TMI Blog2019 (4) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... Dayal Hi-tech Education Academy - charitable trust registered u/s 12AA - HELD THAT:- following decision in SH. ROSHAN LAL JINDAL VERSUS THE D.C.I.T. [2017 (9) TMI 1098 - ITAT CHANDIGARH] we uphold the order of the CIT(A) deleting the addition made u/s 2(22)(e) on account of advances made to societies registered u/s 12A. Addition on account of provision 40(a)(ia) - brand was registered in the name of M/s Heera Moti Spices Pvt. Ltd. who was charging 4.1% royalty on the total turnover since no TDS was deducted - HELD THAT:- We restore the issue back to the A.O. to verify the documents filed by the assessee proving that the taxes have been paid by the recipient of brand charges and thereafter to decide the issue in accordance with law. We may add that the assessee be given due opportunity of hearing in this regard. The ground of appeal allowed for statistical purposes. Addition made on account of a seized document - cash transactions of receipts and payment undertaken by the assessee, which in the absence of any plausible explanation available were surrendered by the assessee to the extent of peak credit but were treated entirely as unexplained and the entire receipts added to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintaining any personal books of accounts, no complexity was there for the purpose of referring the case to the special audit and, as such, the assessment having been completed beyond the limitation time deserves to be quashed. 4. The said grounds were not pressed before us and are, therefore, treated as dismissed. 5. Ground No.3 raised by the assessee reads as under: 3. That the Worthy CIT(A) has erred in confirming the addition of deemed dividend U/s 2(22)(e) amounting to ₹ 69,998/- (out of ₹ 1,48,998/-) in respect of amount shown as alleged advance to the assessee in different Companies. 6. The above ground is in relation to the addition made on account of deemed dividend as per the provisions of section 2(22)(e) of the Act and the brief facts relating to the issue are that the assessee was directed to get his accounts audited from the duly appointed Special Auditor u/s 142(2A) of the Act. The Special Auditor pointed out in its report that the assessee was a shareholder in a number of companies having substantial interest and these companies had given loans to the assessee or the concerns in which the assessee had substantial interest. The details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and confronted the same to the assessee. In response, due reply was filed by the assessee stating that the impugned advance did not qualify as deemed dividend u/s 2(22)(e) of the Act since they had been made out of business expediency and in the ordinary course of business. Finding the said explanation unacceptable and not supported by any evidence, the A.O. treated an amount of ₹ 1,48,998/- as deemed dividend in the hands of the assessee, as per section 2(22)(e) of the Act, and subjected the same to tax. 8. The matter was carried in appeal before the Ld.CIT(A) who, upheld the amount advanced to M/s Heera Moti Spicy Products M/s Heera Moti Agro Products by M/s Heera Moti Health Care Product Ltd., amounting to ₹ 69,998/- in all out of the impugned advance, as deemed dividend, while the amount advanced to Swami Devi Dayal Hi-Tech Education Society of ₹ 79,000/- was treated to be outside the scope of section 2(22)(e) of the Act and addition made on this account was deleted. 9. Aggrieved by the addition upheld by the CIT(A) the assessee has come up in appeal before us. During the course of hearing before us the Ld. counsel for assessee reiterated the conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a written reply. In the written submission the assessee reiterated that the amounts debited to the firm M/s Heera Moti Agro Products, in the books of the company M/s Heera Moti Health Care product Ltd M/s Himland Agro Foods (India) Ltd were provided out of commercial/ business expediencies and there was no intention of providing a loan or advance. It was further submitted that the amounts provided to the firms in which Smt. Urmil Jindal is partner have not been personally withdrawn by Smt. Urmil Jindal. No individual benefit has been obtained by Smt. Urmil Jindal. The assessee submitted that the entries in the books of accounts need to be examined. The assessee produced the ledger accounts of the following parties and made the following submissions. A perusal of ledger a/c of M/s Heera Moti Spicy Products in the Books of M/s Heera Moti Health Care products Ltd. reveals that funds amounting to ₹ 50,000/- have been transferred, to OBC a/c of M/s Heera Moti Spicy Products by the Company. A perusal of bank a/c OBC of M/s Heera Moti Spicy Products reveals that funds were transferred, to M/s Heera Moti Spicy Products to keep the cash credit a/c within limit and to cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny to the firm to keep the keep the cash credit a/c within limit. The funds were transferred by the away of transfer entries transfer because of common parties in books of account of both the parties The funds were transferred to the bank account of the concern by the way of bank transfer