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TMI Blog2024 (11) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditures cannot be ruled out. This fact is further strengthened by the disbursal of the cash received from sale of spent solvents / scrap to various employees which accounted for 80% of the total amount received from sales, which is evident from the affidavits filed by the employees, wherein they claimed that the amount received from the head office has been utilized for making payments and incurring other expenditures. Although there is no direct evidence for incurring 80% of the amount towards expenditure, going by the nature of the material, in our considered view, there needs to be certain amount of expenditure for other expenses like transportation, packing etc. Since there is no direct evidence regarding other expenditures, in our considered view, the only possible way is to estimate a reasonable amount of expenditure against unaccounted receipts from sale of spent solvents / scrap. Therefore, considering the fact that the appellant has already disbursed 80% of the amount received from unaccounted cash receipts in the name of various employees, and also going by the nature of the material, in our considered view, at least 60% of the receipts need to be considered as exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other associate companies, in view of the fact that the manufacturing process is fragmented into different stages and different group companies are handling the manufacture at different stages. In view of existence of such inter-dependency among the associate concerns, the said companies provide funds to each other on a need basis as a measure of business expediency as and when there is requirement of funds for the purpose of business in order to provide the required support to the business of the other associate concerns. The business expediency for making huge payments to MSN Laboratories Pvt. Ltd is revealed by this crucial fact also in addition to the explanation furnished in the preceding paragraph. Therefore, the payments made by the appellant to MSN Laboratories Pvt. Ltd which are evidently imbued with business expediency cannot be considered to be falling under the ambit of advance or loans under section 2(22)(e) so as to constitute deemed dividend - addition made by the AO, to the extent upheld by the CIT(A), towards deemed dividend u/s 2(22)(e) in the hands of the appellant for the purpose of levy of dividend distribution tax without the satisfaction of the said basic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UJARAT HIGH COURT] and [ 2021 (8) TMI 835 - SC ORDER] we are of the considered view that the payments made by the appellant company to the recipient companies during the year do not fall under the scope of deemed dividend u/s 2(22)(e) of the Act. Therefore, the addition made by the AO towards deemed dividend in the hands of the appellant for the purpose of levy of dividend distribution tax, to the extent upheld by the LD.CIT(A) is not warranted for this reason also and thus, deleted. Thus transactions between appellant Company and two other recipient Companies do not come under the provisions of section 2(22)(e) of the Income tax Act, 1961 and consequently, the AO/CIT(A) is erred in levying dividend distribution tax in the hands of the assessee for both assessment years. We, direct the Assessing Officer to delete addition made u/s 2(22)(e) and consequent levy of Dividend Distribution Tax u/s 115-O r.w.s. 115Q. - Shri Laliet Kumar, Hon ble Judicial Member And Shri G. Manjunatha, Hon ble Accountant Member For the Assessee : Shri M.V. Prasad, C.A. For the Revenue : Shri B. Bala Krishna, CIT-DR. ORDER PER MANJUNATHA G. A.M: These two appeals filed by the assessee are directed against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y them for the purpose of their business and were not utilized/diverted for the benefit of the common substantial shareholder. 4. The Ld.CIT(A) erred in law in holding that the Assessing Officer rightly assumed jurisdiction to take the addition towards deemed dividend in an unabated assessment inspite of unavailability of incriminating seized material in respect of the said issue by erroneously construing the judgment of the Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt Ltd. 3. The brief facts of the case are that the appellant company is engaged in the business of manufacturing and sale of drugs and pharmaceuticals filed its return of income for assessment years 2019-20 and 2020-21 under Section 139(1) of the Income Tax Act, 1961. A search and seizure operation under Section 132 of the Income Tax Act, 1961 was carried out in M/s. MSN Group of cases on 24.02.2021. The appellant M/s. MSN Pharmachem Private Limited (hereinafter referred to as MSN ) is one of the companies covered under Section 132 of the Income Tax Act, 1961 as part of the search. Consequent to search, notice under Section 153A of the Act dated 12-10-2021 was served on the assessee, calling for retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the excel sheets, it was found that the spent solvents / scrap was sold in cash and such transactions were not recorded in the books of accounts for the relevant assessment years. A sworn statement under Section 132(4) of the Act was recorded from