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TMI Blog2025 (2) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... n done regularly and consistently and has noted that the same being in the ordinary course of business and out of commercial expediency and the account between the assessee and its subsidiary was in the nature of current account and further since the issue is squarely covered by the decision of the various High Courts/Tribunal decisions, therefore, in view of the above discussion, the addition made/confirmed by the lower authorities u/s 2(22)(e) of the Act is not sustainable in this case and the same is accordingly ordered to be deleted. Deduction u/s 80IA - assessee company claimed deduction for its steam generation unit from the boiler plant U-I located at Hapur - HELD THAT:- Counsel has duly demonstrated that the deduction u/s 80IA was duly claimed in the revised return. As observed above, both the lower authorities failed to take note of the revised return filed by the assessee. Therefore, the denial of deduction on this ground was not justified. So far as the computation of deduction is concerned, the issue is squarely covered by various decisions of the higher courts including the decision of the Hon'ble Supreme Court in the case of CIT vs. M/s Jindal Steel & Power Ltd [2023 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally. 3. For that the Ld. Commissioner of Income Tax (A) erred in invoking of section 2(22) (e) of the Act on the ground that the higher pick balance should be considered as deemed dividend for the transaction which is not in nature of loan & advances. The learned CIT(A) ignored to consider fully that repayment of loan was made completely during the sort period of time when fund available in the hands of the assessee and also the assessee provided the fund to the subsidiary company in several occasions in view of commercial expediency and its subsidiary company made full payment during the sort period consequently the opening and closing balance of the ledger account between holding & subsidiary companies showing NIL balances. 4. The learned Commissioner of Income Tax (Appeals) erred in not considering the revised return filed by the assessee claiming deduction under section 80IA of the Income Tax Act, 1961. 5. The learned Commissioner of Income Tax (Appeals) erred in not declaring the assessment as bad in law as the learned Assessing Officer did not accept the revised return filed by the assessee. 6. That the Ld. Commissioner of Income Tax (A) erred in ignoring to allow th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in the International market. The exemption of the Incentive subsidy of Rs. 86,72,177/- may kindly be allowed. 2. That on the facts and circumstances of the case and in law, The hon'ble CIT(A) has erred in not considering to allow education cess of Rs. 26,21,359/- as business expenditure which was ignored by the Learned Assessing Officer during assessment to allow as an allowable business expenditure. The education cess may kindly be allowed as an allowable business expenditure." 3. Whereas, the revenue in its appeal bearing ITA No.174/Kol/2019 has taken the following grounds of appeal "i.. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred by restricting the additions made u/s.2(22)(e) of the Act to Rs. 9,01,00,000/- instead of total loan receipt of Rs. 39,34,10,000/-, ii. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred by not appreciating the facts that as per section 2(22)(e) of the Act, the total loans received by the assessee company is covered in the ambit of provision of section 2(22)(e) of the I. T. Act. iii. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01 sf December 2014 It is settled position of law that when due date falls on a date which happens to be a holiday, the due compliance made on the immediately following working day will be sufficient compliance with the due date. This is referred from the provision of section 10 of The General Clauses Act. We attached herewith the relevant copy of the aforesaid section 10 for your kind reference. Vide page No "1" of the additional paper book. We also attached the order u/s 119 dated 26th September.2014 under which the due date was 30-11-2014 for filling the original return of tax. Vide Para no 6 of page 2 of the order as attached with our additional paper book. Vide Page 2 to 4 of the Additional Paper book. (B). We attached the judicial pronouncement by the honourable ITAT, Ahmedabad in case of Priyal Kaushal Shah, Ahmedabad VS Income Tax Officer,Ward-3(2)(9), dtd. 15th March, 2023 in which the ITAT held recently on the same matter and allowed the compliance within the due date which was compiled by the deportment on following day from the day of the holiday. Kindly refer to the Para No. 4 Page No. 2 of the attached order which is related to the fact of the case and Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Maya Debi Bansal Vs. Commissioner of Income Tax. Where the High Court held that assessment order is invalid under the law in case the assessment order was not based the proper return as filed by assessee. Kindly refer to the para no. 2 -Page No. 1 and Para No. -14 Page No. 5 of the respective judgement. The judgment is attached herewith our additional paper books - Page no 27 to 31. We also referred to the decision of the apex court in the case of Asst. Commr of IT & Anr. vs M/s Hotel Blue moon in which the Apex Court held that the noncompliance of mandatory provision is