TMI Blog2014 (12) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... her, both the assessee and the company were benefited and such transactions between them were nothing but commercial transactions and dividend attributable to the shareholder is nothing to do with such business transaction - it can be said that sec. 2(22)(e) of the Act covers only those transactions which benefit the shareholder alone and results in no benefit to the company - the loan account differs from current account and the provisions of section 2(22)(e) of the Act, being a deeming section, cannot be applied to current account thus, the addition is to be set aside Decided in favour of assessee. Interest payment made on utilization of borrowed fund by giving interest free advances to the relatives of the assessee and other group companies disallowed Held that:- The AO has simply disallowed the interest by observing that, the assessee deducted ₹ 1,34,988/- on account of payment of interest against interest from other sources consisting of Royalty and Interest of ₹ 1182/- from bank - borrowed fund was not utilized for earning the income - borrowed fund on which interest of ₹ 1,34,988/- was paid, was used mainly for giving interest free advance to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 17-10-2014 - Shri Mahavir Singh And Shri Shamim Yahya, JJ. For The Assessee : Shri S.K.Tulsiyan, Advocate For The Revenue : Dr. Swetabh Suman, CIT-DR ORDER PER BENCH:- All these three appeals by assessee are arising out of separate orders of Commissioner of Income Tax (Appeals), Central-I, Kolkata in appeals Nos.364,363 362/CIT(A),C-I/CC-V/09-10 by different dates i.e. 07-01-2011, 10.01.2011 and 07-01- 2011 respectively. All these four appeals by Revenue are arising out of separate orders of Commissioner of Income Tax (Appeals), Central-I, Kolkata in appeals Nos.368 367/CIT(A),C-I/CC-V/09-10 both dated 05-01-2011 respectively and appeal nos. 366 365/CIT(A),C-I/CC-V/09-10 both dated 06-01-2011 respectively. Assessments were framed by DCIT, CC-V, Kolkata u/s. 143(3)/153A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his orders dates 31-12-2009 respectively. First we take up assessee s appeals in IT(SS)A Nos.60-62/Kol/2011. 2. The first common issue in IT(SS)A Nos. 60 61/Kol/2011 of assessee is against the order of CIT(A) confirming the addition made by Assessing Officer on account of deemed dividend. For the sake of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter, on several dates during the entire financial year there were several transactions through cheques and some in cash by either parties, i.e. the assessee and the loan giving company, resulting in shifting balances. On many occasions the balance was in favour of the assessee and on some other occasions the balance was in favour of Ganesh Wheat Products (P) Ltd. The ledger of the assessee further reveals that no payment by loan creditor is followed by a repayment by the loan debtor and, in fact, the payments by the assessee and Ganesh Wheat Products (P) Ltd. are independent of one another. No interest was charged by either side for advancing money on mutuality inasmuch as the loan account was a current account in nature. It is thus evident that there were reciprocal demands between the parties and thus mutual in characteristic. At the close of accounting year as on 31-03-2006, debit balance stood at a sum of ₹ 18,87,522/- which was duly reflected in the balance sheet under the head Loans Advances. Similarly, in respect of Mima Flour Mills opening balance was Nil and there were several shifting of balance and the resultant debit balance was ₹ 5,00,833/-. For A.Y. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdictional High Court, it is clear that section 2(22)(e) of the Act was inserted to bring within the purview of taxation those amounts which are actually a distribution of profits but are disbursed as a loan so that tax thereon can be avoided. It is pertinent to note here that when dividends are declared by a company, it is solely the shareholders who benefit from the transaction. No benefits accrue to the company by way of dividend distribution. Thus, section 2(22)(e) of the Act covers only such situations, where the shareholder alone benefits from the loan transaction, because if the company also benefits from the said transaction, it will take the character of a commercial transaction and hence will not qualify to be dividend. In the case of the assessee, by giving and taking financial assistance from each other, both the assessee and the company were benefited and such transactions between them were nothing but commercial transactions and dividend attributable to the shareholder is nothing to do with such business transaction. From the above discussions it can be said that sec. 2(22)(e) of the Act covers only those transactions which benefit the shareholder alone and result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t considering the submissions of the assessee dismissed the appeal by stating that the AO has discussed the reasons for disallowance in para 6, which is quoted above. We are of the view that for making disallowance the AO should have found out the nexus, first of all, and it is also a fact that the assessee is having substantial capital in the form of shares and other reserves and surpluses to meet out these loans. Once this is the position, the interest on borrowed funds cannot be disallowed. Hence, this common issue in all these appeals of assessee is allowed. 