TMI Blog2015 (8) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... - DELHI HIGH COURT] that business transactions did not constitute deemed dividend under section 2(22)(e) of the Act Following the above findings, additions made for deemed dividend are deleted - Decided in favour of assessee. Unexplained cash credit under section 68 - Held that:- The ld. counsel in his arguments submitted that such surrender was never acted upon and no sum was offered for tax or assessed to tax on the basis of such said surrender given by Shri I. C. Jindal. A chart tabulating the various additions made in all the four companies has also been placed on record. It was contended that no addition has been made on the basis of surrender but on independent examination of the claim. He alternatively contended that such surrender in any case has no bearing on the advance received by the appellant. We find that there are no factual findings vis-à-vis the above submission of the appellant. We therefore direct that the issue regarding addition of ₹ 45,00,000/- be decided de-novo by the Assessing Officer after granting adequate opportunity of being heard to the appellant. - Decided in favour of assessee for statistical purposes. - ITA No.4967/Del /2012,ITA No.2002/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; 8 Appellant craves leave to add, alter, amend and/or rescind any of the Grounds of Appeal. 3. Further, so far as appeal for assessment year 2007-08 in ITA No. 2002/D/2013 is concerned, the appellant has raised following grounds of appeal. 1 The ld. CIT(A) erred on facts and in law to dismiss appellant s ground that the order passed by the Assessing Officer u/s 153A/143(3) of the Income Tax Act 1961 is bad both on facts and in law 2 The ld. CIT(A)erred on facts and in law to dismiss appellant s ground that the assessment order having been passed in violation of the principle of natural justice and without giving adequate time and opportunity to the appellant to represent its case and to file its replies and clarification, is bad in the eyes of law and liable to be quashed; 3 The ld. CIT(A) erred on facts and in law to confirm addition of ₹ 45,00,000/- on account of alleged unexplained cash credit in the bank account of the appellant u/s 68 of the I.T. Act 4 The ld. CIT(A) erred on facts and in law to confirm the addition of ₹ 78,85,954/- made by the Assessing Officer on account of alleged deemed dividend u/s 2(22)(e) of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. The assessee during the course of assessment proceedings, filed a reply dated 7.12.2011 contending that such transactions are for purchasing and selling of goods in normal course of business and therefore, these amounts were business transactions and hence were not taxable as deemed dividend under section 2(22)(e) of the Act. The learned Assessing Officer however rejected the contention of the appellant and held that the contentions are baseless and only an afterthought as in the balance sheet of both M/s. Deluxe Alloys Pvt. Ltd. And M/s. B.R. Associates Pvt. Ltd., the amount has been classified as loans and, not trade advance given during the normal course of business. He therefore, made addition. The CIT(A) also upheld the addition by observing as under: On consideration of the facts obtaining in this case, I have come to the conclusion that neither the Assessing Officer had refused to admit evidence in this case during assessment proceedings nor was the appellant prevented by any sufficient cause from production of the impugned evidence during the assessment proceedings. On these facts and following the guidance available in the above cited decision of the Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of the Act both in the case of M/s. B.R. Associates and M/s. Deluxe Alloys Pvt. Ltd.. Copies of the orders of assessment for both the said companies were referred to and are placed in the Paper Book. It was thus submitted that such business transactions do not constitute deemed dividend under section 2(22)(e) of the Act. Reliance was placed on the following judgments: i) CIT vs. Raj Kumar 318 ITR 462 (Del) ii) CIT vs. Ambassador Travels (P) Ltd. 318 ITR 376 (Del) iii) CIT vs. Creative Dyeing and Printing (P) Ltd. 318 ITR 476 (Del) iv) Pradip Kumar Malhotra vs. CIT 38 ITR 538 (Cal) 8. It was also submitted that nomenclature cannot be a conclusive basis to disregard and overlook the true nature of transaction and for this principle, reliance was placed on the judgment of Delhi High Court in the case of CIT vs. Arvind Kumar Jain ITA No. 589/11 dated 30.9.2011. The appellant further submitted that invoices have been furnished before the learned CIT(A) only as supporting evidence and therefore, the learned CIT(A) was not justified to overlook such invoices which facts otherwise were borne out from the facts on record. The learned DR relied on the orders of the authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer was correct. 