Shri R. Buchi Reddy on 24.02.2021, and in response to Question No.18, he has stated that details of cash generated from the sale of utilized solvents and scrap has been maintained by him in an excel work book - APRIL 19.29.04.19XZ. xls, found in the seized pen-drive, and further stated that the said cash receipts are not recorded in the books of accounts for the relevant assessment year. He has further furnished the entity-wise and financial year-wise working of the said cash receipts. As per the details furnished by Shri R. Buchi Reddy, the total cash receipts from the sale of spent solvents for the financial years 2012-13 to 2020-21, in respect of the appellant and four other group companies, were worked out at Rs. 63,61,27,585/- and the total cash receipts from the sale of scrap for the financial years 2015-16 to 2020-21 were worked out at Rs. Rs. 18,76,02,606/-. The sworn statement recorded from Shri R. Buchi Reddy along with the Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sposal of the said waste due to its hazardous nature, failing which it may invite problems from the pollution regulatory authorities. He further stated that after examination of the issue that the data contained in the pen-drive in respect of sale of spent solvents / scrap represented the amounts collected in excess of the actual consideration for the purpose of distribution among the workers, who involved in handling the said waste and further submitted that since the workers used to demand payment of high remuneration in cash for handling and disposal of spent solvents/ scrap, the excess amount so collected, being in the nature of remuneration paid to workers for handling hazardous waste never reached the respective companies and accordingly, the same cannot be treated as income in the hands of the respective companies. However, he once again, to put a quietus to the issue and avoid prolonged litigation, reiterated his stand with regard to offering additional income in the hands of the respective companies in the relevant assessment year. The details of party-wise and year-wise additional income offered towards unaccounted receipts from the sale of spent solvents / scrap is as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pent solvents / scrap of Rs. 4.52 crores and Rs. 3.27 crores for assessment years 2019-20 and 2020-21, respectively. 6. Aggrieved by the assessment order, the appellant preferred an appeal before the LD.CIT(A). 6.1. During the course of appellate proceedings, the appellant brought to the notice of the LD.CIT(A) that the same seized material, which contains the details of unaccounted cash receipts from the sale of spent solvents / scrap also contains the details of the expenditure incurred by the appellant and other group companies against the said unaccounted cash receipts. The expenditure so incurred by the appellant and the group companies is represented through cash outflow entries in the names of various employees at the head office appearing in the seized material. The aggregate amount of such cash outflows worked out to Rs. 66,80,52,108/- for AYs. 2011-12 to 2021-22 and the same represented the expenditure incurred by the appellant and other companies for handling and disposal of spent solvents / scrap. The appellant further contended that, out of the cash outflow as recorded in the same seized material, an amount of Rs. 17,63,52,315/- was in the name of MSN Reddy and his fam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to workers is based on seized material, the sworn statement and subsequent affidavits, the claim of the appellant has some reasonable force even if additional evidence by way of notarized affidavits is ignored. 6.3. The LD.CIT(A) further observed that, at the same time, it is true that the expenditure out of unaccounted cash receipts is recorded in the seized material and corroborated by the sworn statement and affidavit of Shri MSN Reddy neither complete retraction from admission nor complete denial of claim of expenditure to the appellant is justified. Therefore, the LD.CIT(A) observed that reasonable expenses incurred for earning unaccounted income is required to be considered. Therefore, considering the evidence filed during the course of appellate proceedings and also taking support from the financials of the MSN group of companies for the relevant financial years, observed that the appellant and other companies have historically incurred an average of 11% of their turnover on salary and wages. Therefore, considering the disposal of such hazardous material associated with risk and challenges, the LD.CIT(A) has directed the AO to allow 10% of the unaccounted cash receipts rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnored all the evidence filed by the assessee and allowed 10% of receipt as expenditure incurred against unaccounted cash receipts from the sale of spent solvents / scrap. Therefore, he submitted that the deduction towards expenditure incurred for handling and disposal of spent solvents / scrap, as per the very same seized material, which was quantified as Rs. 66,80,52,108/-, may be allowed as a deduction against the unaccounted cash receipts. The Learned Counsel for the assessee made an alternative claim that if at all a reasonable portion of expenditure needs to be estimated, then the same needs to be estimated by considering the various expenditures involved in handling and disposal of spent solvents / scrap, but not only the salary and wages, as considered by the LD.CIT(A). 