or through cheques. The above indicates that the funds have been transferred from the company to the firm as there was shotage of funds, therefore, these can be only treated as loans and advances. The transactions are not simple transfer entries but through cheuqes/bank transferred which were issued as funds were short of firm. The transfer of funds has not been done in the ordinary course of business. In this regard the assessee failed to demonstrate that advances were trade advances and were done to the ordinary course of business. A perusal of ledger account shows that there has not been any purchase /sale between the two parties. Mere assertion by the assessee loan were provided out commercial and business expediency is not enough. The onus lies the assessee to provide the necessary proof to this effect. As the assessee has contended that the there was no intention of provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined as being beneficial and entitled to not less than 20% income of the said company. 14. The present case before us falls in the third category, the loans and advances having been made by a company in which the assessee has beneficial interest to another company in which the assessee has substantial interest. The fact of the assessee being a beneficial shareholder in the company giving the loans and advances and a substantial shareholder in the company receiving the loans/advances is not disputed. The only dispute before us is vis- -vis the nature of the amount given. It is also not disputed by both the parties that the loans and advances which qualify as deemed dividend u/s 2(22)(e) of the Act do not include those given in the ordinary course of business or which are in the nature of business advances. The sole dispute before us is whether the amount advanced in the present case qualify as business advances or not. While the contention of the assessee is that the impugned transaction has taken place between the group concerns to tide over short term financial difficulties and to keep the cash credit account within limit and clear the cheques and drafts issued, which showed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of its equity shares. The appellant invested a huge amount of about ₹ 18 crores in the sister concern. The appellant and its sister concern are in the same business. For the point under consideration, it may not have made any difference even if they were not in the same business. However, the fact that they are in the same business is a further aspect in the appellant s favour. The parties admit that the appellant advanced the said sum of about ₹ 10.29 crores to the appellant s sister concern free of interest. The share purchase agreement and in particular Article-3, clause 3.3(b) indicates that the appellant had to pay various amounts towards discharging the liabilities of the sister concern including towards voluntary retirement scheme under implementation by ITDC to its employees, dues of the municipality, electricity charges and lease rent. 9. Whether the amount of ₹ 10.29 crores was debited to the account of the sister concern in respect of the payment made under Clause 3.3(b) of Article 3.1 of the share purchase agreement or whether the amount was actually paid to the sister concern and used by it for the purpose of business, is immaterial. Either way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that despite the same the appellant failed to establish the same. 12. The view of the Tribunal that the CIT (Appeals) had not considered the decision of the Supreme Court in S.A. Builders Ltd. vs. Commissioner of Income-Tax (Appeals) and another (supra) in right spirits and that the CIT had wrongly interpreted the judgment is not well-founded. In S.A Builder vs. CIT (supra), the Supreme Court observed:- It is true that the borrowed amount in question was not utilized by the assessee in its own business, but had been advanced as interest free loan to its sister concern. However, in our opinion, that fact is not really relevant. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. (emphasis supplied) It is precisely this test that was applied by the CIT (Appeals). 13. The commercial expediency in advancing the amount is established beyond doubt. The appellant owns about 89% of the equity capital. A Division Bench of this Court in CIT vs. Marudhar Chemicals Pharmaceuticals (P) Ltd., (2009) 319 ITR 75 (P H) held:- 15. Section 36(1)(iii) of the Act provides that the amount of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court in S.A. Builders Ltd. vs. Commissioner of Income-Tax (Appeals) and another (supra). 14. The appellant s case meets each of the tests stipulated by the Division Bench. In fact, it meets a higher test. When a holding company invests amounts for the purpose of the business of its subsidiary, it must of necessity be held to be an expense on account of commercial expediency. A financial benefit of any nature derived by the subsidiary on account of the amounts advanced to it by the holding company would not merely indirectly but directly benefit its holding company. In the case before us, the subsidiary had to be funded to a large extent for otherwise it would not have survived. If it had not survived and had gone into liquidation, the appellant would have suffered directly on account of an erosion of its entire investment in the subsidiary. In this case, the financial assistance was not only prudent but of utmost necessity for without it the subsidiary would have suffered grave financial prejudice. 