7 It is trite law that mere nomenclature of entry in the books of accounts is not determinative of the true nature of transaction. See Commissioner of Income Tax vs. India Discount Co. Ltd. 75 ITR 191 (SC), Commissioner of Income Tax vs. Provincial Farmers (P) Ltd. 108 ITR 219 (Cal) and KCP Ltd. vs. CIT 245 ITR 421. In the present case after going through the relevant evidence as well as current account maintained between the parties, it has been established that the payment made were the result of trading transaction between the parties and the amount was not given by way of loan or advance. 11. From the aforesaid, it is now trite law that nomenclature cannot be a basis to conclude that the business transactions between the two entities constitute deemed dividend under section 2(22)(e) of the Act. The Hon ble Delhi High Court in the case of CIT vs. Rajkumar (supra) has held as under: A close examination of the judgment of the Bombay High Court in the case of Nagindas M. Kapadia (supra) would show that the Court excluded from the ambit of 'dividend', monies which the assessee had received towards purchases. In our view both the CIT(A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, 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 Pvt. Ltd. was not such to fall within the definition of deemed dividend under Section 2(22)(e). The present appeal is therefore dismissed. 13. Having regard to the above factual and judicial position the addition made and sustained of ₹ 51,92,469/- is deleted 14. So far as addition u/s 2(22)(e) of the Act in A.Y. 2007-08 is concerned, the facts in brief are that the AO had made addition of ₹ 78,85,954/- under section 2(22)(e) of the Act which has been enhanced by ₹ 9,59,87,046/- by the CIT(A) and thus, aggregate addition sustained by him is of ₹ 10,78,73,000/-. The break up of the addition sustained by him and disputed in this appeal is as under: Sr.No. Particulars Amount (Rs.) i) Advance made by M/s Magnum Steels Ltd. (hereinafter referred to as MSL ) to M/s Magnum International Ltd. 4,42,90,290/- ii) Advance made by M/s Magnum I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance sum of ₹ 10,14,44,000/- to Magnum Steels Ltd., out of which he excluded the advance by Magnum Steels Ltd. to Magnum International Ltd. of ₹ 4,42,90,290/-. Thus net advance by Magnum International Ltd. to Magnum Steels Ltd. was of ₹ 5,71,53,710/- (Rs. 10,14,44,000/- - ₹ 4,42,90,209) 16. Before us, the learned AR submitted that the addition made and disputed in these appeals, can be summarized as under: Sr.No. Particulars Amount (Rs.) Adjustments Net Addition i) Amount advance by Magnum Steels Ltd. to Magnum International Ltd 9,59,47,046 (Total of the credit side of the ledger account of Magnum Steels Ltd. in the books of Magnum International Ltd.) 5,13,96,756 (Rs. 4,27,16,756 + ₹ 86,80,000/-) on account of reversal entry) 4,42,90,290 ii) Amount advance by Magnum International Ltd to Magnum Steels Ltd. 10,14,44,000 (total of the debit side in the ledger account of Magnum Steels Ltd.. in the books of Magnum International Ltd.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Pradip Kumar Malhotra vs. CIT 38 ITR 538 (Cal) v) CIT vs. International Land Development Pvt. Ltd. ITA NO. 1296, 1297/2011 (Del) dated 2.2.2012 20. It was further submitted that learned Commissioner of Income Tax (Appeals) has incorrectly held at page 21 that assessee had not contended that both the companies were not engaged in the ordinary course of business of lending of money in terms of clause (ii) of proviso to section 2(22)(e) of the Act. In fact, specific contention was raised in para 9 at page 10 of the order, which is extract of submissions dated 15.1.2013. It was also submitted that ₹ 3 crores had been given as an advance for land is amplified from financial statement of Magnum International Ltd. as on 31.3.2007, which has been overlooked by the learned Commissioner of Income Tax (Appeals). 