attracted to the assessment order void and null. Kindly refer to Para no 4 of page no 2 and para 18 of page no 7 of the judicial judgment. We attached the judicial judgment with our additional paper book page no 32 to 38 Keeping view of the above, it is very clear apparently that our revised return is ignored by the Ld A.O as well as by the CIT(A) therefore the assessment order which is to declared null and void because the assessment order is not based on the valid return of tax." 5. The ld. DR however has submitted that the assessee had filed original return on 01.12.2014, whereas, the due date for filin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer to assume jurisdiction to frame the assessment. He has submitted that since no notice was issued by the Assessing Officer u/s 143(2) of the Act in respect of revised return filed by the assessee and the Assessing Officer has totally failed to take note of the revised return, therefore, the assessment order passed by the Assessing Officer in respect of original/earlier return of income was not valid order and the same is liable to be quashed on this score alone. He in this respect has relied upon various case laws including the decision of Hyderabad Bench of the Tribunal in the case of Shri Ashok Reddy Cheruvu vs. DCIT (supra) and of the Hon'ble Calcutta High Court in the case of Maya Debi Bansal vs. CIT (supra). 7. We have considered the rival contentions and gone through the record. The ld. AR of the assessee has duly demonstrated that the CBDT vide its order passed u/s 119 of the Act had extended the due date of filing of the return to 30.11.2014., the day falling on 30.11.2012 being a Sunday and closed day, therefore, as per section 10 of the General Clauses Act, the due date will be the next working day and the assessee duly filed the return of income on the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with this issue of validity of impugned assessment as under : "7. The grounds of appeal no.7 to 9 relate to the validity of the scrutiny assessment order passed u/s. 143(3) of the IT. Act. 7.1 The original return of income was filed on 04.07.2014 and the same was selected for scrutiny assessment. Later, revised return of Income was filed on 16.11.2015. Even if the revised return of income is a valid return, the scrutiny assessment proceedings, initiated by duly serving the necessary notices u/s.143(2) and 142(1), with reference to the original return of income, continue to be valid and such legal proceedings will have to be taken to their logical conclusion. There is nothing in law which states that the pending proceedings, in respect of the original return, shall abate or will automatically get invalidated with the filing of the revised return, by the appellant. If the argument of the appellant is accepted, then, the same will lead to an absurd proposition and to defeat the pending legal proceedings, all that the assessee will have to do is to file a revised return and say that the revised return has substituted the original return and, therefore, the pending scrutiny asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Both of these have been done. 7.6 In view of the discussion made, as above, the grounds of appeal no.7 to 9 are dismissed." 9. Mr. Pandey vehemently supported the CIT(A) order findings under challenge that Section 143(2) of the Act notice had been duly issued to the assessee well before the filing of his revised Return dt.16.11.2015 and therefore, the said earlier notice validates the impugned assessment. And also that Section 143(2) proviso applies case of a return filed u/s. 139(1) of the Act and not qua a revised return u/s. 139(5) of the Act. 10. We have given our thoughtful consideration to rival pleadings against and in support of the correctness of the impugned assessment. We make it clear that there is no dispute between the parties about the assessee having filed the original return on 4.7.2014 followed by Section 143(2) notice, revised return dt.16.11.2015 and the subsequent section 143(2) notice dt.18.11.2016; respectively, in seriatum. Mr. Pandey fails to dispute that the Assessing Officer notice u/s. 143(2) dt.18.11.2016 turns out to be beyond the statutory period of six months from the end of the financial year in view of the revised return dt.16.11.2015. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 by e-filing at Page No.4 Para No.6 of the Assessment Order. It was a further submission that at Page No.33 Para No.14, the AO considered the objection of the assessee in respect of non-issuance of notice u/s.143(2). It was a submission that the AO did not reject the revised return filed by the assessee on 26.02.2014 but has considered the data disclosed in the revised return filed on 26.02.2014 but had rejected on merits, the results admitted and the method of accountancy adopted in the said return. It was a submission that the notice u/s.143(2) having not been issued in respect of the return filed on 26.02.2014, the assessment was liable to be annulled. 4. In reply, Ld. DR submitted that the assessee had objected to the non-issuance of notice u/s.143(2) only on 27.03.2015 which is also extracted by the AO in Page No.27 of this order. It was a further submission that the assessee having been granted substantial opportunities as has been extracted by the AO in Page No.6 of this Order, it was a submission that the assessment was liable to be upheld. 