TMI Blog2020 (6) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of deemed dividend under section 2(22)(e). The present appeal is therefore dismissed The transactions in the client ledger accounts, are transactions entered in the ordinary course of business and are relating to sale/purchase of share/currency/derivatives/commodities only. Therefore, I further hold that since these transactions are trading/business transactions, accordingly, provisions of section 2(22)(e), do not apply to the facts of the case of the appellant. Accordingly, the addition made by the A.O. on account of deemed dividend is hereby deleted. Capital gain computation - claim of the depreciation on the block of the building‟ owned by the assessee and used for the purposes of the business of the assessee on which depreciation is claimed - calculating the depreciation the provisions of Section 50C - HELD THAT:- Merely because the seller agreed to pay and discharge the outstanding dues and liabilities in respect of the share in the premises , it does not amount that the assessee has not transferred/sold the property during the year. Depreciation is allowable to the assessee on the written down value which is defined under section 43 (6) of the act. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has raised the following 3 grounds in its appeal No. 1383/Del/2017 and the Revenue has raised the following 7 grounds in its appeal No. 2396/Del/2017:- ITA No. 1383/Del/2017 : 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts. 2. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming addition of an amount of ₹ 29,63,061/- on account of claim of depreciation on building. (ii) That the disallowance has been confirmed rejecting the contention of the assessee that the building has not been transferred during the year, therefore the depreciation on the same is allowable during the year. (iii) That the disallowance has been confirmed misinterpreting the Sale Deed made on transfer of property. 3. Without prejudice to the above and in the alternative, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the value of the block of building taken at ₹ 2,87,14,500/- by the AO is wrong as the sale consideration of the property wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred an appeal before the ld. CIT (Appeals). The ld. CIT (Appeals) deleted the disallowance u/s 14A of the Act holding that assessee has not earned any exempt income and, therefore, there cannot be any disallowance u/s 14A. He confirmed the addition of excess depreciation claimed by the assessee of ₹ 29,63,061/-. He deleted the addition made by the Assessing Officer on account of deemed dividend of ₹ 94,32,600/-. Thus appeal of the assessee was partly allowed. 04 Therefore, assessee is in appeal against the confirmation of the addition of ₹ 29,63,061/- on excess claim of depreciation on building. The ld. Assessing Officer is in appeal before us on deletion of the disallowance u/s 14A of the Act of ₹ 2,12,74,766/- and against the deletion of addition of ₹ 94,32,600/- on account of deemed dividend under Section 2(22)(e) of the Act. 05 We first come to the ground No. 1 of the appeal of the Assessing Officer against deletion of disallowance u/s 14A of the Act of ₹ 2,12,74,766/-. The ld. Assessing Officer noted that assessee has substantial amount of investment in the shares of the companies, which can have tax-free dividend income. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad given a loan or advances to Assessee Company on various dates during the year under consideration. The assessee submitted that it had made share currency trading transactions as a client, of the company JCSL. During the year under consideration, the assessee company has made business transactions of ₹ 87.95 crore (net purchased value) and ₹ 92.26 crore (net sale value). Therefore, the payment has been made by JCSL to the assessee company against the business transaction. Accordingly, the payments made by JCSL to the assessee were not in the nature of loan and advance but it was in the nature of business transactions. Along with that reply a copy of ledger from F.Y. and the net summarized position was submitted. It was further submitted that the word advance has to be read in conjunction with the word loan' The word loan involves positive act of lending coupled with acceptance by the other side as loan. On the other hand meaning of the term, advances may or may not include lending. Trade advances are in the nature of money transacted to give effect to a commercial transaction, therefore, it is not covered u/s 2(22)(e) of the Act. 6.2 The reply of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are distributed by closely held companies to its shareholders in the form of loans or advances The purpose being that persons who manage such closely held companies should not arrange the affairs of company in such a manner that they assist the major shareholders in utilizing the fund of company in the form of advance or loan for personal use and avoid the payment of taxes on dividends Adl v. Raj Kumar (21)09/ 161 Taxman 155 (Delhi). (ii) The provision of section 2{22)(e make it clear that payment should he of the nature was advance OR loan. Thus, the intent of legislation in disjointing the words is clear i.e. the transfer of fund may be as advance or as a loan Therefore, there is no force on the argument of the assessee that the word loan and advance should he read in conjunction and advance should be of the nature of loan. (iii) Section 2(22)(e) does not say that in order to come in the category of deemed dividend, loan or advances should he of a particular minimum duration. A loan for a few days would be within its ambit. Thus, duration of loan is not material [Walchand Co. Vs. CIT (1975) 100 ITR 598 (Bom)]. The withdrawal over and above credit balance is to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t continued to make advances at regular interval. Thus the assessee advanced amounts, over and above the balance of Ms Future Next Services Ltd. The chart of fund flow From between the assessee company and Ms Futurz Next Services Ltd. examined. For the purpose of determining dividend under section 2(22)(e). only the payments that resulted in the debit balances to M s Futurz Next Services Ltd. Where ever the payment i.