21. The learned DR supported the addition made by the authorities below and contended that the addition made be upheld. 22. Before dealing with the contentions raised by both the sides, we consider it appropriate to extract the account as relied upon by the learned CIT(A) to make the addition in question under section 2(22)(e) of the Act. 23. On the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the same is annexed herewith as Annexure 1. From a perusal of the above account, it is seen that there was opening credit balance, then debit balance occurred due to certain payments made by M/s Daisy Motors Pvt. Ltd. to the assessee in the month of April and July. Thereafter, from July 2005 to 22nd March, 2006, there was a credit balance and again on 30th March, 2006, there was a debit balance. If we further analyze the accounts, we find that the maximum debit balance of the account of the assessee was only `2,08,212/- while the maximum credit balance was more than `2 crores. That the debit balance of `2 lakhs was only for a period of ten days i.e. from 23rd July to 8th August, 2006 while the credit balance of more than a crore remains for more than two months and credit balance of more than `20 lakhs remains for more than six months. From the copy of account, it is evident that the assessee also made purchase of ten vehicles. Thus, the account is clearly in the nature of a running current account and merely because for a few days there was a debit balance of `2,08,212/-, it cannot be said that such debit balance was either loan or advance by M/s Daisy Motors Pvt. Ltd. to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 25. The Mumbai Bench of the Tribunal in the case of NH Securities Ltd. vs. DCIT 11 SOT 302 has held as under. 37. In the light of the discussion made in paragraphs above, it is to be seen that payments made by a company through a running account in discharge of its existing debts or against purchases or for availing services, such payments made in the ordinary course of business carried on by both the parties could not be treated as deemed dividend for the purpose of section 2(22)(e). The deeming provisions of law contained in section 2(22)(e) apply in such cases where the company pays to a related person an amount as advance or a loan as such and not in any other context. The law does not prohibit business transactions between related concerns, and, therefore, payments made in the ordinary course of business cannot be treated as loans and advances. Therefore, in the facts and circumstances of the case and in the light of the judicial pronouncements considered above, especially in the light of decision of the Bombay High Court in the case of Nagindas M. Kapadia (supra), we hold that payments made by a company in the course of carrying on of its regular business throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this case, the admitted position is that there was opening balance of ₹ 4,33,000/- in the books of M/s. Magnum International of M/s. Courage Financial Services Pvt. Ltd. This opening balance of ₹ 4,33,000/- increased to ₹ 21,62,000/- on account of fresh amount of ₹ 17,29,000/- received during the instant year. Likewise in the audited balance sheet of M/s. B.R. Associates, there was opening balance of ₹ 36,52,000/- of M/s. Courage Financial Services Pvt. Ltd. which balance increased to ₹ 43,25,000/- at the close of the year on account of ₹ 7,00,000/- received during the year. Thus, apparently, these are transactions between group companies which are on year to year basis and therefore, the current account transactions and business transactions. 29. We have already held above following the judgment of Hon ble Jurisdictional Delhi High Court that business transactions did not constitute deemed dividend under section 2(22)(e) of the Act Following the above findings, additions made of ₹ 17,29,000/- are also deleted. Thus ground Nos. 4, 5 and 6 of the appeal for the assessment year 2005-06 and ground Nos. 4 5 of the appeal for asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al was also not in proper state of mind at that time. The surrender of amount of ₹ 51 crores was obtained by pressure, threat and coercion and as such it was not valid in the search. No incriminating materal was found during the search which could indicate so much undisclosed income. Such surrender is not valid in law as held by the Hon ble Supreme Court in Pullangade Rubber Produce Co. Ltd. 91 ITR 18. Nagubai Anand vs. Sharma Rao (AIR) 1956 SC 100. 