15. The Tribunal, therefore, erred in coming to the conclusion that the CIT (Appeals) had not considered the judgment of the Supreme Court in the correct perspecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Phaltan Sugar Works Ltd. (supra) that the interest was deductible as the amount was advanced to the subsidiary company as a measure of commercial expediency is the correct view, and the view taken by the Bombay High Court which set aside the aforesaid decision is not correct. 30. Similarly, the view taken by the Bombay High Court in Phaltan Sugar Works Ltd. vs. CIT (1994) 122 CTR (Bom) 344 : (1995) 215 ITR 582 (Bom) also does not appear to be correct. 31. We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del) that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has erred in restricting the addition amounting to ₹ 10,36,124/- out of addition of ₹ 28,16,098/- made by the Assessing Officer on account of unexplained cash credit u/s 68 as per 10.1.2 of her order. 19. Brief facts relevant to the issue are that the Special Auditors appointed had pointed out that page Nos.1 to 65 of Annexure-A-2 Delta 2 was a diary maintained by the assessee regarding day-to-day cash receipts and payments. It was pointed out by the auditors that the assessee had maintained an opening cash balance and was carrying closing balance to the next day after considering the receipts and payments of every day. When confronted with the same the assessee admitted that the document was a receipt and payment account maintained by him but stated that since the period to which it related pertained way back, he was unable to keep exact track of the receipts and payments and the source behind it. The assessee, therefore, voluntarily surrendered the peak credit on the basis of this diary amounting to ₹ 1,85,841/-. The A.O., however, found that the auditors had reported the said transactions as relating to the unaccounted cash received and utilized to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and Revenue in assessment year 2007-08 in ITA No.45/Chd/2014 and ITA No.108/Chd/2014 respectively. 22. The assessee has raised additional ground before us vide its letter dated 10.10.2015, which were revised vide letter dated 23-07-16 and reads as under: 1. That the Worthy Commissioner of Income Tax(Appeals) has erred in confirming the addition on various issues as per ground of appeal despite the fact that no incriminating evidence was found during the course of search conducted on 15.07.2008 by the department on account of various additions which have been challenged by the assessee. 23. The same was not pressed before us and, therefore, the same is dismissed as not pressed. 24. We shall now take up cross appeals of the assessee and the Revenue relating to assessment year 2007-08 in ITA No.45/Chd/2014 and ITA No.108/Chd/2014. ITA No.45/Chd/2014(A.Y. 2007-08) 25. Taking up assessee s appeal in ITA No.45/Chd/2014, ground Nos.1 and 2 raised by the assessee read as under: 1. That the Worthy CIT (A) has also erred in dismissing the grounds of appeal pertaining to objection of assessee with regard to reference to the Special Auditor in terms of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en reflected as income by the recipient of the same and had also been paid taxes on the same. The prescribed certificate of an accountant u/s 201(1) of the Act , in Form No.26A, in this regard was filed before us. The Ld. counsel for assessee, therefore, contended that in view of the amended provisions of section 40(a)(ia) of the Act as per which where taxes have been paid by the recipient of the incomes, the assessee cannot be treated as an assessee in default for not having deducted TDS on the same and no addition, therefore, can be made u/s 40(a)(ia) of the Act. The Ld. counsel for assessee stated that its sole prayer was that the matter be restored back to the A.O. to verify the documents now filed by the assessee and thereafter decide the issue in accordance with law. The Ld. DR did not object to the same. 32. In view of the above, we restore the issue back to the A.O. to verify the documents filed by the assessee proving that the taxes have been paid by the recipient of brand charges and thereafter to decide the issue in accordance with law. We may add that the assessee be given due opportunity of hearing in this regard. The ground of appeal No.5 is allowed for statistical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . for the impugned year and, therefore, it defied logic to add back entire balance in the account. It was also noted that many of the parties were having running account prior to 1.4.2002 and CIT(A), therefore, held that by adding back entire balance of sundry creditors the entire trading results of the assessee would be abnormal. Accordingly, the Ld.CIT(A) allowed assessee s appeal relating to assessment year 2003-04 but for the assessment year 2007-08 fresh credit additions were found to be in order and addition made by the A.O. was confirmed by the CIT(A). It was pointed out from the order that the I.T.A.T. held that having deleted addition made in assessment year 2003-04, there was no reason to confirm the additional credit balance in the succeeding year since these parties were having running accounts and by making these additions it would make the entire trading results abnormal. The I.T.A.T. in the light of the same restored the issue to the A.O. to redecide it in the light of the decision given by the CIT(A) for assessment year 2003-04. The relevant findings of the I.T.A.T. at para 9 to 9.