9. On the other hand, Shir B. Bala Krishna, CIT-DR supporting the order of the LD.CIT(A), submitted that there is no dispute regarding the fact that the amount received from sale of spent solvents / scrap has not been accounted in the books of account for the relevant assessment years. In fact, Shri R. Buchi Reddy, Cashier, who received the amount has clearly admitted in a statement recorded under Section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts from sale of spent solvents / scrap and also stated that the said receipts are not accounted for in the books of accounts for the relevant assessment years. The statement of Shri R. Buchi Reddy has been confirmed by the MSN Reddy, the Managing Director of the appellant company. He has further explained the process involved in handling and disbursal of spent solvents / scrap, and according to MSN Reddy, the management did not pay any attention to the financial aspects of the disposal of spent solvents / scrap, but their only interest is the early disposal of the said material, considering the hazardous nature and environmental issues involved in handling and disbursal of the said material. Further, it is also an admitted fact that the appellant and other group companies have admitted additional income received from sale of spent solvents / scrap for the respective assessment years and filed returns in response to notices issued under Section 153A of the Act and paid taxes. Therefore, the issue of the additional claim of expenditure against unaccounted cash receipts from sale of spent solvents / scrap needs to be considered in light of the incriminating material found during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings, in our considered view, the subsequent claim made by the appellant during the assessment proceedings towards the deduction of expenditure against unaccounted cash receipts from sale of spent solvents / scrap needs to be considered going by on the entries contained in the very same seized document, which represents cash outflow in the name of various employees. 10.2 It is an admitted fact that income cannot be earned without any expenditure. In order to earn any income, expenditure needs to be incurred. The only difference is that the quantum of expenditure may vary based on the nature of the income. In some cases, higher expenditure may be incurred and in some cases, expenditure may be less but it all depends upon the nature of income. But it cannot be said that there is no expenditure required to be incurred to earn any income. Going by the above analogy, it is true that for handling hazardous waste like spent solvents / scrap, there needs to be various expenditures, such as handling charges, packing, salary and wages, transportation and materials required for the quick disposal of the said hazardous waste. In the present case, although there is no direct evidence for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees, they have explained the process involved in handling and disbursement of spent solvents / scrap and the amounts incurred towards various expenditures for disposal of spent solvents / scrap. Further, the cash paid to various employees and the purpose of said payments have been explained by the employees in their notarized affidavits. Going by the entries contained in the seized document, coupled with the affidavits filed by the employees, in our considered view, the purpose of maintaining data in the Excel sheet by the cashier is only for internal control at his end regarding the source from sale of spent solvents / scrap and the disbursal of the said cash to various persons at his end. Once the cash is disbursed by him to the head office employees for the purpose of further disbursal of the said cash to the workers by them and the said fact is noted in the Excel workbook by him, it has served the purpose, and there is nothing more to be recorded by him. This explains the reasons why there is no evidence of material regarding the actual disbursement of cash by the head office employees to the workers. Having regard to the limited purpose of maintaining the said excel workbook, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and other group companies have incurred 10% of earnings for salaries and wages; therefore, he estimated 10% expenditure against unaccounted receipts. In our considered view, the LD.CIT(A) has grossly erred in coming to the conclusion that the appellant needs to incur only the salary and wages for handling and disposal of hazardous material even though the prosses of collecting and disposal of hazardous waste requires careful attention in handling the material. The appellant also needs to take steps for quick disposal of such hazardous material. The process of collecting and disposal of spent solvents / scrap requires various other expenditure like transportation, packing, and other necessary items for safe handling of hazardous waste without any environmental impact. If we consider the other expenditure required for the disposal of spent solvents / scrap, in our considered view, the AO needs to consider transportation, packing, and other materials