TMI Blog2017 (8) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... h reference to the details filed by the assessee to ascertain the correct facts as to whether the other entries appearing in the ledger accounts represent amount paid against goods sent on consignment basis; hence, we set aside the issue to the file of the AO and direct the AO to verify the issue before quantifying the amount of deemed dividend for the assessment years 2005-06 and 2007-08. Set off of deemed dividend against actual dividend paid by certain companies - liability to dividend distribution tax - Held that:- Dividend declared and paid by ITPL was not liable to dividend distribution tax u/s 115-O read with section 2(22)(e). M/s ITPL had declared and paid dividend which needs to be set off against the deemed dividend quantified by the AO. We do not find any merits in the arguments of the assessee for the reason that dividend distribution tax as per section 115-O is in respect of dividend covered by clauses (a) to (d) of section 2(22) and such income is exempt in the hands of shareholders u/s 10(34). However, deemed dividend u/s 2(22)(e) is taxable as no dividend distribution tax is payable on this income. Therefore, the arguments of the assessee with regard to set off o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income at ₹ 4,17,82,378/- towards inter-group companies loans and advances as deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961. The assessee has carried the matter in appeal before the first appellate authority. The CIT(A), for the reasons recorded in his order, confirmed the additions made by the AO. The assessee carried the matter in further appeal before the ITAT. The Hon ble ITAT, F-Bench, Mumbai, vide order dated 31-03- 2009 in ITA No.6181/Mum/2008 has upheld the order of the AO insofar as application of the provisions of section 2(22)(e) towards loans and advances made between the group companies inter se in the hands of the assessee as the assessee being a beneficial shareholder of the companies; however, set aside the issue to the file of the AO for further verification with regard to the claim of the assessee for determining quantum of deemed dividend considering the nature of entries appearing in the ledger accounts of the intergroup companies on the ground that the AO has ignored the assessee s claim of certain journal entries passed in the books of account to give effect to commercial transactions in the nature of sales, purchases and apportionment of comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deemed dividend. 4. The AO, after considering the explanations of the assessee held that the question of applicability of provisions of section 2(22(e) to the loans and advances between inter-group companies in the hands of the assessee has been already decided by the ITAT. Therefore, there is no merits in the claim of the assessee that these transactions are normal business transactions, which cannot be considered as loans and advances for the purpose of deemed dividend. Insofar as quantification of deemed dividend, the AO has accepted that the stocks were transferred between companies inter se on the basis of delivery challans for which the assessee had furnished the requisite evidences; however, further observed that the assessee could not furnish any details or evidences with regard to the claim of on-account payments made towards stock transferred on consignment basis, and therefore, offered the peak balance of other entries in the statement of ledger accounts of the group companies as they appeared in the books of the associate companies. He, therefore, rejected the explanation of the assessee with regard to the other entries appeared in the ledger accounts and re-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other related transactions in the normal course of business. As regards other entries, the AO took a stand that the assessee has failed to furnish any other evidence, except the delivery challan to prove the goods sent on consignment basis, therefore, opined that the assessee has not filed necessary evidences in support of its arguments that the other entries represent amounts paid against goods sent on consignment basis. The CIT(A) further observed that the only evidence furnished by the assessee is copies of delivery challans. Therefore, it cannot be said that such delivery challans constitute sufficient evidence to hold that there is a direct and immediate nexus between money given by one company to other and the goods received by it from others on consignment basis. It is possible that funds were transferred between companies based on stock received by one company from the other. However, there is nothing in the narration of entries given under the head other entries to indicate that money was given based on transfer of goods. Thus, it is to be concluded that there was no direct and immediate nexus between money advanced and transfer of goods as claimed by the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the remand proceedings, the assessee has analysed each and every transaction appearing in the ledger account and classified broadly into four categories, viz. sales, purchases, allocation of common expenses and stock transferred on consignment basis. The AO has accepted entries relating to sales, purchases and allocation of common expenses and excluded those items for the purpose of quantification. As regards other entries, the AO has rejected the explanation of the assessee with the other entries representing amount transferred against goods sent on consignment basis on the sole ground that there is no narration in the journal entries explaining the other entries. 10. The AO has accepted the explanation of the assessee that majority of the transactions relate to sales, purchases, allocation of common expenses and stock transfers on consignment basis between group companies. It is also an admitted fact that the AO has accepted that the assessee has furnished necessary evidence in the form of delivery challans to prove the goods sent on consignment basis. However, rejected the claim of the assessee on the sole ground that there is no narration in the journal entries to explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad declared and paid dividend which needs to be set off against the deemed dividend quantified by the AO. We do not find any merits in the arguments of the assessee for the reason that dividend distribution tax as per section 115-O is in respect of dividend covered by clauses (a) to (d) of section 2(22) and such income is exempt in the hands of shareholders u/s 10(34). However, deemed dividend u/s 2(22)(e) is taxable as no dividend distribution tax is payable on this income. Therefore, the arguments of the assessee with regard to set off of deemed dividend against actual dividend paid is rejected. 12. The next issue that come up for our consideration is disallowance of interest expenditure of ₹ 1,37,304 against interest income assessed under the head Income from other sources . The AO disallowed interest expenditure as the assessee was unable to co-relate the interest income with interest expenditure. Therefore, netting off of interest was not considered. The contention of the assessee that he had borrowed overdraft loan against fixed deposit and the resultant interest paid on overdraft loan is set off against interest earned on fixed deposit,hence, the AO was erred in no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of ₹ 3,98,53,262 towards deemed dividend u/s 2(22)(e) of the Act. On appeal before CIT(A), the CIT(A) confirmed the additions made by the AO. The assessee carried the matter in further appeal before ITAT. The F-Bench of the ITAT, Mumbai in ITA No.618/Mum/2008 dated 31-03-2009 set aside the order of the CIT(A) and restored the issue to the file of the AO to decide the quantum of deemed dividend afresh in the light of the explanations of the assessee. The AO passed order u/s 143(3) r.w.s. 254 on 22-10-2009 and modified the amount of addition made u/s 2(22)(e) to ₹ 1,28,81,968. Thereafter, the AO initiated penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars / concealment of income. The AO, after considering the explanations of the assessee observed that the assessee has furnished inaccurate particulars / concealed particulars of income which warrants levy of penalty under clause (a) to Explanation 1 of section 271(1)(c) of the Act. Accordingly, he levied penalty of ₹ 43,36,070 which is 100% of the tax sought to be evaded. Aggrieved by the penalty order, the assessee preferred appeal before CIT(A). The CIT(A), vide order dated 15-12-2010 confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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