8. The next issue in IT(SS)A No. 62/K/2011 of assessee is against the order of CIT(A) confirming the disallowance on account of unexplained investment in jewellery. For this assessee has raised following ground no. 3: 3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the disallowance of the amount of ₹ 3,95,859/- as alleged unexplained investment in jewellery simply on the ground of lack of so-called proper reconciliation. 9. We have heard rival submissions and gone through facts and circumstances of the case. Briefly stated facts are that during the course of search o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee on 04-10-2007 along with the Memani Group of cases. Accordingly, notice u/s 153A of the Act was issued and in response to the same, assessee filed return of income. The AO while framing the assessment made additions of deemed dividend of ₹ 6,51,273/- for AY 2002-03, ₹ 1686/- for AY 2003-04, ₹ 5,66,430 and ₹ 25,400/- for AY 2004-05 and ₹ 7,42,556 and ₹ 36,415/- for AY 2005-06. The contention of the assessee was that this has already been considered in the original assessment framed u/s 143(3) of the Act and no new facts came to the knowledge of the revenue or any incriminating material was found during the course of search which suggests that assessee has not disclosed the income. The CIT(A) confirmed the addition by holding that the AO issued show cause notice to the assessee to explain why the loan amount in question should not be treated as deemed dividend as per provision of section 2(22)(e) of the Act. However, no explanation to the show cause was offered. Hence, considering the fact of the case and the provision of the Act the additions were confirmed. The CIT(A) in para-3.1 of his order in AY 2002-03 has observed as under:- 3.1. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. The Allahabad High Court in Commissioner of Income-tax (Central, Kanpur v. Smt. Shaila Agarwal (supra) has held as under:- 19. The second proviso to Section 153A of the Act, refers to abatement of the pending assessment or reassessment proceedings. The word 'pending' does not operate any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is required to be made. In view of the above discussion, the answer to the substantial question of law (iv) above is in the positive and against the appellant assessee, the other three questions consequently do not arise, and, as such, the appeal fails and is, therefore, dismissed. No costs. Registry is directed to place a copy of this judgment on record in each connected file. Admittedly, there is no seized incriminating materials found during the course of search in this case, and without any evidence the AO has made addition of deemed dividend. The issue is squarely covered in favour of assessee and against the Revenue by the decision of Special Bench in the case of All Cargo Global Logistics Ltd., v. DCIT(2012) 181 ITR (Trib) 106 (Mum) (SB) as well as by the decision of Hon ble Rajasthan High Court in the case of Jai Steel (India) supra. As the issue is covered in favour of assessee, we confirm the order of CIT(A). This issue of revenue s appeals is dismissed. 12. The next issue in IT(SS)A No.73/K/2011 of revenue is against the order of CIT(A) deleting the addition on account of disallowance of Demat Charges. For this revenue has raised following ground no.4: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional 119 TTJ (Kol) 214 as the addition was not made by digging the books of accounts of the assessee. 16. We have heard rival submissions and gone through facts and circumstances of the case. Briefly stated facts are that there was a search and seizure operation carried out on the business and residential premises of the assessee on 04-10-2007 along with the Memani Group of cases. Accordingly, notice u/s 153A of the Act was issued and in response to the same, assessee filed return of income. The AO while framing the assessment made additions of above noted expenses. The contention of the assessee was that this has already been considered in the original assessment framed u/s 143(3) of the Act and no new facts came to the knowledge of the revenue or any incriminating material was found during the course of search which suggests that assessee has not disclosed the income. The CIT(A) deleted the addition by holding that since there is no incriminating materials were found during the course of search, the addition cannot be subject-matter under the proceedings initiated u/s. 153A of the Act. Aggrieved, now revenue came in appeal before Tribunal on the above issue. 17. Admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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