necessary for handling the disposal of spent solvents / scrap. Although there is no direct evidence for incurring these expenditures, the possibility of incurring these expenditures cannot be ruled out. This fact is further strengthened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies and holds more than 10% of the voting share. During the course of search proceedings, summons u/s 131 of the Act, dated 09.04.2021 was issued to the assessee requesting him to produce the information with regard to the purchases and sales made, receipts, and also excess payments made to MSNL and MSNO. The assessee was asked to provide details of sales and purchases made to/from both the companies. The assessee was also required to produce the nature and purpose of payments made, the necessity or purpose of giving such amounts in excess of purchases made, and to provide a copy of the Board resolution passed, if any, for making payments in excess of purchases made along with details of interest charged on such excess amounts paid, if any. In response, the assessee has submitted ledger account copies of MSNL and MSNO in the books of the appellant company and also filed details of opening balance and sales made during the relevant financial year, purchases made from the above two companies, payments made and received from the above two companies and closing balances. The assessee had also explained the nature and necessity of payments made to the above two group companies and submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im, and such balance excess payments have been treated as payments made by way of advances or loans on the reasoning that the said excess payments have no relation to the trading transactions between the appellant company and two recipient companies. The AO further observed that although the appellant has made excess payments over and above the normal business transactions, but the appellant company has not engaged in the business of finance and no interest was charged in respect of said loans and advances and therefore, invoked provisions of Section 2(22)(e) of the Act and made additions of Rs. 243,66,97,212/- for the assessment year 2019-20 and Rs. 266,76,84,647/- for the assessment year 2020-21. 11.2 The AO further observed that the appellant company, being the payee, is liable to pay dividend distribution tax under the provisions of Section 115-O of the Income Tax Act, 1961 in respect of the said deemed dividend under Section 2(22)(e) in the hands of the common substantial shareholder, in view of the amendment made to Section 115Q with effect from 01.04.2018, making dividend distribution tax applicable to deemed dividends also. Since no dividend distribution tax has been paid a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as normal commercial transactions between two unrelated parties, going by the nature of the payments and purchases. The LD.CIT(A) further observed that the excess payments should be classified under loans and advances that fall within the ambit of Section 2(22)(e) of the Act only, and the treatment by the appellant company of such huge payments in its books of accounts is of no relevance. The LD.CIT(A) further observed that the contention of the appellant that the transactions between the two companies are in the nature of current account adjustments due to two-way movement of funds on a need basis is also incorrect because, in a current account (running), it is an opening account, an unsettled running account used in a trade between the buyer and seller, wherein it allows the buyer to make ongoing purchases with amounts paid by reducing the balance, and there is a fixed date by which payments and receipts must be settled. However, in the present case, during the assessment year 2019-20, the appellant has purchased ₹1.95 crores from MSNL and made sales of ₹100.52 crores, and consequently, the appellant had to receive a balance amount of ₹ 98.57 crores. However, ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ordinary course of business, and excess payments over and above 200% have been treated as loans and advances for the purpose of Section 2(22)(e) of the Act, and directed the Assessing Officer to rework the deemed dividend under Section 2(22)(e) and also compute the dividend distribution tax under Section 115Q of the Act. 12. Aggrieved by the order of the LD.CIT(A), the appellant is in appeal before us. 13. The Learned Counsel for the assessee Shri M.V. Prasad, C.A. submitted that the LD.CIT(A) erred in sustaining additions made by the AO towards deemed dividend under Section 2(22)(e) and the consequent dividend distribution tax under Section 115Q, without appreciating the fact that the transactions between the appellant company and two other associated concerns are trade advances, which are in the nature of commercial transactions effected in the ordinary course of business and does not fall under loans or advances for the purpose of Section 2(22)(e) of the Act. The Learned Counsel for the assessee further submitted that the LD.CIT(A) failed to appreciate that there is a two-way movement of funds between the appellant company and the recipient companies and the said transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en received by such shareholder. The intention of the Legislature is to tax funds ultimately