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TMI Blog2020 (6) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... 961, after making the impugned addition of Rs. 2,88,92,817/- under section 2(22)(e) of the I.T. Act on account of deemed dividend. The total income was assessed at Rs. 3,05,11,890/-. It is observed by the A.O. that during the year under consideration, assessee company has received loans and advances for a value of Rs. 23,70,33,000/- from M/s Exotica Housing and Infra Projects Pvt. Ltd., which was squared off during the year. The assessee held 98% shares of M/s Exotica Housing and Infra Project Pvt. Ltd. Therefore, A.O. has taken a view that case of the assessee has come within the purview of section 2(22)(e) of the Act and amount received was to be considered as deemed dividend in the hands of the assessee. The A.O. issued show cause to the assessee as to why the amount in question should not be considered as deemed dividend and why the amount of Rs. 2,88,92,817/- i.e. accumulated profit of advance giving company is not to be considered as undisclosed income of the assessee. The assessee submitted before the AO that it has taken money from its subsidiary company which was repaid within a short span of time. The transaction between the assessee company and its subsidiary company ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of the business. 6. The Ld. CIT(A), however, did not accept the contention of the assessee and distinguished all the decisions relied upon by the assessee and dismissed the appeal of assessee. 7. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and referred to the copy of the current account between the parties which is filed at page No.7 of the PB and also referred to page-6 of the PB to show that in earlier year as well in subsequent years on the same pattern no addition on account deemed dividend have been made against the assessee. He has relied upon the following decisions : 1. Order of ITAT, Delhi G-Bench, Delhi in the case of Saamag Developers Pvt. Ltd., & Others New delhi vs., The ACIT, Central Circle-19, New Delhi in ITA.No.2053/Del./2017 etc., Dated 08.10.2018. 2. Order of ITAT, Mumbai G-Bench, Mumbai in the case of Mr. Girish Vazirani, Mumbai vs., ITO, Ward-9(2)(1), Mumbai in ITA.No.83/Mum./2013, Dated 14.11.2014. 3. Judgment of Calcutta High Court in the case of CIT vs., Gayatri Chakravarthy 407 ITR 730 (Cal.). 4. Judgment of Hon'ble Punjab & Haryana High Court in the case of Surajdev Dada vs., CIT 367 ITR 78 (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT (supra), the ITAT, Delhi Bench considered an identical issue which was also considered in its case in earlier year in the light of several decisions of various Benches of the Tribunal and different High Courts and held that "the relevant record reveal that they are in the form of current and inter banking account and contain both type of entries i.e., giving and taking the amount and appear to be current account and cannot be considered as loans and advances as contemplated under section 2(22)(e) of the I.T. Act, 1961." When subsequent year's appeals was considered by the Tribunal, the assessee relied upon Judgments of Hon'ble Delhi High Court in the case of Creative Dyeing and Printing Pvt. Ltd., 318 ITR 476 (Del.), CIT vs., Rajkumar 318 ITR 462 (Del.), CIT vs., Ambassador Travels Pvt. Ltd., 318 ITR 376 (Del.) and Judgment of Hon'ble Bombay High Court in the case of CIT vs., Nagindas M. Kapadia 177 ITR 393 (Bom.) in which it was held that "the amounts advanced for business transaction will not fall within the definition of deemed dividend under section 2(22)(e) of the I.T. Act". The Tribunal following the same decisions as well as decision in earlier year in the case of M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement with the object of development of Integrated Township in the State of Uttar Pradesh. Different responsibilities have been provided to each constituent and assessee company has been assigned the work of arranging finance and look-after implementation of the project, if awarded. The development of the Integrated Township envisaged acquisition of substantial area of land. These companies have received the advances from other group companies for the acquisition of the lands and other business purposes. The assessee consisting of the following entities along with assessee-company filed chart showing utilization of funds by the assessee-company received from (1) Hamshir Exim Pvt. Ltd., and (2) Max Buildtech Pvt. Ltd., It was submitted that money have been utilised and applied towards business of real estate development in respect of Bamhetta project and Rudrapur Project. Not a penny of monies so received has reached the shareholders. Nothing has endured to the benefit of shareholders i.e., Members of Pandey family who are having substantial shareholders in all Saamag group of companies. All monies have been applied for business purposes. Therefore, Section 2(22)(e) will not apply. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue is covered by the Order of ITAT, G-Bench, in the case of assessee-company and others dated 12.01.2018 (supra). 22. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that shareholding pattern and profit are not disputed. It is not proved that it was a commercial transaction. It is a loan or advance. Therefore, the addition is rightly made. The Ld. D.R. relied upon decision in the case of Smt. P. Sharada vs. CIT 229 ITR 444. 23. We have heard the rival submissions and perused the material available on record. It is not in dispute that when the group of companies confronted on various entities engaged jointly in the business of real estate development in the State of Uttar Pradesh. Consortium Agreement and other Agreements were executed between the group concerns. Different responsibilities have been attached to group of consortium. The assessee-company and others have been taken money from group companies and utilised for the purpose of development in respect of Bamhetta Project and Rudrapur Project. No amount have gone to shareholder. The above contention of assessee-company have not been disputed by the authorities below. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) before enhancing the income, hence the enhancement so made by CIT (Appeals) is against the law and in violation of natural justice. (ii) It is a settled rule of law that unless and until the assessee falls within the ambit of charging section by clear words, he cannot be taxed by implications. Hence the charging section has to be construed strictly and for this purpose the appellant relied on the CWT vs. Eliss Bridge Gymkhana in 229 ITR 1. The appellant states that the addition as made by the CIT (Appeals) is not only against the very purpose of provision of section 2(22)(e) of the IT Act but is also not covered by the provision of section 2(22)(e) of the IT Act. (iii) The provision of section 2(22)(e) of the IT Act is a deeming provision. Hence the deeming provision should be construed strictly and be confined and limited to the purpose for which they are created and should not be extended beyond their legitimate field as held by the Supreme Court in the case of CIT vs. Vadilal Lalubhai in 86 ITR 2 and 181 ITR 1 (Kerala), CIT vs. P.V. John. (iv) In the case of CIT vs. Sarathy Mudaliar in 83 ITR 170, the Hon'ble Supreme Court. 