vis- -vis amount paid to sister concern (Jaypee Technoplast Pvt. Ltd. which are stately engaged in rendering different services and also, one is time based on seamless basis while other is essentially service based, the comparison is rightly claimed to be unjustifiable. We thus find merit in the plea of the assessee for lack of sound basis for determination of fair market value and consequent inapplicability of Section 40A(2)(b) in the facts of the case. We thus set aside the action of the Revenue Authorities and restore the stance of the assessee. Ground no.1 of the appeal of the assessee is allowed. 3.4 In the result, Ground No.1 of the appeal of the assessee is allowed. 4. Ground No.2 concerns addition of Rs.25,43,262 under Section 2(22)(e) of the Act. 4.1 Briefly stated, the assessee (partner firm) obtained loan from the sister concern, namely, M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the sister concern on commercial basis. On facts it has emerged that the lender company has charged interest on advances made to assessee firm. The assessee has taken plea that the advances made by the lender company to the borrower assessee firm is not a loan/advance but is beset with the character of quid pro quo owing to charge of interest for the benefit of lender company. In the circumstances, the Hon ble Calcutta High Court in the case of Pradip Kumar Malhotra vs. CIT, (2011) 338 ITR 538 (Cal.) has observed that advances given by lender firm was not for the individual benefit of the shareholder but for business purposes and therefore such transactions could not fall within the sweep of deeming fiction created under Section 2(22)(e) of the Act. This reason on a standalone basis is sufficient to exclude the applicability of Section 2(22)(e) of the Act on the money received by the assessee firm. Similar view has been expressed in PCIT vs. Mohan Bhagwatprasad Agrawal, (2020) 115 taxmann.com 69 (Guj.). Also, the same view has been followed by the Co-ordinate Bench of the Tribunal in Smt. Sangeeta Jain vs. ITO in ITA No.1817/Kol/2009; Assessment Year 2006-07, order dated 11 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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