\ made on account on trade profit the same have not been taken in to account for the purpose of determining deemed dividend it‟s 2(22)(e). (vi) There are various judicial pronouncements for the proposition that the fiscal laws should be strictly construed and (he true test is always the language used. In the ease of Gurudev Datta VKSSS Maryadit v. State of Maharashtra.. AIR 2001 SC 1980). their Lordships of the apex court held as under (head-note). It is a cardinal principle of interpretation of statute that the words of statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is some-thing in the context or in the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind to be. Similarly in the case of Prakash Nath Khanna v. CIT (2004) 266 ITR 1 (SC), their Lordships have observed as under: It is a well-settled principle in law that the court cannot read anything into a statutory provision which is plain and unambiguous. .1 statute is an edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent. The first and primary rule of construction is that the intention of the legislation must be found in the words used by the Legislature itself. The question is not what may be supposed and has been intended hut what has been said.' Statutes should be construed, not as theorems of Euclid‟ Judge Learned Hand said, hut words must be construed with some imagination of the purposes which he behind them While interpreting a provision the court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary, to see Rishuhh Agro Industries Ltd. v. P.N.B. Capital Services Ltd. [2000] 101 Comp Cas 2S4 (SC): [2000] 5 SCC 515. The legislative causus omissu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to M/s futurz Next Services Ltd. will he treated us deemed dividend in the hand of M/s futurz Next Services Ltd. 6.3 In view ofabove discussion, amount of ₹ 94.32.600/- is added to the income ofthe assessee company as deemed dividend u s 2(22)(e) of the Act. (Addition ₹ 94.32,600/-)'' 8.2 During the appellate proceedings, the Ld.AR has filed written submissions/objections vide letter dated 09.01.2017 and the relevant portion is reproduced as under:- 8.1. The Id. AO has made an addition of ₹ 94.32.600 - on account of business transactions with M/s. Jaypee Capital Services P. Ltd. treating the same to deemed dividend under the provisions of section 2(22 (e). The assessee company is a shareholder in M s Jay pee Capital Services P. Ltd. with a shareholding of 40.85% shares. Along with being a shareholder the assessee company 'was also a client of the above mentioned company The assess company through M s day pee Capital Services Ltd. had engaged in trading of shares and securities and has a current account running for the same. 8.2 On perusalof the account of the company with the assessee n is very much clear that the amount which has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is hereby submitted that, every day it company will not grant loan or advance to a person and recover the same on the same day itself in fact the person will pay off an excessive amount. Your honor, as can be observed from the ledger account each and every day there are 2-3 transactions and hem e this simply constitute business transaction and not at all as loan or advances Your honor it is apparently visible from the ledger account and frequency of transaction itself, that these transactions are regular business transactions. 8.9 Your honor, none of the provision of Act bars the substantial shareholder to transact am business with the related company Hence there is no doubt that a shareholder can enter into a business transaction with a company and theses transactions are not covered under the provisions of Sec.2(22)(e). That is the tax authorities cannot blindly deem every payment by company to shareholder as loan and advance for the purpose of deemed dividend u/s 2(22)(e). The AO should first try to understand the nature of transactions executed between the same before forming any opinion. 8.10 In the ease under consideration, despiteof all material bought on record a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be deemed dividend. Certainly this is not the intendment of the Section, the section only wants to cover those transactions, which arc realty in the nature of dividend and not each and every payment. 8.15 Further reliance is also placed on the order passed by Your Honor in the case of the assessee for the A.Y 2011-12 whereby your Honor has deleted addition u/s 2(22)(e). Relevant extract is quoted below: In view of the above, I hold that the transactions in the client ledger accounts are. transactions entered in the ordinary course of business and are relating to sale/purchase of share /currency/derivatives only. Therefore, I hold that since these transactions are trading business transactions, accordingly, provisions of Section 2(22)(e), do not apply to the facts of the case of the appellant. Accordingly. the addition made by the A.O. on account of deemed dividend of ₹ 19,34,21,760 is hereby deleted. 