5. We have considered the rival submissions. Admittedly, the last revised return filed by the assessee on 26.02.2014. This was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds dismissed." Learned co-ordinate bench has held in other words that such an issuance of fresh section 143(2) notice is a condition precedent going by the honourable apex court land mark decision in Hotel Blue Moon case (supra). We adopt the very reasoning mutatis mutandis to accept the assessee's additional substantive grounds 20 to 25. The impugned assessment stands annulled therefore. Ordered accordingly. All other rival pleadings in assessee's and Revenue's cross appeals on merit are rendered infructuous as the necessary corollary. 10. The assessee's appeal ITA 1560/Hyd/2019 is allowed and Revenue's cross appeal ITA 1597/Hyd/2019 is dismissed. A copy of this order be placed in respective case files." 8. Even the issue is covered by the decision of the Jurisdictional Calcutta High Court in the case of "Maya Debi Bansal vs. CIT" (supra) wherein, the assessee had filed the return in a wrong form i.e. Form no.2 in response to notice issued u/s 148 of the Act instead of prescribed form applicable in the year under consideration. The ACC held that the assessment order passed u/s 143(3) on the basis of a return not filed in proper form was invalid and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -15, the assessee company filed its return of income declaring total income at Rs. 36,06,90,830/- under normal provision of the Act. The company had computed book profit u/s 115JB at Rs. 21,01,31,281/-. During the assessment year, the assessee company claimed deduction u/s 80IA of the Act for generation of steam energy. The return was selected for scrutiny and notice u/s 143(2) was issued on 07.09.2015. The Assessing Officer noted from the investment schedule of the assessee company that the assessee company was holding 74.65% shares of M/s Merino Panel Products Limited i.e. subsidiary company. Further, from the loan schedule of the assessee company, it was also evident that the assessee company had received a sum of Rs. 39,34,10,000/- as loan from the said subsidiary company. The above fact also corroborated from the Clause No.31(a) of the tax audit report of the assessee company where loan from subsidiary had been duly disclosed. The Assessing Officer applied the provisions of section 2(22)(e) of the Act and treated the said loan as deemed dividend and made the addition of the said amount in the hands of the assessee. 12. Being aggrieved by the said order of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany and thereafter again fresh loan was taken. He considering the aforesaid facts held that it would not be justified to tax on entire loan of Rs. 39,00,00,000/- as deemed dividend in the hands of the assessee company because at no point of time, the assessee company had outstanding debt of the full amount of Rs. 39,00,00,000/-. He, therefore, restricted the addition to higher peak balance of the loan amount during the year and made addition to the extent of the Rs. 9,01,00,000/- which was the higher peak balance during the year on a given dated on 29.01.2013. The relevant part of the order of the ld. CIT(A), for the sake of ready reference, is reproduced as under: "2.3.3. The Ld. AR of the appellant company placed reliance on certain decisions to support its contention that loan given in ordinary course of business falls outside the ambit of provision of deemed dividend. I have gone through all the decisions and found that reliance on all these decisions are misplaced. either because of difference of facts or issue involved in each particular case. The above decisions does not assist appellant case for following reasons (discussed for each decision separately): • In CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re than 60% shares in M/s Kapoor Imaging Pvt. Ltd. (for short 'KIPL'). The assessee had taken loans and advances on various dates form KIPL amounting to Rs. 76.86 lakhs. On 31.03.2009 the balance still due after certain repayments was Rs. 39.32 lakhs. Since the Individual has substantial Interest in the company the Ld. AO held it to be deemed dividend u/s Sec. 2(22) (e). The CIT(A) as well as ITAT held that the two separate accounts, i.e. one for loan taken from the company. viz., KIPL and one for loan given, are to be considered as two separate accounts and hence cannot be merged, and treated the same as deemed dividend. However, the High Court held that the amount received by the assessee from the company should be set off with the amount paid by the assessee to the company and hence, only the balance amount is to be considered as deemed dividend and chargeable to tax. In the present case, the AR does not produce any material which demonstrates that the appellant company owes something to the subsidiary or there was debtor creditor relation between the two. Therefore, this judgement is not in support of the appellant company. • In the case of M/s The Hooghly Mills ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency remain present. In my understanding, the said overstretching is not justified as provision of deemed dividend is a deeming provision and it cannot be stretched and needs to be strictly interpreted. Once, loan has been advanced, and the lender company is not in money lending business than the provision, of deemed dividend triggers. The fact it is repaid or it is given out of commercial expediency is totally irrelevant for deciding the issue. 