received by a shareholder holding not less than 10% of voting power in the company, where such funds have been routed through different modes / concerns and used for the benefit of the shareholder. In the present case, the amounts paid by the appellant company to the two associated companies are for their business requirements, including deployment of working capital, purchase of new assets, and financial support in furtherance of their business activities. Therefore, these transactions cannot be considered as loans and advances for the purpose of Section 2(22)(e) of the Act. The Learned Counsel for the assessee further referred to the decision of the Hon ble Supreme Court in the case of CIT Vs. Mukundray K. Shah reported in (2007) 290 ITR 433 (SC) and submitted that, in order to invoke provisions of Section 2(22)(e), two factors must be considered: whether the payment was a loan or advance and whether on the date of payment there existed accumulated profits. Unless the transactions are in the nature of loans and advances, the provisions of Section 2(22)(e) cannot be invoked. In this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord and gone through the orders of the authorities below. We have also carefully considered the plethora of case laws relied upon by both sides. The addition towards deemed dividend for the purpose of levy of dividend distribution tax has been made by considering the debit balance outstanding in the accounts of two group concerns i.e., M/s MSN Laboratories Pvt. Ltd and M/s MSN Organics Pvt. Ltd, in the books of the appellant company as on 31.03.2019. The appellant company and two group companies MSN Laboratories Pvt. Ltd and MSN Organics Pvt. Ltd (referred to as recipient companies) are engaged in the same line of business of manufacture and sale of Active Pharmaceutical Ingredients (API). The appellant company and the recipient companies have carried out trading transactions of purchases and sales with each other in the course of the said business. The appellant company has made payments in respect of purchases made from the recipient companies and received payments in respect of sales made to recipient companies. During course of assessment proceedings, the AO analyzed the details of opening balance, sales, purchases, receipts, payments and closing balance in the accounts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the purchases, which has been treated as deemed dividend u/s 2(22)(e) by the Assessing Officer for the assessment years 2019-20 and 2020-21 under consideration are summarized in the table given below: Particulars A/c of MSN Laboratories Pvt Ltd in the books of the appellant A/c of MSN Organics Pvt Ltd in the books of the appellant Amount (Rs.) Amount (Rs.) Opening debit Balance 57,44,33,690 0 Add: Sales 100,52,08,397 54,74,844 Add: Payments (net of rent) 298,63,99,230 14,79,63,266 Less: Purchases 1,95,03,644 53,36,102 Less: Receipts 154,70,02,126 13,00,86,779 Closing debit balance 299,95,35,547 1,80,15,229 Excess payments during the year (sales + payments purchases receipts) 242,51,01,857 1,80,15,228 Less: Additional 50% of purchases in addition to 100% of purchases considered above 97,51,822 26,68,051 Balance excess payments treated as advance or loan constituting deemed dividend 241,53,50,035 1,53,47,177 Aggregate deemed dividend for AY 2019-20 243,06,97,212 Particulars A/c of MSN Laboratories Pvt Ltd in the books of the appellant. Amount in (Rs.) Opening debit balance 299,95,35,547 Add: Sales 100,43,24,928 Add: Payments (net of rent) 506,40,05,020 Less: Purchases 2,13,45,020 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lder is member or partner and in which he has a substantial interest 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. The term Concern has been defined which includes a company also. Therefore, in the present case, the conditions prescribed for invoking the provisions of Section 2(22)(e) of the Act is primarily satisfied to the extent the appellant company and other two companies are having common share holder Shri MSN Reddy, who is holding more than 10% voting power in all the three companies and further, the appellant company is having accumulated profits which is in excess of the amount of advance computed by the Assessing Officer. However, whether the transactions between the appellant company and the other two companies are trade advances which are carried out in the normal course of business of all the companies or any loan or advances which fall within the ambit of Section 2(22)(e) of the Act has to be seen in light of nature of transaction between the parties. 