8.16 Hence the contention of AO is not at all tenable in law and should be set aside. 8.17 Your honor in new of the above facts and the position of law, it is prayed that the additions made be deleted and such other relief be given which your honor may deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns maintain client account, in which business transaction of sale and purchase of share/currency/derivatives have taken place during the year under consideration. In the appellate proceedings, appellant has submitted that the accounts of the assessee and other concerns, in which it is substantially interested, with JCSL. are not in the nature of advance or loan. Therefore, it is claimed that these accounts relates to business transactions of share currency 'derivatives only, which is evident from the copy of accounts filed in the assessment proceedings, as well as in the appellant proceedings. (ii) it has been further submitted that the A.O. have extracted the alleged account and re- casted account without following any accounting norms. For the purpose of making the alleged addition by the A.O.. the method adopted is discussed as under: (a) The A.O., while recasting the account, has picked up the figures of cheque received and paid by JCSL. After taking the figures of money received and money paid, the A.O. has worked out the peak balance of the same and treated it as deemed dividend in the hands of the appellant. The A.O., while recasting the account, has picked u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company JCSL is a registered stock, currency and derivative broker on NSE, BSE. USE and MCX Sx. The transactions entered by the said company with appellant and group concerns are related to its business only. I he appellant and the group concerns, maintain client account with this company, where in large number of share/ currency/derivatives trading transactions, has taken place in the year under consideration. These transactions arc nowhere prohibited under any existing law and not covered u/s 2(22)(e) of the Act. (c) The transactions entered into are in the regular course of business and it is not a case where it has been alleged by the A.O. that transactions of sale / purchase of share currency / derivatives, are not genuine. The A.O. has re-casted the ledger account by not considering the business transaction of sale/purchase of share/currency/derivatives, which is not correct, since deemed dividend cannot be computed by way of pick and choose of few transactions, rather an account has to be considered in its entirety. The above view is also supported by the ratio laid down in the decision by Jurisdictional High Court of Delhi in the case of CIT Vs. Creative Dyeing P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax net monies paid by closely held companies to their principal shareholders in the guise of loans and advances to avoid payment of tax. 10.4 Therefore, if the said background is kept in maul, it is clear that sub-clause (e) of section 2(22) of the Act. which is pari materia with clause (e) of section 2(6.4) of the 1922 Act, 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 in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately he dividend in the hands of the shareholders, money in the form of an advance or loan. 10.5 If this purpose is kept in mind then, in our new. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the order of the learned CIT (Appeals). The learned AR also placed reliance on Circular No. 19 dated 12th June, 2017 stating that the trade advances which are in the nature of commercial transactions would not fall in the ambit of advance under Section 2(22)(e) of the Act. He also relied on several decisions of Hon‟ble Delhi High Court as well as of the Co-ordinate Bench to support his case. 10 We have carefully considered the rival contentions and perused the orders of the lower authorities. Identical issue has been considered by the coordinate bench in case of 2019 (3) TMI 1289 - ITAT DELHI DCIT CENTRAL CIRCLE-29, NEW DELHI VERSUS SHRI GAURAV ARORA where it has been held as under :- 3. Brief facts of the case for asstt. Year 2011-12 are that the assessee filed return of income on 17.3.2012 declaring total income of ₹ 46,51,720/-. Subsequently on account of search and seizure action u/s 132 of the Income Tax Act 1961 ( in short the Act) carried out on 30.3.2012, a notice u/s 153A of the Act was issued and assessment was completed on 31.3.2015 u/s 153A of the Act after making addition of ₹ 7,88,99,522/- on account of deemed dividend u/s 2(22)(2) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther regularly as per the ledger account submitted. (ii) The ledger account submitted by the appellant, consists of large number transactions in respect of shares transactions done by assessee, as client of JCPL and FNSL, which are not covered u/s 2(22)(e) of the act. However, where there are cheque payments, the same has to be considered as loan/advance for the purpose of section 2(22)( e) of the act. It is further held by the A.O. that the 2 companies JCPL and FNSL, have granted advances in the nature of loan to each other, the assessee and also to the group company GCL. The payment received from the JCPL and FNSL by assessee and group concerns, are to be treated as deemed dividend in the hands of the assessee. The objections/arguments submitted by the appellant during the appellate proceedings are discussed as under:- (i) The 2 companies JCPL and, FNSL, are share / currency / derivatives/commodities brokers, with whom the appellant and the group concerns maintain client account, in which business transaction of sale and purchase