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2015 (12) TMI 1371 - ITAT MUMBAI

2015 (12) TMI 1371 - ITAT MUMBAI - TMI - Deemed dividend made under section 2(22)(e) - CIT(A) deleted the addition - Held that:- CIT(A) has appreciated the fact that the amount given by M/s ADJPL to M/s DJPL was in connection with a commercial transaction involving purchase of a property. It is further fortified by the fact that it is not shown by the AO that the assessee herein did receive any benefit out of it. The explanations of the assessee were duly supported by the documentary evidences. .....

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Uday B Jakke For the Respondent : Dr. P. Daniel ORDER Per B. R. Baskaran, AM The appeal filed by the Revenue is directed against the order dated 20.3.2014 passed by the ld. CIT(A)-27, Mumbai and it relates to the assessment year 2009-10. 2. The revenue is aggrieved by the decision of the ld.CIT(A) in cancelling the assessment of deemed dividend made under section 2(22)(e) of the Income Tax Act, 1961. 3. The facts relating to the issue are stated in brief. The assessee is engaged in the business .....

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e AO received an information that M/s ADJPL has given loan of ₹ 4.64 to M/s DJPL. It was further noticed by the AO that M/s ADJPL was having reserve (accumulated profits) of ₹ 6.87 cores. Since the assessee herein was holding s hares of more than 20% in both the companies, the AO took the view that the provisions of section 2(22)(e) is applicable. Accordingly, the AO proposed to assess the loan amount of ₹ 4.64 cr. as deemed dividend u/s 2(22)(e) of the Act. The AO further noti .....

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the amount of ₹ 4.64 cr. was given by ADJPL to DJPL as advance towards purchase of property. In support of the same, the assessee furnished a copy of Memorandum of Understanding (MOU) executed between both the parteis on 19.5.2008. Accordingly, it was submitted that the payment of money was towards a commercial transaction and hence the same cannot be considered to be in the nature of loan or advance. Accordingly, it was contended by the assessee before the ld. CIT(A) that the provisions o .....

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eard the rival contentions and perused the record. The ld. DR submitted that the assessee has claimed that M/s ADJPL has given money to M/s DJPL in connection with purchases of property, but the property was not ultimately purchased and the advance amount might have been repaid. Accordingly he submitted that the payment made by the M/s ADJPL to M/s DJPL should be considered as loan transaction only. He further submitted that the provisions of section 2(22)(e) shall be attracted at the moment the .....

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provisions of section 2(22)(e) of the Act shall apply only when the amount was given as loan or advance. He submitted that the commercial transactions and trading transactions are excluded from the ambit of the provisions of sec. 2(22)(e) of the Act. He submitted that the assessing officer himself has assessed a sum of ₹ 4.48 crores as deemed dividend in the hands of the assessee, even though the outstanding amount was ₹ 4.64 crores. While the assessing officer has excluded a sum of .....

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vance of ₹ 4.48 cr. As per the terms and conditions entered into between the parties balance payment was to be made within 24 months. Accordingly he submitted that the amount of ₹ 4.48 crores received by M/s DJPL was in connection with a commercial transaction relating to sale of building and hence, the same cannot be categorized as loan or deposit. He further submitted that the Ld D.R was right in stating that the provisions of sec. 2(22)(e) shall be attracted immediately on receipt .....

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Bourse to Bandra Kurla Complex and it was subsequently shifted also. When the news of shifting of Diamond Bourse came, the ADJPL decided that the acquiring the above said premises was not a viable proposition. Further the market rate of properties in that area was also fallen down. Hence the MOU was cancelled and the amount was repaid. 7. The Ld A.R submitted that the provisions of sec. 2(22)(e) of the Act was brought into the Act at a time, when the dividend distribution tax in vogue. The comp .....

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of sec. 2(22)(e) of the Act and if he is not benefitted, it may not be proper to apply the said provisions as the same defeats its objective. The Ld A.R submitted that, in the instant case, one closely held company has given money to another closely held company in relation to a commercial transaction. The assessee herein has not got any benefit at all in respect of this commercial transaction. Hence, the assessing officer was not right in invoking the provisions of sec. 2(22)(e) of the Act, whe .....

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s 2(22)(e) of the Act. The Ld A.R submitted both the assessee herein as well as Milan S Shah has not benefitted from this commercial transaction. Even otherwise, since the transactions carried out between the two companies is a business/commercial transaction and hence the assessing officer was not justified in invoking the provisions of sec. 2(22)(e) in the hands of the assessee. He further submitted that the ld.CIT(A) has passed a speaking order by making reference to many case laws and hence .....

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an to a share holder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereinafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of an .....

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f the opinion that the word advance which appears in the company of the word loan could only mean such advance which carries with it an obligation of repayment. Trade advance which are in the nature of money transacted to give effect to commercial transactions would not, in our view, fall within the ambit of the provisions of sec. 2(22)(e) of the Act. This interpretation would allow the rule of purposive construction with noscitur a sociis, as was done by the Supreme Court in the case of LIC of .....

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nd , monies which the assessee had received towards purchases. In our view, both the Commissioner of Income tax (Appeals) and the Tribunal have correctly appreciated this aspect of the matter in the said judgment of the Bombay High Court. The relevant portion of the judgment of the Bombay High Court which sets out this aspect of the matter is already extracted by us in the narrative given by us hereinabove. We are also in agreement with the view of the Tribunal that the judgment of the Supreme C .....

