TMI Blog2010 (11) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... bove issue as regards to deletion of disallowance of commission payments by CIT(A) are that the assessee claimed commission payments totaling at ₹ 53,91,891/- out of this commission of ₹ 24,94,500/- paid to Rutvi Steel Alloys (P) Ltd. and ₹ 30,99,600/- paid to M/s. Marudhar Industries Ltd. and also service tax amounting to ₹ 2,54,439/- and ₹ 3,16,159/- respectively. During the course of assessment proceedings, the Assessing Officer required the assessee to explain the commission payment including the name and addresses of the parties to whom the commission have been paid and nature of services rendered by such parties. The assessee before the Assessing Officer submitted that commission has been paid to parties i.e. Rutvi Steel Alloys (P) Ltd. and M/s. Marudhar Industries Ltd. for procuring of orders from Gujarat Electricity Board (GEB for short). The assessee submitted copies of debit notes raised by these two parties. The AO made enquiry with above parties and issued notice u/s 133(6) of the Act and the above said parties admitted to have received the commission from the assessee for execution of contract / purchase orders received from GEB by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e referred to the findings of the Assessing Officer that during the course of assessment proceedings on several occasions the assessee was requested to submit the necessary proof and evidences in respect of the services rendered by M/s Rutvi Alloys Steel Pvt. Lt. and M/s. Marudhar Industries Ltd. Neither the assessee nor the said parties have submitted only evidence what so ever in support of their claim that services were rendered. According to Ld. SR-DR the Assessing Officer s order is perfectly alright and CIT(A) has deleted the disallowance without any evidence. Ld. SR-DR further urged the Bench to restore the order of the Assessing Officer. On the other hand, Ld. Counsel for the assessee, Shri A.L. Thakkar heavily relied on the order of CIT(A) as well as assessee s evidence filed before CIT(A). 5. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has incurred expenditure on payment of commission totaling to ₹ 57,91,891/- and out of this, commission of ₹ 24,94,500/- is paid to Rutvi Steels Alloys Pvt. Ltd and an amount of ₹ 30,99,600/- is paid to Marudhar Industries Ltd. In additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls Ltd. Ahmedabad has not indicated/informed that M/s Rutvi Steel Alloys Pvt. Ltd and M/s. Marudhar Industries Ltd were their liaison agent for the procurement/execution, the reason for the same is that fro execution of contracts GEB vis- -vis the commission payment and execution of contract is not a party to the transaction. The nature of services provided relate to the timely delivery of goods, procuring payments, ensuring proper quality controls which entail least rejection of goods etc. All such acts by such parties before the GEB are made on behalf of the assessee-company. Such activities do not necessitate the identification of the parties with GEB. The AO is carrying some misunderstanding with regards to the nature of services rendered and it is only on account of this the disallowance has been made. The AO while making the disallowance has not brought on record even an iota of evidence to disprove the genuineness of the expenditure or the nature of service rendered in question. We are of the view that merely raising doubts on the alleged discrepancies of the nature of services being rendered cannot be a ground for making disallowance. This is particularly in light of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2 I have considered the submissions of the A.R. carefully. I find from the submissions of the A.R that the appellant has claimed expenditure of ₹ 34,13,604/- towards roll expenses in addition to depreciation on rolls claimed separately. The items of rolls which had outlived the span of life have been written off and the expenditure has been claimed as fully allowable. But the A.O has treated the same as claim of depreciation @ 100% and after allowing depreciation @ 80%, he has disallowed the excess depreciation. Considering the submissions of the A.R, as this claim of the appellant is separate from depreciation on other rolls which have not lost their utility, I direct the A.O to allow the actual expenditure which has been written off on account of rolls which have lost their utility value. Aggrieved, now Revenue came in appeal before the Tribunal. 8. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the Assessing Officer has observed at para- 5 of his assessment order that the assessee has claimed expenses on a roll at ₹ 34,13,604/- and he took the stand that the rolls are entitled to depreciation @ 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end u/s 2(22)(e). 10. The brief facts leading to the above issue are that Assessing Officer during the course of assessment proceedings noticed that Shri K.K. Bansal has substantial interest having more than 20% of registered/beneficial ownership of shares in both M/s. Mahavir Rolling Mills Ltd., (MRML for short) the assessee-company and M/s. Mahavir Inductomelt Pvt. Ltd (MIPL for short) and both the companies had received substantial sums as loans/advances from MIPL and that all the ingredients of Section 2(22)(e) are fulfilled. Therefore the AO proposed to treat the advances received from MIPL on various dates to the extent of accumulated profit as deemed dividend in the hands of the assessee. The AO considered the reply of the assessee and observed that provisions of Section 2(22)(e) are attracted and the fact that Shri K.K.Bansal was having substantial interest in both the companies and the receipt of loans/advances from M/s. MIPL on various dates has not been disputed by the assessee. The Ld. counsel for assessee has argued that it was engaged in business of advancing loans and therefore it was exempt from purview of Section 2(22)(e) of the Act was not accepted by the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld shares in the applicant. The applicant stated a case to the Authority for a ruling on the question whether the amount of the proposed loan could be treated as deemed dividend under section 2(22)(e) to the extent of the accumulated profits. On the facts stated the Authority rules: That being a shareholder of the lender company was a common factor of the requirements of section 2(22)(e). To attract sub-clause(e) the shareholder had to be a registered shareholder of the lending company. CFL was not a registered shareholder of the applicant ; JPC was not a member or a partner much less had it any substantial interest in CFL as defined in section 2(32) ; and there was nothing on record to suggest that the loan was being advanced to CFL on behalf of, or for