2.3.6. One more point that is crucial here is that, even the cases cited or available in public domain suggest that if there is quid pro quo between the lender and borrower than deemed dividend may not apply. However gratuitous loan given for sole benefit of the borrower because of its shareholding will not assist the case of the borrower. In the present case the AR of the appellant did not file any written submission or reply and merely cited some case laws. In spite of giving several opportunities no submission or argument submitted. When pointed out to the AR to show as to how. there is a quid pro quo in this transaction involved. He merely repeated his point that this is in the normal course of business but how he not elaborated. Also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year and at regular interval the said loan also repaid by the appellant company and thereafter again fresh loon given. Therefore, considering the said fact of this case, in my view, it will not be justified to fax entire loan of Rs. 39 Crs. as deemed dividend in the hands of the appellant company. This is because of the fact that at no point of time the appellant company had received full fund of Rs. 39 Crs. from the subsidiary. Loans were paid at regular interval. Therefore, it seems higher peak balance of loan amount should be considered as deemed dividend in the hands of the appellant company. From The said ledger it is evident that on 29-01-2013, the peak balance was Rs. 9,01,00,000/-. The addition of this sum seems to be logical if we see the intent of the provision which is to tax deemed dividend in the guise of loans and advance. The maximum amount lent by the subsidiary at any given point of time can be said to be deemed dividend. The addition of entire sum of Rs. 39,00,00,000/- ignoring the repayments does not seem to be correct approach. 2.3.10 In view of the above discussion, I am upholding the addition made by the AO to the extent of Rs. 9.01.00,000/- and delete th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant company, Merino Industries Limited and its Subsidiary company, Merino Panel Products Limited is not coming under the ambit of section 2 (22) (e) of the Income Tax Act,1961. Therefore, the deemed dividend is not applicable in the hand of Merino Industries Limited. Kindly vide the page no 7 of the highlighted portion of the remand report as attached herewith for your kind consideration. Vide Page no 46 to 58 of our additional paper book (C) Your kind attention is invited to the order of CIT(A) where the Honourable CIT(A) observed to make addition of Rs 9,01,00,000/- only out of the total transaction on assumption basis for considering the pick balance under the ledger account of the financial accommodation between your appellant company and its subsidiary. Your honour is requested to vide our ledger account as attached in our paper book under page no 16 to 20 ( page No 41 to 45 with our additional paper book) where it is apparently showing the financial transactions are in nature of current account which taken place on several occasions and reflecting the zero balance at several times during the financial year. The ledger of the financial transactions is also fully squared o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is not in nature of loan the decision of Smt Tarulata Shaym v. CIT is not applicable at all. In our cases it is also to be noted importantly that the outstanding balance of same ledger is zero at the end of the financial year in such cases applicability of deemed dividend is zero. We also invited the judicial pronouncement of Madras High court in the case of Sunil Kappor V Commissioner of Income tax in which the Honourable high court mentioned that deemed dividend is not applicable where balance at the end of the financial year is zero because of repayment during the year is to be considered by the A.O. (E) It is also to be noted that the deeming provision of section 2(22)(e) is not to be given wider meaning to apply which is totally against the law and justice where the financial transaction is in the nature of current account. It is very clear that where the transaction between your appellant company and its subsidiary company is not in nature of loan then it is to be considered the such financial transactions out of the preview of the section 2 (22 )(e). In our cases, the discussion of applicability of any clause of deeming provision of the deemed dividend u/s section 2(22)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other operational needs with M/s. Merino Panel Products Limited and the assessee company stated that the transaction is purely in nature of current account for business requirement which gave benefits to both the companies. The financial transaction to / from is in the ordinary course of business. 1. The assessee company had undertaken loan transaction with M/s. Merino Panel Products Limited, and M/s. Merino Panel Products holds directly 74.65% of the latter concern. 1. As per section 2(22)(e), the loan can be treated as deemed dividend, however, in the Act, there is no provisions made for such current account transaction. Because transactions related to financial accommodations between the companies happened during several occasions as per requirement of the companies. 