5.3 Similarly, the statement of Aseem Gupta is not valid in law as the same was also obtained under pressure, threat and coercion. Infact Aseem Gupta stated that he has never received any cash from I.C. Jindal he mentioned only that he had received approximately ₹ 20 crores from the employees for giving cheque to I.C. Jindal group of companies. During the period 2004-2010, cheque of ₹ 20 crores were nowhere received from Aseem Gupta or his companies by the Magnum Group. Moreover, on cross questioning by I.C. Jindal, Aseem Gupta categorically denied the introduction of P.K. Aggarwal or Santosh Shah registered share brokers through whom Magnum Steel Ltd. had done transaction for sale and purchase of listed shares. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh back the money of the appellant in the group of advances for land. Mere payment of money by account payee cheques is not sacrosanct nor can it make a non genuine transaction genuine. 7.3.3 The contention of the appellant that the statements of Shri I. C. Jindal and that of Shri Aseem Kumar Gupta were not valid in law as the same were recorded under pressure, threat and coercion is not borne out of the records. There is no sign of application of any such tactics as alleged by the appellant nor the latter has brought any material on record to support his allegation. 7.4 The argument of the appellant that the ratio of the judgment in the case of Nova Promoters is not applicable in his has not been found to be convincing. The plea of the appellant that unlike Nova s case, the AO did not link the amount with any accommodation entry with share applicant companies nor he proved that the amounts emanated from the appellant s sources is not correct as such exercise has actually been elaborately done by the learned AO, who found out tht the alleged advances for he land were not shown in the balance sheet as liability and there were categorical admissioins both by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther you have received share capital and capital gain also. Please explain whether you are offering any tax for above mentioned transactions/investments? Ans. Yes I agree that I have these transactions and I am surrendering ₹ 51 (Rs. Fifty One Crores) crores as additional undisclosed income for buying piece of mind and offering this amount in the following heads in addition to regular income. 1) Magnum Steels Ltd. ₹ 2.80 crores as introduction in share capital. 2) Other flagship concerns. ₹ 48.20 crores as income from operations of group of companies i.e. i) M/s. Magnum Steel Ltd. ii) M/s. Magnum International Ltd. iii) M/s. Courage Financial Services P. Ltd. iv) M/s. N.R. Sponge Pvt. Ltd. The details of above mentioned surrender company-wise will be submitted later on. For this purpose, I am presenting the following cheques for payments of taxes on surrendered additional undisclosed income of ₹ 51 crores. These cheques were issued from personal A/c for the time being and will be replaced. 36. The ld. counsel in his arguments submitted that such surrender was never acted upon and no sum was offered for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 120 ITD 48 - CIT vs. Murli Agro Products Ltd. ITA No. 36/2009 dated 29.10.2009 - Kusum gupta vs. DCIT ITA No. 3647/D/2010 wherein the Hon ble Tribunal following the decision of Special Bench in the case of M/s All Cargo Global Logistics Ltd. vs. DCIT reported in 137 ITD 287 (SB) (Mum) - Marigold Merchandise (P) Ltd. vs. DCIT ITA Nos 2666 and 2667/D/2013 Assessment Years 2008-09 and 2007-08 dated 27.12.2013 - ACIT vs. Shri Manoj Narain Aggarwal ITA No(s) 5518 to 5524/D/2012 Assessment Years 2003-04 to 2009-10 dated 30.1.2014 - Divine Infraction (P) Ltd. vs. DCIT ITA No. 2393/Del/2014 A.Y. 2008-09 dated 12.6.2014 - CIT vs. Lachman Dass Bhatia Dass 254 CTR 383 (Del) -- ACIT vs. PACL India Ltd. ITA No. 2637/D/201 dated 20.6.2013 - Gurinder Singh Bawa vs. DCIT 28 taxmann.com 328 (Mum) - ACIT vs. Pratibha Industries Ltd. 23 ITR 766 (Trib) (Mum) - Jai Steel India vs ACIT 259 CTR 281 (Raj) - CIT vs. Smt. Shaila Agarwal 346 ITR 130 (All) 41. The learned CIT(DR) on the other hand submitted that conducting of search alone is sufficient to justify the validity of the proceedings initiated under sec. 153A of the Act and framing of the assessment in further ..... X X X X Extracts X X X X X X X X Extracts X X X X
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