of share/currency/derivatives/commodities have taken place during the year under consideration. In the appellate proceedings, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is, submitted that even the alleged account prepared by the A.O., does not reflect the correct nature of the account, as same is prepared without following any accounting principles and ignoring the nature of each transaction. It is argued that the A.O. cannot ignore the nature of business transactions entered into by the assessee with these companies, which are relating to share / currency / derivatives /commodities and therefore, it is wrong on part of the A.O. to consider running account of business transactions as loans and advances, so as to consider the same as deemed dividend under section 2(22)( e) of the Act. (ii) It is further submitted by the appellant that the ledger account maintained in the books of accounts of these 2 companies, copy of which was submitted before the A.O. as well as in the appellate proceedings, shows that the same is a running account of purchase/sale. The cheque payments receipts are relating to transactions of share/currency/derivatives/commodities and there is no loan/advance transactions. Conclusion: In view of the above discussion, the following facts emerges: (a) The transactions of cheques received and paid from/to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end cannot be computed by way of pick and choose of few transactions, rather an account has to be considered in its entirety. The above view, is also supported by the ratio laid down in the decision by Jurisdictional High Court of Delhi in the case of CIT Vs. Creative Dyeing Printing (P.) Ltd., [2009] 184 TAXMAN 483 (DELHI), as under: 11. The counsel for the appellant has very strenuously urged that neither the Tribunal nor the judgment of this Court in Raj Kumar's case (supra) deals with that part of the definition of deemed dividend under section 2(22)(e) which states that deemed dividend does not include an advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the company [section 2(22)(e)( ii)] i.e., there is no deemed dividend only if the lending of moneys is by a company which is engaged in the business of money lending. Dilating further the counsel for the appellant contended that since M/s. Pee Empro Exports (P.) Ltd is not into the business of lending of money, the payments made by it to the assesseecompany would therefore be covered by section 2(22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur view, 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' mayor 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. If it does then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term 'advance: The rule of construction to our minds which answers this conundrum is noscitur a sociis. The said rule has been explained both by the Privy Council in the case of Angus Robertson v. George Day [1879] 5 AC 63 by observing 'it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them' and our Supreme Court in the case of Rohit Pulp Paper Mills Ltd v. Collector of Central Excise AIR 1991 SC 754 and State of Bombay v. Hospital M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, our directions in the above appeal will apply for 2012-13 also. Accordingly, both the appeals of the revenue are dismissed. 11 Thus, we respectfully following the decision of the coordinate bench in case of Mr. Gaurav Arrora, confirm the order of the ld CIT (A) and dismiss ground no 3 of the appeal of AO. 12 In the result, appeal of ld AO is dismissed. 13 Now we come to the appeal of the assessee against the confirmation of addition of ₹ 29,63,061/- of excess depreciation on building. During the course of assessment proceedings, as per information in ITS data the Assessing Officer found that assessee has sold a property in which large difference was noted for sale as per Stamp value and sale consideration. It was found that the assessee has sold property No. 1301, Arcadia Premises, Nariman Point, Mumbai, as per sale deed dated 12.07.2012 for ₹ 2 crores. As the title of the property was not clear, it was mortgaged to Dena Bank. Thus, the physical possession of the property was not given. Therefore, the assessee did not record sales of the above property in the books of accounts. The Assessing Officer noted that property was sold for ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of the business of the assessee on which depreciation is claimed. Depreciation is allowable to the assessee on the written down value which is defined under section 43 (6) of the act. According to the subsection 43(6)( C ) (i)(b) the block of the assets is to be reduced by the monies payable in respect of any asset falling within that block which is sold or discarded or demolished or destroyed during the previous year. Therefore, definitely assessee has sold during the year this immovable property by which the written down value of the block of the asset should be reduced. Now the question is whether it should be reduced by the value as determined under section 50C of the act or actual money received by the assessee. The provisions of section 50C cannot be incorporated in the computation of block of the assets for the simple reason that it only substitutes the full value of the consideration received or accruing as a result of transfer for the purposes of section 48‟ only. Therefore, we direct the learned assessing officer to reduce the written down value of the asset only by ₹ 2 crores, which has been received by the assessee on sale of the above prope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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