1. The assessee company has relied on various case laws in support of his claim. In the case of M/s Budhia Agencies Pvt Ltd, Sri Vinay Lr Jalan's, OP Jalan & Associates Consultants LLP v DCIT Circle 1 Ranchi ITA No 61/Ran/2018 dated 16-09-2020 and others references: It was decided that where a company meets its business exigencies of fund requirements by borrowing from its group concerns, such transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and expediency. The issue is covered by the various decisions including the decision of the Coordinate Kolkata Bench of the Tribunal in the case of "Shree Krishna Gyanodya Flour Mills Pvt. Ltd. vs. PCIT" in ITA No.1008/Kol/2016 dated 14.02.2018, wherein, the Tribunal further relying upon the decision of the Mumbai Bench of the Tribunal in the case of "Bombay Oil Industries Ltd. vs. DCIT" reported in [2009] 28 SOT 383 (Bom) and also on the decision of the Jurisdictional Calcutta High Court in the case of "Pradip Kumar Malhotra vs. CIT" 338 ITR 538(Cal), has held that where the loan transactions are in the normal course of business and out of business expediency and are representing current account transaction, in such type of transactions, the provisions of section 2(22)(e) would not be attracted. The relevant part of the order of the Coordinate Bench of the Tribunal in the case of "Shree Krishna Gyanodya Flour Mills Pvt. Ltd. vs. PCIT" (supra) is reproduced as under: The purpose of Section 2(22)(e) of the Act is to tax the benefit extended by private limited company to its shareholders holding shares not less than 10% as beneficial owner of shares (not being shares entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be deemed dividend within the meaning of the Act. thus, gratuitous loan or advance given by a company to those clauses of shareholders would come within the purview of section 2(22) but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder." [emphasis supplied] From the foregoing discussion, there remains no doubt that the transactions between assessee and SVPL is representing current account transactions. Therefore, the provision of Section 2(22)(e) of the Act cannot be attracted to such transactions. Keeping in view the above discussions, and also bearing in mind the entire facts of the case, we deem it fit and proper to uphold the grievance of the assessee and quash the impugned revision order as devoid of jurisdiction. The assessee gets the relief, accordingly." 15.1 Moreover, in this case, in the immediately preceding assessment year, vide remand report dated 10.05.2023 which is subsequent to the date of impugned order of the ld. CIT(A) [09.10.2018], the Assessing Officer after duly examining the nature of the transaction has observed that such type of transactions were being carried out between the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Hapur. During the assessment proceedings, the assessee duly explained about its eligibility to claim the said deduction which contention was even not disputed by the Assessing Officer. However, the Assessing Officer noticed that the assessee had not claimed the said deduction in return of income and also observed that the assessee has computed the deduction by simply applying 15% mark-up on the cost of production. He, therefore, disallowed the deduction claimed by the assessee. 18. In first appeal, the ld. CIT(A), though, observed that the reliance of the Assessing Officer on the decision of the Hon'ble Supreme Court in the case of Goetze India Ltd. Reported in 284 ITR 323 to hold that since the said claim was not in the return of income hence, such claim cannot be made during assessment proceedings, was misplaced. He, however, observed that as per the provisions of section 80A(5) of the Act, the assessee otherwise was required to make such claim in the return of income. He, however, held that otherwise there was no dispute relating to the eligibility of the assessee to claim such deduction. He also held that the computation of deduction by simply adding of 15% mark-up to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) and mentioned the above fact which is wrong. (E) Your honour is requested to vide the para no 6.1.2 of page no 15 of the CIT(A)'s order in which our eligibility is ascertained. The CIT(A) mentioned the right fact of claiming deduction on the market value basis not based on 15% mark up on cost of production of energy. (F) The department of Income tax accepted in the remand report for consideration of the claim of deduction u/s 80IA based on market value for The A.Y 2013-14. Kindly vide the para no 3 of page 9 of the remand report. We attached the relevant part of the remand report with our additional paper books in page no- 85 (G) Your honour is requested to kindly refer to the recent judgment by the Supreme court in the case of CIT VS Jindal Steal & power Ltd did 06-12-2023 vide the para no 30-Page no 43 and 44 of the judgment as attached in our paper book under the Page no 149 to 150. The apex court ascertained that the claim of deduction u/s 80IA is to be calculated based on market value as per the rate of energy paid by customer to the electricity board. Your honour is requested to kindly vide our calculation of deduction amount based on market value in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under Section 80-IA of the Act. 31. That being the position, we hold that the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the revenue." 21. The ld. CIT(A) has also given the findings on the above lines and the revenue has not taken any ground in its appeal on the above findings of the ld. CIT(A). Even the Ld. Assessing Officer in the remand report for assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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