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2016 (7) TMI 902

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..... 2(22)(e) of the Act covers only those transactions which benefit the shareholder alone and results in no benefit to the company. On the other hand, if the transaction is mutual by which both sides are benefited, it is undoubtedly outside the purview of provisions of sec. 2(22)(e) of the Act. From the above, it is clear that 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. In such circumstances, the order of the ld. CIT under section 263 of the Act is not sustainable in law. Payment of gratuity - Held that:- From the facts of the case, we find that AO has given a very clear finding that claim of gratuity was not made in assessee’s books of account but it was claimed separately in the computation of income which was not allowed by AO while framing original assessment order. So in the instant case, we find that the question for the deduction on account of gratuity in the computation of total income does not arise. Disallowance under section 14A - Held that:- In our view of the fat that some enquiry was made is sufficient to debar the authorities from exercising the po .....

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..... der of the AO being not at all erroneous in as much as prejudicial to the interest of revenue on this ground, the CIT is wholly unjustified in setting aside the order of the AO on this issue and for that in view of the facts and in the circumstances such action of the CIT may kindly be deleted. 3. For that in view of the facts and in the circumstances the CIT having issued the notice U/S 263 in connection with allowability of claim for gratuity liability amounting to ₹ 4,19,58,203/- not debited in the Books of A/cs. and the matter having been explained in detail that such amount was never debited in the P L alc. but had been claimed in computation of income and hence question of disallowance did not arise, the CIT exceeded his jurisdiction by making reference to ₹ 3,85,60,6901- which was not the subject matter of his Show-Cause Notice U/S 263 and hence the order of the CIT in this regard and on this issue is wholly bad, illegal, unjustified and uncalled for and in any case the order of the CIT on this issue is wholly wrong. (a) As regards applicability for provisions of sec. 2(24)(x) read with sec. 36(1) (va) for ₹ 64,96,988/-, the matter have been exp .....

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..... ect of Gratuity liability of ₹ 4,19,97,464/- lied with CIT, C-I u/s 263 and his order us. 263 dated 01.03.2011 on this issue, is, therefore wholly bad, illegal and uncalled for and in view of the facts and circumstances is liable to quashed / cancelled and in view of the facts and in the circumstances it may kindly be held accordingly. Shri S. Jhajharia and Shri Sujoy Sen L d Authorized Representatives appeared on behalf of assessee and Shri Rajat Subhra Biswas, L d Departmental Representative appeared on behalf of Revenue. 3. Sole issue raised by assessee in all the interconnected grounds are that Ld. CIT(A) erred in holding the order of Assessing Officer erroneous and prejudicial to the interest of revenue. 4. The facts in brief are that assessee in the present case is a Limited Company and engaged in the business of manufacturing of jute goods of different varieties. The assessee for the year has filed its return declaring loss of ₹ 1,64,32,570/-. Thereafter a notice u/s. 143(2) r.w.s. 142(1) of the Act was issued for making the scrutiny assessment. The assessment was completed by AO after making certain additions / disallowances to the total income of as .....

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..... ility does not arise. 4.2 Regarding deduction on account of employee contribution, it was submitted that the AO has allowed the deduction in pursuance of direction given by the Hon'ble jurisdictional High Court and after obtaining all the details and particulars. On similar facts the relief was given to the assessee in the AY 2004-05 in its own case by the ld. CIT(A). Similarly the proceedings were dropped by the Hon ble ITAT against the order passed under section 263 of the Act in its own case for the assessment year 2005-06. Therefore, on this account the order of AO cannot be held erroneous and prejudicial to the interest of revenue. 4.3 Regarding the provision of Sec. 115JB in relation to the disallowance made u/s. 14A of the Act the assessee submitted that the investment was made in the share long back and out of its own capital and reserve. The instant case is for the assessment year 2006-07 and rule 8D came into effect from AY 2008-09, so no disallowance is warranted. The assessee has not incurred any expenses in connection with the exempted income as dividend warrants are automatically transferred through ECS, no need to maintain physical records. Therefore, the d .....