14.3.1. In the case of CIT vs. Sarath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich falls within the mischief of the impugned section is advance or loan made by a company which does not normally deal in money-lending, and it is made with the full knowledge of the provisions contained in the impugned section. The object of keeping accumulated profits without distributing them obviously is to take the benefit of the lower rate of super-tax prescribed for companies. This object was defeated by section 23A which provides that in the case of undistributed profits, tax would be levied on the shareholders on the basis that the accumulated profits will be deemed to have been distributed against them. Similarly, section 12(1B) provides that if a controlled company adopts the device of making a loan or advance to one of its shareholders, such shareholders will be deemed to have received the said amount of the accumulated profits and would be liable to pay tax on the basis that he has received the said loan by way of dividend. It is clear that when such a device is adopted by a controlled company, the controlling group consisting of shareholders have deliberately decided to adopt the device of making a loan or advance. Such an arrangement is intended to evade the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt, but every debt does not involve a loan. Liability to pay a debt may arise from diverse sources, and a loan is only one of such sources. Every creditor who is entitled to receive a debt cannot be regarded as a lender. 14.3.8. In the case of CIT, Lucknow vs. Bazpur Cooperative Sugar Factory Ltd. in 177 ITR 469, the Hon'ble Supreme Court further stated that for the purpose of loan there must be relationship of borrower and lender in the given transaction and if there is no relationship of borrower or lender then the amount received cannot be considered as loan. 14.3.9. In the case of Durga Prasad Mandelia's vs. Registrar of Companies (1987) 61 Companies Case 479, the Bombay High Court held as under: "There can be no controversy that in a transaction of a deposit of money or a loan, a relationship of a debtor and credit must come into existence., The terms "deposit" and "loan" may not be mutually exclusive, but nonetheless in each case what must be considered is the intention of the parties and the circumstances. In the present case, barring the assertion of the respondent that the moneys advanced by the company to the Associated Cement Companies Ltd. constitute a loan and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x or not. The Courts have consistently held that the debenture and the Govt. Securities do not bear the characteristics of loans and advances but they are the mode of investment. Hence, the interest received on debentures and Government Securities are not liable to tax under Interest Tax Act though they carry the interests thereon. To support his view, he relied upon following cases laws:- * 259 ITR 312 (Bom), CIT vs. United Western Bank Ltd. * 259 ITR 295 (Bom), Discount & Finance House of India Ltd. vs. S.K. Bhardwaj * 87 ITD 11 (Del) PN Bank vs. DCIT * 115 ITD 218 (Ahd) (SB) Gujarat Gas Finance Service Ltd. v. Assistant Commissioner of Income Tax. * [2006] 5 SOT 918 (Delhi)(SB) Housing & Urban Development Corporation Ltd. vs. JCIT 14.3.12. In the case of Creative Dyeing & Printing Pvt. Ltd. in ITA No. 3036/ Del/2005, the Delhi Bench, ITAT vide order dated 9.5.2008 has held that if the amount received by the recipient company as investment from the payer company, then such amount will not be a loan and advance as contemplated u/s 2(22)(e) of the IT Act. The order of the Delhi Bench of the ITAT in case of Creative Dyeing & Printing Pvt. Ltd. has also been upheld by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2015 dated 21st December 2015 held that if the accounts are inter banking accounts maintained by the parties, then they are not covered under the provision of section 2(22)(e) of the IT Act and no additions can be made as deemed dividend u/s 2(22)(e) of the IT Act. Similar propositions have also been made by the Punjab & Haryana High Court in the case of CIT vs. Suraj Dev Dada in 367 ITR 78 as well as the Mumbai Bench of the Tribunal in the case of Bombay Oil Industries Ltd. vs. DCIT reported in 28 SOT 383 and Ravindra R. Fotedar vs. ACIT in 167 ITD 100. 14.5.2. Keeping into consideration such position of law, we hold that the additions as made by the CIT (Appeals) in terms of section 2(22)(e) of the IT Act are not correct because such amounts received cannot be considered as loans and advances. Even otherwise also, the payer companies had already made their investment in capital field more than the accumulated profits and in that situation it cannot be considered that those companies were having physical possession of accumulated profits capable of being disbursed. Therefore, the additions in dispute stand deleted". 23.1. In view of the above, it is clear that the identica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny has taken amount from the subsidiary company which was repaid and thereafter, it is the assessee company which has given the amount to the subsidiary company on most of the occasions and later on the subsidiary company has returned the amount to the assessee. Therefore, such facts would clearly reveal that provisions of Section 2(22)(e) would not be attracted in the case of assessee company because on most of the occasions the assessee company has advanced the amount to the subsidiary company and ultimately the balance is squared-up at the end of the year. The assessee company has also filed copy of the ledger account of the subsidiary company for preceding A.Y. 2012-2013 at page-6 of the PB, which revealed that there was a substantial opening balance and subsidiary company has paid the amount to the assessee company and later on amounts have been returned by the assessee company to the subsidiary company. Learned Counsel for the Assessee submitted that similar is the pattern of the transaction in current year and in subsequent year as well and no addition have been made by the Revenue Authorities against the assessee company in earlier assessment year as well as in subsequent a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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