TMI Blog2018 (7) TMI 1545X X X X Extracts X X X X X X X X Extracts X X X X ..... rrectly - Decided against revenue - I.T.A. No. 6462/DEL/2014 - - - Dated:- 18-7-2018 - Shri H. S. Sidhu, Judicial Member And Shri Prashant Maharishi, Accountant Member Department by : Sh. K. Tewari, Sr. DR Assessee by : Sh. Ved Jain, Adv. ORDER Per H. S. Sidhu : JM Revenue has filed this appeal against the order dated 01.9.2014 for A.Y. 2010-11 of the Ld. CIT(A)-I, New Delhi relevant to assessment year 2010-11. 2. The Revenue has raised the following grounds:- (i) The order of Ld. CIT(A) is not correct in law and facts. (ii) On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of ₹ 1,03,00,000/- made by AO on account of deemed dividend u/s. 2(22)(e) of the I.T. Act, 1961. (iii) The appellant craves leave to add, amend any / all the grounds of appeal before or during the course of hearing of the appeal. 3. The brief facts of the case are that return declaring income of ₹ 7,19,410/- was filed on 30.7.2010. The return was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter referred as the Act). The original assessment in this case was completed u/s. 143(3) of the Act on 14.11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that even if HUF is not a registered shareholder in lending company, advances/loans received by HUF is taxable as deemed dividend under section 2(22)(e) if Karta-shareholder has substantial interest in HUF. 3. CIT Vs Mukundrav K. Shah r20071 160 Taxman 276 (SC)/r20071 290 ITR 433 (SC)/r20071 209 CTR 97 (SC) A search conducted at assessee s premises led to seizure of a diary, which contained purchasing of nine per cent RBI relief bonds by assessee from funds received from two firms B and C in which he was a partner. Tribunal after examination of cash flow statement held that two firms were used as conduits by assessee; that A had made payments to B and C for benefit of assessee, which enabled him to buy nine per cent RBI Relief Bonds and upheld finding of Assessing Officer. Upheld addition u/s 2(22(e) of I.T. Act. 4. Puneet Bhaqat v. ITO (157 ITD 353) Where Hon ble ITAT Delhi held that deemed dividend-Loans and advances to share holders- Loans received by the company would be treated as deemed dividend in hands of P and S in proportion to their shareholdings. 5. Addl CIT Vs Shri Chandrakant V Gosalia [2015]-TIQL- 1187-lTAT-MUM where Hon ble IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income for the year under consideration on 30.07.2010, declaring an income of ₹ 7,19,410/-. The said return was assessed u/s 143(3) of the Act and was completed on 14.11.2012 3. Thereafter, after recording reasons, the case of the assessee was reopened and notice u/s 148 of the Act was issued to the assessee on 24.01.2013. Objection filed by the assessee was also disposed by a written order dated 17.02.2013. The AO reassessed the income of the assessee at ₹ 1,10,19,412/-,after making an addition of ₹ 1,03,00,000/- u/s 2(22)(e) of the Act. The AO has discussed this issue at Page 2 onwards of the assessment order. 4. Pursuant to the order passed by the Ld. AO, the assessee went into appeal before the Commissioner of Income Tax (Appeals)-I. The CIT(A) allowed the appeal of the assessee vide order dated 01-09-2014 and deleted the addition made by the AO u/s 2(22)(e) of the Act. He has deleted the addition on the grounds that the said amount was advanced for the business purposes and hence a commercial transaction not covered within the meaning of deemed dividend under section 2(22)(e) of the Act. 5. It was explained to the AO that the companies hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al transactions would not fall within the ambit of the word 'advance' in section 2(22)( e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon. 7. Therefore, in view of the facts of assessee s case, the Circular issued recently by the CBDT in this regard, the addition made by the AO is liable to be deleted. 8. Further, reliance is placed on the judgment of Hon ble Jurisdictional High Court in the case of CIT v. Raj Kumar [2009] 318 ITR 462, wherebythe Hon ble Court has held as under: If the history and purpose with which the said provision was brought on to the statute book is kept in mind, it is clear that sub-clause (e) of section 2(22) which is pari materia with clause (e) of section 2(6A) of the Indian Income-tax Act, 1922, plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons, who manage such closely held companies, should not arrange their affairs in a manner that they assist the shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of CIT v. Creative Dyeing Printing Pvt. Ltd. [2009] 318 ITR 476 Deemed Dividend - nature of advance payment for a commercial