(ii) are as under: 9. We have considered rival submissions. It is a case of searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious parties since long. According to ld. counsel for the assessee, even in some of the cases of the group, who were trade creditors in assessment year under appeal, are assessed by the same Assessing Officer, therefore, facts should have been verified from their record available with the Revenue Department. In assessment year under appeal also, trading results have been accepted by Assessing Officer, therefore, for balance trading amount, the ld. CIT(Appeals) should not have confirmed the addition. The parties have running accounts with the assessee and if similar addition is made, it would give entire trading results of the assessee, to be abnormal. Therefore, the ld. CIT(Appeals) should have followed the order for assessment year 2003-04 for the purpose of deleting the addition against the assessee. However, ld. CIT(Appeals) noted that addition is limited to fresh additions only. This reason is also incorrect because ld. counsel for the assessee demonstrated that even if there are some fresh creditors from the same parties appearing in the books of account of the assessee but these are running accounts from the earlier years, therefore, for difference of the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delta 2 and pages 1-54 of Annexure-7 of Delta 2? 43. The additional ground raised by the Revenue vide its letter dated 17.04.2018 reads as under: Whether on the facts and in the circumstances of the case, the CIT(A) erred in law while giving relief without affording an opportunity to the AO for examination of additional evidence produced during appellate proceedings which were not filed before the AO earlier and without invoking the provisions of Rule 46A of the Income Tax Rules,1962. 44. The issue in the above grounds relates to the addition made on account of a seized document, admittedly reflecting cash transactions of receipts and payment undertaken by the assessee, which in the absence of any plausible explanation available were surrendered by the assessee to the extent of peak credit but were treated entirely as unexplained and the entire receipts added to the income of the assessee. Before the Ld.CIT(A) the assessee filed explanation of the entries reflected in the document and duly substantiated the same, contending that most of them were bank entries reflected in the books. The Ld.CIT(A), partly deleted the addition made on the basis of the evidence filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the above ground the Revenue has challenged deletion of addition made on account of deemed dividend u/s 2(22)(e) of the Act on account of loans and advances given to Swami Devi Dayal Hi-tech Education Academy. The A.O. had made addition of the advances made by M/s Heera Moti Health Care Product Ltd. in which the assessee was a beneficial shareholder holding 10.34% shares of Swami Devi Dayal Hi-tech Education Academy in which the assessee was a member holding that it had substantial interest in it since documents seized during the course of search showed that the funds of the society had been utilized by the members of the society and their family members. The Ld.CIT(A) deleted the impugned addition stating that the transaction was outside the scope of section 2(22)(e) of the Act since the assessee was only a member and was not having substantial interest in the trust. 54. During the course of hearing before us the Ld. counsel for assessee pointed out that identical issue had arisen in the case of Roshan Lal Jindal wherein the CIT(A) had deleted the identical addition made on account of amounts advanced to same society i.e. to Swami Devi Dayal Hi-tech Education Academy which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a trustee in the said trust has also not been disputed and the fact that there are no interest of any member of the said society in the Trust is also not disputed. In the said circumstances, we are left with no option but to agree with the Ld.CIT(Appeals) that second limb or requirement of section 2(22)(e) of the assessee having substantial interest in the concern to which loan or advance has been given has not been established and, therefore, the said advance cannot be treated as deemed dividend in the hands of the assessee. The arguments of the Ld. DR that the documents seized during the course of search show that the funds had been utilized by the members of the society, and therefore, assessee derived personal benefit is of no consequence since the requirement of section 2(22)(e) is not whether the