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all within the four corners of the provisions of section 2(22)(e) of the Act. Having held otherwise, the said judgments of the Supreme Court, in our view, will have no applicability to the facts of the instant case. 10. The decision rendered in the case of Rajkumar (supra) was followed by the Hon ble Delhi High Court in the case of CIT Vs. Creative Dyeing and Princint P Ltd (2009)(318 ITR 476). In the said case, an advance was given to the said assessee by the sister concern, which held 50% of t .....

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ssed above lay down the principle that the advance given in connection with business or commercial transactions entered between the parties would not fall under the ambit of sec. 2(22)(e) of the Act, since the said advance payment shall fall under the category of advance or loan used in sec. 2(22)(e) of the Act. We notice that the Ld CIT(A) has applied these principles while adjudicating the issue before us. For the sake of convenience, we extract below the relevant observations made by Ld CIT(A .....

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of a property for which a notarised MOU dated 09-05-2008 was presented during the course of assessment proceedings. The very same document was also produced before the undersigned and the same was forwarded to the Ld. AO in the remand proceedings. However, even in the second round, the Ld. AO did not find it worthwhile to comment on the veracity or otherwise of the document in question. Therefore, on the face of it, the MOU signed on a judicial stamp paper and which was duly notarised before th .....

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PZ branch, Mumbai. 2.4.10 It is trite law that while considering the provisions of section 2(22)(e), interpretation demands that transactions which were not in the nature of loans or advances have to be excluded. My attention has also been drawn to the latest decision of Madhya Pradesh High Court in the case of CIT v/s Omprakash Suri 359 ITR 41 in which it has been held that provisions of section 2(22)(e) can be invoked only if the transactions between the parties are of the nature of Loans and .....

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own for analysis into 4 parts:- i. Clause (e) applies to any payment by a company not being a company in which the public are substantially interested of any sum, whether as representing a part of assets of the company or otherwise made after the 31st May 1987; ii. Clause (e) covers a payment made by way of a loan or advance to (a) a shareholder, being a beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate (in profits) h .....

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his appeal. 2.4.12 By providing an inclusive definition of the expression 'dividend', cl.(e) of sec. 2(22) brings within its purview items which may not ordinarily constitute the payment of dividend. Parliament has expanded the ambit of the expression 'dividend' by providing an inclusive definition. 2.4.13 In order that the first part of clause (e) of section 2(22) is attracted, the payment by a company has to be by way of an advance or loan. The advance or loan has to be made, a .....

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the expression 'dividend'. Clause (e) expands the nature of payments which can be classified as a 'dividend'. Clause (e) of section 2(22) includes a payment made by the company in which the public is not substantially interested by way of an advance or loan to a shareholder or to any concern to which such shareholder is a member or partner, subject to the fulfilment of the requirements which are spelt out in the provision. Similarly, a payment made by a company on behalf, or for .....

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older. 2.4.14 The Gujarat High Court in the case of CIT-II V/s Shripad Concrete (P) Ltd (2013) 33 taxmann.com 614 held as under:- Section 2(22) of the Income-tax Act, 1961 - Deemed dividend [Loans or advances] - Assessment year 2006-07 - During assessment proceedings, Assessing Officer found that assessee had given certain amount as advance to its sister concern - Assessee's explanation was that said amount was not a loan or advance rather it represented value of goods sold to sister concern .....

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- Held, yes [Para 2] [In favour of assessee . 2.4.15 The Hon'ble High Court of Bombay in the case of CIT vs. Universal Medicare P Ltd (2010) 190 Taxman 144 (Born) has held as under:- "In order that the first part of sub-clause (e) of section 2(22) is attracted, the payment by a company has to be by way of an advance or loan. The advance or loan has to be made, as the case may be, either to a shareholder, being a beneficial owner holding not less than ten per cent of the voting power or .....

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ent year 2006-07. Consequently, according to the Tribunal, the first requirement of there being an advance or loan was not fulfilled. The finding that there was no advance or loan was a pure finding of fact which did not give rise to any substantial question of law. 2.4.16 It was held by the Hon'ble High Court in Smt. Savithri Sam 236 ITR 1003 (Mad) that the Tribunal was justified in holding that for the purpose of computation of Deemed Dividend u/s. 2(22)(e), there must be "actual paym .....

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d. In view of the above decision of the Madras High Court, the sum of money paid by ADJPL to DJPL on account of proposed sale of office could not be brought to tax as 'payment by company of a loan'. 2.4.18 Similarly, in the case of CIT vs, Arvind Kumar Jain (2012) 205. Taxman 44 (Del.) (Mag), it was observed and held as under:- "The assessee was holding 50 per cent shares in company 'A Books of Account of assessee revealed that it had received a sum as unsecured loan from compan .....

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n established that the payment made was the result of trading transaction between the parties and the amount was not given by way of loan or Advance. Hence, such amount could not be treated as deemed dividend 2.4.19 Thus, after taking into consideration, the totality of facts obtaining in this case, I find that the Ld. AO has proceeded only on the information received by him from ITO, 5(1 )(3), Mumbai and has not carried out any investigation himself whatsoever to reach to the truth of the matte .....

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ng necessary verification of the nature of transaction......….. 2.4.29 Further, in the case of Seamist Properties (P) Ltd V/s ITO 504 SOT 142(MUM), the Hon ble Mumbai Bench of ITAT held as follows: As per the agreement between the assessee and S Ltd, the assessee was to lease its bungalow to a new company to be formed. S Ltd agreed to contribute ₹ 2.50 crores in the said proposed new company, for purchasing machinery and equipment and setting up a studio at the said bungalow. S Ltd. .....

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