the individual benefit or JPC. Therefore, the proposed loan to be given by the applicant to CFL would not be deemed dividend under section 2(22)(e) to the extent of accumulated profits In view of the above facts and the ratio laid down in the above cases as the appellant is not a shareholder of Mahavir Inductomelt Pvt. Ltd and the loan has not been given to the appellant company for the benefit of any shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment proceedings that the assessee-company is not holding a single share in MRML and the aforesaid fact can also be ascertained from the chart which has been produced by the A.O in para-7.1 of the assessment order. The AO without appreciating the relevant facts in proper perspective and the detailed submissions furnished by the assessee and made addition of ₹ 1,01,54,414/-. We find from the assessment order that he has not dealt with the issue of the assessee that the assessee-company is not holding even a single share of MIPL and now before us the assessee has demonstrated that no shareholding is held by the assessee-company of MIPL. But even otherwise, this issue is squarely covered by the decision of Special Bench of ITAT Mumbai in the case of ACIT v. Bhaumik Colour (P) Ltd. (2009) 118 ITD 1 (Mum)(SB), wherein the Hon ble Special Bench has held as under:- 33. We may also touch upon certain other aspects of the issue in the light of the submissions made before us. The Tribunal in the case of Nikko Technologies (supra), while holding that the payment made by a company even to a non-shareholder can be brought to tax in the hands of the nonshareholder has made the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions such payment by the company is treated as dividend. The intention behind the provisions of section 2(22)(e) is to tax dividend in the hands of shareholder. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The intention of the Legislature is therefore to tax dividend only in the hands of the shareholder and not in the hands of the concern. 36. The basis of bringing in the amendment to section 2(22)(e) of the Act by the Finance Act, 1987, with effect from April 1, 1998, is to ensure that persons who control the affairs of a company as well as that of a firm can have the payment made to a concern from the company and the person who can control the affairs of the concern can draw the same from the concern instead of the company directly making payment to the shareholder as dividend. The source of power to control the affairs of the company and the concern is the basis on which these provisions have been made. It is therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dend is a share of profits of the company (b) paid to its shareholders. Section 2(22) of the Act artificially extends the scope of dividend from being more than only a distribution of profits to cover certain other types disbursements such as loans paid, etc. (the first ingredient mentioned above). It does not however alter the second component of its natural meaning, viz., paid to its shareholder. In other words all that section 2(22) seeks to do is to expand the various types payments that may be regarded as dividend. The apex court while considering what can come within the artificial definition of dividend under section 2(22) in the case of CIT v. Nalin Behari Lall Singha [1969] 74 ITR 849 (SC) described the scope of the definition of dividend thus (page 851 of 74 ITR): The definition is, it is true, an inclusive definition and a receipt by a shareholder which does not fall within the definition may possibly be regarded as dividend within the meaning of the Act unless the context negatives that view. The contention of the Departmental representative that the provisions of section 8(a) of the Act creates a fiction by which even payments to nonshareholders can be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder then the provisions of section 2(22)(e) will not apply. 42. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the provisions of section 2(22)(e) will not apply. In view of the above discussion, there is no merit inn this appeal by the Revenue and the same is, therefore, dismissed.. 15. Further, the Ld. Counsel for the assessee relied on Hon ble Rajasthan High Court in the case of CIT v. Hotel Hilltop (2009) 313 ITR 116 (Raj) wherein it is held that in order to attract the provisions of Section 2(22)(e) of the Act the following four conditions are that since qua non : (a) the assessee should be a shareholder of the company; (b) the company should be a closely held company in which the public are not substantially interested; (c) there must be payment by way of advance or loan to a shareholder or any payment by the company on behalf of or for the individual benefit of the shareholder and (d) there must be sufficient accumulated profits in the hands of the company up to the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment proceedings noticed that assessee has not remitted the TDS deduced on or before due date rather it is remitted beyond the due date and therefore, he disallowed expenses by invoking u/s.40a(ia) to the tune of ₹ 26,51,989/-. Aggrieved, assessee preferred appeal before CIT(A) and CIT(A) confirmed the action of Assessing Officer with directing the AO to allow in the subsequent year when the payment is made by giving following findings in para-6.2 of his appellate order:- 6.2 I have considered the submissions of the AR carefully. The appellant has submitted that the entire amount of TDS deduced on the expenses has been remitted on 31.5.2005. But however, as IO find that the due date for remittance of TDS was 7.4.2005 and the appellant has paid the amounts after the due date the A.O has rightly disallowed the same. The disallowance is confirmed. However, the A.O is directed to allow the same in the subsequent year. Now, aggrieved, assessee came in CO against the order of CIT(A). 21. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the assessment order that these payments are pertaining to the mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 005 194C Kapadia Finance Corporation 8239 185 07.04.2005 31.05.2005 194C Kapadia Finance Corporation 4789 107 07.04.2005 31.05.2005 194C Kapadia Finance Corporation 25204 566 07.04.2005 31.05.2005 Total 2651989 From the above chart, it is clear that the payments are made within the due date of filing of return by the assessee-company u/s139(1) of the Act. Once the assessee has made payment within the due date of filing of return, the amended provisions of Section 40a(ia), as amended by the Finance Act, 2008 w.r.e.f 1-4-2005 as under:- Substituted for *has not been paid:- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or (B) i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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