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..... the AO at the time of assessment. The submission of the assessee at the time of original assessment is placed on page 13 of the 1st paper book. He also drew our attention at page 108 of the 2nd paper book, wherein the payment made to the specified person u/s 40A(2)(b) of the Act was also recorded. The AO while framing original assessment did not raise any query after considering the nature of transactions between assessee and MHMPL. On the other hand, Ld DR before us submitted that there is no whisper in the assessment order regarding the transactions entered between assessee and MHMPL. Therefore it needs to be restored back to the file of AO for further verification. 7. Now coming to second issue which is regarding the payment of gratuity, before us Ld. AR submitted the gratuity amount was not claimed in the books of accounts and the finding of the AO is very clear on this issue. It was claimed under the computation of income and it was not allowed by AO. The ld. AR further stated that necessary details with regard to the gratuity were furnished at the time of framing original assessment. Ld AR also submitted that the issue on gratuity liability has also been decided by Ld. .....

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..... -cl. (e) of cl. (2) of s. 2 must be construed to mean those advances or loans which a share holder enjoys for simply on account of 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; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to a deemed dividend within the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of s. 2(22) but not the cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. In the present case the assessee permitted his property to be mortgaged to the bank for enabling the company to take the benefit of loan and in spite of request of the assessee, the company is unable to release the property from the mortgage. In such a situation, for retaining the benefit of loan availed from the ban .....

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..... 2(22)(e). This interpretation is in accordance with the legislative intention of introducing s. 2(22)(e). Therefore, the Tribunal was correct in holding that the amounts advanced for business transaction between the parties, namely, the assessee company and PE Ltd. was not such to fall within the definition of deemed dividend under s. 2(22)(e).-CIT vs. Raj Kumar (2009) 23 DTR (Del) 304 : (2009) 181 Taxman 155 (Del) followed. Amount advanced to the assessee company by another company having common directors not being a loan but an advance f or business transaction which is to be adjusted against the moneys payable by the latter to the assessee company in the subsequent years, same did not fall within the definition of deemed dividend under s. 2(22)(e). Here in the present case, from the facts narrated above, it is clear that both the parties are beneficiary of the transaction being current account of the above transactions. So as per the legal proposition decided by Hon'ble 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 dis .....

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..... ssment is subject matter of appeal, the whole of it merges in that of the appellate order. Thus, the only question that requires consideration is whether the retrospective amendment of s. 263 overrides or nullifies the effect of those judgments.-CIT vs. P. Muncherji Co. (1987) 63 CTR (Bom) 338 : (1987) 167 ITR 671 (Bom) : TC57R.432#1 and CIT vs. Smt. A.S. Narendrakumari Basaheba of Rajkot (1988) 74 CTR (Bom) 56 : (1989) 176 ITR 515 (Bom) : TC57R.436 followed As a first impression Expln. (c), as it stands without anything more, appears to support the Revenue's submission that Expln. (c) was applicable in the present case also. On carefully examining the provisions of the Expln. (c), however, the position is otherwise. Before its amendment by the Finance Act, 1989, Expln. (c) inserted by the Finance Act, 1988, was then evidently prospective w.e.f 1st June, 1988. In the present case the appeals having been not only filed but also disposed of before that date, this Explanation would have no effect whatsoever. Coming then to the amendment of the Explanation in 1989 with retrospective effect from 1st June, 1988, it is seen that on the face of it there is some contradiction. T .....

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..... . (2014) 265 CTR 0059 (Raj) : (2014) 98 DTR (Raj) 0109 : (2014) 366 ITR 163 (Raj) The head notes reads as under Business Income Disallowance Validity of Deletion Assessee, engaged in business of dairy product, processing and marketing of milk and milk product and cattle feed etc, filed its return of income AO noticed that, assessee had deposited payment of ₹ 14,60,412 in PF fund and ₹ 973 in ESI fund with delay, and therefore, added said amount to income of assessee as per provisions of s 36(1)(va) read with s 2(24)(x) CIT(A), vide its appellate order after noticing certain judgments concluded that, where payments on account of contribution to PF, ESI etc. are made within due date of filing return, such deductions are allowable CIT(A) accordingly deleted disallowance made by AO ITAT upheld order passed by CIT(A) Held, Supreme Court in CIT v. Vinay Cement Ltd. had observed in a similar matter that assessee is entitled to claim the benefit u/s 43B where he had contributed to provident fund before filing of return and that in the instant case they were concerned with the law as it stood prior to the amendment of s 43B In view of settled legal position, appeal pr .....

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