purpose to the assessee company by its sister concern - held that - , the word advance has to be read in conjunction with the word loan - Usually attributes of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan: it generally carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning the term advance may or may not include lending. The word advance if not found in the company of or in conjunction with a word loan may or may not include the obligation of repayment - that the amounts advanced for business transaction between the parties was not such to fall within the definition of deemed dividend under Section 2(22)(e). Delhi High Court in the case of CIT v. Arvind Kumar Jain in ITA No. 589 of 2011 dated 30.09.2011 Deemed Dividend - Trading transaction - Treatment of unsecured loan given to shareholder of company (holding 50% of shares) as deemed Dividend - Held that:- the amount was not in the nature of 'advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence is not sustainable, therefore, the same is rejected - amount of ₹ 1,00,00,000/- received to the assessee is on account of commercial transaction, therefore, the Section 2(22) (e) is not applicable - Decided in favour of assessee. 10. Without prejudice to the above, the CIT(A) has given a finding that the amounts returned back within a days time and no benefit as such accrued to the payee. In such circumstances also no addition of deemed dividend u/s 2(22)(e) can be made even in the hands of the recipient. 11. Therefore, in view of the facts of assessee s case, the Circular issued recently by the CBDT in this regard and the various judicial pronouncements, the addition made by the AO which was deleted by the Ld. CIT(A) against which the department is in appeal is liable to be dismissed. 7. We have heard both the parties and perused the records, especially the impugned order passed by the revenue authorities as well as the written submissions/synopsis and the case laws relied upon from both sides. The brief facts of the case is that M/s Northern Strips Pvt. Ltd. received ₹ 1 Crore from M/s Super Plastic Coats Ltd. and M/s Northern Strips Pvt. Ltd. h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les India Ltd. received ₹ 3 lacs on 13.8.2009 from M/s Northern Strips Pvt. Ltd. by cheque of Karnataka Bank Ltd. and on the same date M/s Allied Poles India Ltd. paid to M/s Northern Strips Pvt. Ltd. the same amount which stands duly credited in the bank account of M/s Northern Strips Pvt. Ltd. on 13.08.2009. In view of this it is apparent that there are transaction of receipt and payment on the same date itself by both the parties. Issue is whether such transaction is covered in the definition of deemed dividend in the hands of the assessee u/s. 2(22)(e) of the Act or not. The issue is squarely covered in favour of the Assessee by the decision of the Coordinate Bench in the case of Pravin Bhimsi Chheda Shivsadan vs. DCIT reported in 141 TTJ 58 against which the Hon ble Bombay High Court in the case of CIT vs. Pravin Bhimsi Chheda in 48 taxmann.com 151 (Bombay) has not admitted the appeal of the Revenue holding that when the Company got back its funds on the same day, it cannot fall into the definition of the deemed dividend. Therefore, the issue is squarely covered in favour of the Assessee by the above decision of the Hon ble Bombay High Court confirming the views of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o by the two Companies are the business transactions. It is stated that both the parties are engaged in similar trade and activities and the above amount was given as advance against business transaction. The above facts were also confirmed by the Audited Accounts by the parties and M/s Northern Strips Pvt. Ltd. is also providing goods transport services to M/s Super Plastic Coats Ltd. The AO did not controvert the above submissions of the assessee by making the further enquiry. He has merely rejected the above claim of the assessee without further adducing any evidence. The CBDT in its Circular No. 19 of 2017 has clarified that trade and commercial transactions are not covered in the definition of loans and advances on which provision of Section 2(22)(e) of the Act can be applied. In view of this, respectfully following the Hon ble Bombay High Court decision in the case of CIT vs. Pravin Bhimsi Chheda (Supra) and in view of the CBDT s Circular (Supra), we are of the view that Ld. CIT(A) has dealt with the issue correctly and no interference is required, therefore, we confirm the finding of the Ld. CIT(A) on the issue in dispute and reject the ground raised by the Revenue. 8. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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