assessee has actually derived any personal benefit from the said concern but is that the assessee is beneficially entitled to not less than 20% of the income of the said concern. The work entitled means having a legal right to something. Since such legal right is absent in the case of the present society, in the absence of such legal right of the assessee in the said society t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned sum, after considering which the CIT(A) allowed the assessee s appeal on this count and deleted the addition made. 60. Before us the Ld. DR contended that the additional evidence furnished by the assessee before the Ld.CIT(A) in the form of cash flow statement was not confronted to the A.O. and, therefore, the CIT(A) had erred in allowing relief to the assessee on the basis of this cash flow statement which was not in accordance with the provisions of Rule 46A of the Income Tax Rules, 1962. The Ld. DR contended that the issue, therefore, needed to be restored back to the A.O. and thereafter be adjudicated. 61. The Ld. counsel for assessee did not object to the same, nor was he able to controvert the fact that the cash flow statement was not confronted to the A.O. during appellate proceedings. 62. In view of the above, we consider it fit to restore the issue back to the A.O. to verify the contents of the cash flow statement and thereafter adjudicate the issue in accordance with law. This ground of appeal is, therefore, allowed for statistical purposes. 63. Ground of appeal No.(iv) has been dealt with in the appeal of the assessee in ITA No.45/Chd/2014 alongwith groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, in the light of the pleading and evidences filed by the assessee to the effect that since taxes have been paid by the recipient of income no disallowance was warranted u/s 40(a)(ia) in the case of the assessee, the decision rendered therein shall apply mutatis mutandis to this ground also. This ground of appeal No.4 raised by the assessee is, therefore, allowed for statistical purposes. 71. Ground No.5(a) (b) raised by the assessee reads as under: 5 a). That the Worthy CIT (A) has erred in restricting addition of ₹ 3,98,000/- out of addition of ₹ 7,27,000/-(Being excess of payment of ₹ 7,27,000/- over cash receipts of ₹ 3,29,000/-) made by the Officer on account of unexplained expenditure u/s 69 C as per para 9.2 of her order. b). That the Worthy CIT(A) has also erred in directing the Assessing Officer to apply gross profit rate of 20.17% on cash receipts of ₹ 3,29,000/- and make addition of the said sum (which works to ₹ 66,359/-) as per para 9.2. of her order. 72. It was common ground that the facts and issue in this ground were identical to ground No.4 raised by the assessee in assessee s appeal in ITA Nos.44 45/C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 2. That the addition is otherwise not sustainable because of number of judgements in favour of assessee 78. The same was not pressed before us and, is therefore dismissed as not pressed. In effect the appeal of the assessee is partly allowed for statistical purposes. 79. We now take up the appeal of the assessee in ITA No.47/Chd/2014. 80. Ground No.1 and 2 raised by the assessee reads as under: 1. That the Worthy CIT (A) has also erred in dismissing the grounds of appeal pertaining to objection of assessee with regard to reference to the Special Auditor in terms of section 142 (2A). 2. That the Worthy CIT (A) has erred in not considering that the conditions for reference to the special audit have not been fulfilled and since the assessee had not been maintaining any personal books of accounts, no complexity was there for the purpose of referring the case to the special audit and, as such, the assessment having been completed beyond the limitation time deserves to be quashed. 81. These grounds were not pressed before us and the same are dismissed as not pressed. 82. Ground No.3 raised by the assessee reads as under: 3. That the Worthy CIT(A) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of sundry creditors as outstanding in the books of accounts despite the fact that no evidence was found during the course of search that the creditors were not existing 2. That the addition is otherwise not sustainable because of number of judgements in favour of assessee 89. The same was not pressed before us and, is therefore dismissed as not pressed. In effect the appeal of the assessee is partly allowed for statistical purposes. 90. We now take up the appeal of the assessee in ITA No.1171/Chd/2016. 91. The present appeal has been filed against the confirmation of penalty levied u/s 271(1)(c) of the Act and the grounds raised by the assessee are as under: 1. That the Worthy C1T (A)-3, Gurgaon has erred in upholding penalty u/s 271(1)(c) levied by the Assessing Officer on the following amounts: - i). Unexplained cash credit ₹ 38,12,800/- ii). Sundry Creditors ₹ 9,52,812/- 2. That the Worthy CIT (A) has erred in not considering that the penalty u/s 271(1)(c) is not leviable as there is neither any concealment of Income nor furnishing of any inaccurate particulars of income. 3. That the appellant craves leave to add or amend a ..... 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