18. There is no dispute regarding the satisfaction of the some of the basic ingredi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r company and thus, these trade advances in the ordinary course of business cannot be regarded as payment of loans or advances to the recipient company, since the same are undeniably in the nature of commercial transactions. It is a settled position of law that trade advances given in the normal course of business on account of trading transactions cannot be treated as loans or advances so as to constitute deemed dividend u/s 2(22)(e) of the Act. This legal position is fortified by the decisions in the case of CIT Vs. India Fruits Ltd [2015] 53 taxmann.com 307 (Andhra Pradesh), where it has been held as under : The finding of facts arrived at by the Tribunal was that the transaction in question was a business transaction and it would have benefited both, the assessee-company and the company P. In fact, the revenue had also conceded that the amount was not a loan but only an advance because the amount paid to the assessee-company would be adjusted against the entitlement to moneys of the assessee-company payable by P in the subsequent years. [Para 10] The revenue contended that since the company P was not in the business of lending money, the payments made by it to the assessee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t balance in the account of the recipient companies at the end of the year, but both authorities have misdirected themselves in holding that payments made to the recipient companies in excess of 150% or 200% of purchases from such company cannot be treated as trade advances in the nature of commercial transactions. The AO has wrongly treated the payments in excess of 150% of the purchases as loans or advance and wrongly held the same to be deemed dividend u/s 2(22)(e) of the Act. Similarly, the LD.CIT(A) has wrongly treated the payments in excess of 200% of the purchases as loans or advance and wrongly upheld the same to be deemed dividend u/s 2(22)(e) of the Act. In our considered view, the said approach of the AO/CIT(A) is arbitrary and the same is not founded on any settled principle laid down by the Courts or on any stipulation conveyed by the Board through a circular regarding the reasonableness of the quantum of trade advances. The AO/CIT(A) has not revealed the basis on which they arrived at the threshold of 150%/200% of purchases for accepting the reasonableness of the quantum of trade advances. In the absence of specification of the relevant basis by the AO/CIT(A), the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade advances by sitting in the arm-chair of the businessman. Therefore, we are of the considered view that the entire amount of payments made against purchases has to be regarded as trade advances without any artificial limitation on the quantum of such trade advances. As a result, the amounts paid to recipient company in excess of 200% of the purchases also have to be regarded as trade advances which are in the nature of commercial transactions only and they cannot be characterized as loans or advance constituting deemed dividend within the meaning of section 2(22)(e). The addition made by the AO and upheld by the CIT(A) towards deemed dividend is therefore wholly untenable and needs to be deleted. 21. We further noted that the transactions of payments made by the appellant to the recipient companies have arisen due to business exigencies and the said transactions therefore bear commercial character. The appellant company and the recipient companies are associate concerns of the same group with a common Managing Director and substantial shareholder Sri.M.S.N Reddy. The group companies, including the said companies, are engaged in similar line of business of manufacture of Activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2(22)(e) so as to constitute deemed dividend. Further, the provisions of deemed dividend are not attracted in the facts of the case for the instant assessment years as the basic ingredient to invoke the said provisions that payments by way of advance or loans have been made by the appellant company to the recipient companies in which Sri. M.S.N.Reddy is the common substantial shareholder, is non-existent. Therefore, in our considered view, the addition made by the AO, to the extent upheld by the CIT(A), towards deemed dividend u/s 2(22)(e) in the hands of the appellant for the purpose of levy of dividend distribution tax without the satisfaction of the said basic condition laid down in the section is unwarranted and untenable. 22. The second limb of argument of the appellant is that current adjustment account transactions do not represent loans or advance for the purpose of deemed dividend. We, find that there is a two-way movement of funds between the appellant company and the recipient companies as per the business requirements of the said companies and the same is evident from the perusal of the respective ledger account copy of the recipient companies in the books of the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 2(22)(e) would not be applicable, where there were transactions of giving money by the company to the shareholder and vice versa in the account. Further, the ITAT, Mumbai held in the case of Ravindra R Fotedar Vs. ACIT [2017] 85 taxmann.com 314 (Mumbai) (Pg No.105-111 of PB-I) that where the movement of funds is in both ways on need basis between the two companies in which the assessee held substantial interest, the transactions are in the form of current accommodation entries and the amount in question could not be regarded as deemed dividend. In another case of Neha Home Builders Pvt Ltd Vs. DCIT [2018] 98 taxmann.com 465 (Mumbai-Trib) also (Pg No.112-116 of PB-I), the ITAT, Mumbai held that when the transactions between group companies were current and inter banking accounts containing both receipt and payment entries, same could not be regarded as loans and advance, as contemplated under section 2(22)(e) and no addition could be made as deemed dividend. Similar view was expressed by the ITAT, Delhi in the case of Saamag Developers Pvt Ltd Vs. ACIT [2018] 90 taxmann.com 20 (Delhi-Trib) (Pg No.117-131 of PB-I), wherein the Tribunal held that the amounts received from various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment in subsidiaries and loans to related parties (subsidiaries). The funds have not been diverted to the common substantial shareholder or were not utilised for the benefit of said shareholder. The details of the utilisation of the funds by the two recipient companies are submitted at Pg No.75-76 of PB-I, which were submitted to the LD.CIT(A) during the appellate proceedings. The said statements are prepared on the basis of the cash flow statement forming part of the audited financial statements of the recipient companies, the copies of which were furnished to the AO during the assessment proceedings. It may be seen from the perusal of the said statements that the funds received from appellant company have been fully subsumed in the funds utilised by the recipient companies during the year for the purpose of working capital, acquisition of fixed assets of the business (setting up new units/expansion of existing units), investment in subsidiaries and loans to related parties (subsidiaries). Thus, the payments made to the recipient companies during the year were wholly used by them for the purpose of their business and such payments did not yield any benefit to the substantial co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be taxed as deemed dividend is the amount ultimately used for the benefit of the shareholder. The relevant portion of the said decision is extracted below: 7.11 Examining the facts of the case in the light of the above legal and statutory position, this case relates to the second mode of payment envisaged under clause (e) of section 2(22) viz. to any concern in which such shareholder is a member or a partner and in which he has substantial interest. From the reasons recorded it emerges that according to the Assessing Officer unsecured loans have been extended by M/s J.P. Infrastructure Limited to its sister concerns, viz. Gujarat Mall Management Co. Pvt. Ltd. and Aryan Arcade Pvt. Ltd. and that the petitioner held 27.49% shares in M/s J.P. Infrastructure Limited; 50% shares in Gujarat Mall Management Co. Pvt. Ltd.; and 29% shares in Aryan Arcade Pvt. Ltd., which according to him had to be treated as deemed dividend in the hands of the shareholder and taxed accordingly. As is apparent on a plain reading of the reasons recorded, while the Assessing Officer has information that M/s J.P. Infrastructure Limited has advanced unsecured loans as referred to therein to its sister concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner, there was no obligation cast upon him to disclose such transactions. 26. Further, the SLP filed by the Revenue against the said decision of the Hon ble Gujarat High Court has been dismissed by the Hon ble Supreme Court by stating that it does not find any ground to interfere with the impugned order passed by the High Court, as reported in DCIT Vs. Jayesh T Kotak [2021] 130 taxmann.com 170 (SC) (Pg No.147 of PB-I). Therefore, in our considered view, it is now a settled law that the payment made by the payer company to the recipient company, in which there is a common shareholder holding not less than 10% and 20% of the voting power respectively, would be deemed to be dividend in the hands of such shareholder only if any benefit from such transaction has been received by such shareholder or the amount is ultimately used for the benefit of the shareholder. This settled legal principle has been judicially laid down having regard to the intention of the legislature to tax funds ultimately received by a shareholder holding not less than 10% voting power in the company, which have been routed to him through different concerns in which he holds substantial interest. 27. Let us n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra), we are of the considered view that the payments made by the appellant company to the recipient companies during the year do not fall under the scope of deemed dividend u/s 2(22)(e) of the Act. Therefore, the addition made by the AO towards deemed dividend in the hands of the appellant for the purpose of levy of dividend distribution tax, to the extent upheld by the LD.CIT(A) is not warranted for this reason also and thus, deleted. 28. In this view of the matter and considering facts and circumstances of this case and also, by following ratios of various Courts/Tribunals discussed hereinabove, we are of the considered view that the transactions between appellant Company and two other recipient Companies do not come under the provisions of section 2(22)(e) of the Income tax Act, 1961 and consequently, the AO/CIT(A) is erred in levying dividend distribution tax in the hands of the assessee for both assessment years. Thus, we set aside the order of the LD.CIT(A) on this issue, and direct the Assessing Officer to delete addition made u/s 2(22)(e) and consequent levy of Dividend Distribution Tax u/s 115-O r.w.s. 115Q of the Income Tax Act, 1961 for Asst. Years 2019-20 and 2020-21 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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