TMI Blog2020 (10) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. ICDs between the common group companies can not be equated with the loans and advances for the purpose of deemed dividend under section 2(22)(e) of the Act. We further note that the money was not at all diverted for the benefit of shareholders by the assessee company but in fact used for its business. Money advanced by two sister concerns to the assessee company which was repaid during the year along with interest @ 12.5% per annum and used for the purpose of business of the assessee is not a loan/deposit to be treated as deemed dividend. - Decided in favour of assessee. - ITA No.2723/M/2017, ITA No.3015/M/2017 - - - Dated:- 25-9-2020 - Shri Rajesh Kumar, Accountant Member And Shri Amarjit Singh, Judicial Member For the Assessee : Shri N.R. Agarwal, A.R. For the Revenue : Shri V. Vinod Kumar, D.R. ORDER PER RAJESH KUMAR, ACCOUNTANT MEMBER: The above titled appeals have been preferred by two different assessees against two different orders dated 23.01.2017 06.02.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] both relevant to assessment year 2011-12. The issue involved is inter connected as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med dividend u/s 2(22)(e) of the Act without appreciating that assessee not being a shareholder of the lending companies, the deeming provisions of the said section cannot be invoked in the hands of the assessee company and doing so are wrong and contrary to the facts and circumstances of the case, the provisions of Income Tax Act, 1961 and the Rules made there under. l(f) Without prejudice to the above grounds of appeal, the learned Commissioner of Income Tax (Appeals) erred in confirming the action of learned Assessing Officer of making addition of ₹ 1,04,00,000/- as deemed dividend u/s 2(22)(e) of the Act on protective basis despite having confirmed the addition in the hands of shareholders of appellant company on substantive basis as it would tantamount to double taxation of deemed dividend under the deeming provisions of the said section and as such doing so is wrong and contrary to the facts and circumstances of the case, the provisions of Income Tax Act, 1961 and the Rules made there under. The appellant craves leave to add, amend, alter, modify, and/or delete, any of the above grounds of appeal before or at the time of the hearing. 3. The facts in brief are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies as on 31.03.2010 and 31.03.2011. The AO also noted that these two lending companies have also accumulated profit as detailed in para 4.2 of the assessment order and therefore the provisions of section 2(22)(e) of the Act are attracted. The AO further noted that it is not the business of the two lender companies to advance money in the ordinary course of business. Finally, the AO made the addition of ₹ 1,04,00,000/- comprising ₹ 94,00,000/- as peak credit on 22.06.2010 by excluding the opening balance qua the loan received from M/s. Yasham Importer and Exporter Pvt. Ltd. and ₹ 10,00,000/- received from M/s. Yasham Chemphar Pvt. Ltd. by treating the same as deemed dividend under section 2(22)(e) of the Act. The AO made the protective addition in the case of the assessee whereas the substantial addition was made in the case of shareholders Shri Vivek D. Samant and Smt. Namita V. Samant. 4. In the appellate proceedings, the Ld. CIT(A) sustained the addition but the addition was sustained on substantive basis in the case of assessee whereas protective in the case of shareholders by observing and holding as under: Ground No.3: Under this Ground of Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lbarco Veeder Root India ITA No.1003/M/2017 `L` Bench 6. The ld. Counsel of the assessee submitted that the case of the assessee is squarely covered by the decision of the coordinate benches of the Tribunal in assessee s own case in ITA No.7207/M/2010 A.Y. 2007-08 and 5659/M/2012 A.Y. 2009-10 wherein identical issue has been decided in favour of the assessee. The Ld. A.R. submitted that the Tribunal has to first decide whether the transaction is taxable as deemed dividend and if yes then in whose hands it is to be taxed whether in the assessee company s hand or its shareholders as stated above. The Ld. A.R. submitted that the so called unsecured loans were in fact taken solely out of business consideration between two sister concerns under the same management out of business consideration and commercial expediency and thus can not be treated as deemed dividend under section 2(22)(e) of the Act. The ld AR submitted that the Ld. CIT(A) confirmed the addition but reversed AO`s order confirmed on protective basis in the hands of Mr. Vivek Samant Ms. Namita Samant On substantive basis in the hands Assessee company. While doing so Ld. CIT(A) relied on Hon`ble S.C. decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n higher margins. Further, it will be appreciated that majority of the customers are common in both the companies. Thus, the group companies were engaged in business which were complementary to each other. With the view to take advantage of optimum deployment of group funds in the current competitive environment, it resulted into benefits from economies of scale of operations increase in market share for both companies.Thus, the above facts prove that under influence of common management, for commercial expediencies between the group concerns and for optimum utilisation of funds, such funds were diverted. From the details of application of funds received from YIEPL and YCPL during FY 2010-11, it is evident that appellant had received funds on short term basis which were repaid during the said year. On perusal of such details, it is apparent that funds which were accepted by appellant from YIEPL and YCPL, were utilised for the purpose of business such as making import payments for purchases, payments of custom duties, taxes etc. Accordingly, it will be appreciated that funds were diverted by the group concerns to the appellant as the same group of people/ individuals were ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instant case, the appellant had accepted short term funds of ₹ 1,82,00,000/- from Yasham Importer Exporter Private Limited (YIEPL) ₹ 10,00,000/- from Yasham Chemphar Private Limited (YCPL) which were repaid during the year under consideration. Such ICDs carry a prevailing competitive interest rate of 12.5% in respect of period for which funds were utilised by the appellant. The temporary receipts/diversion of funds at competitive interest rate are in the nature of ICDs to make judicious utilisation of funds for working capital purposes of the company. The process of giving and accepting ICDs is a means of alternative financing and cannot be treated as loan or advance. In fact, they were temporary parking of funds as investments with the appellant by the group concerns, influenced by common management. One of the requisite condition for invoking the provisions of section 2(22)(e) of the Act is that payment must be made by way of loan or advances . The Hon'ble Bombay High Court in the case of Durga Prasad Mandelia vs. Registrar of Companies [(1987) 61 Comp. Cas. 479 (Bom.)] had made a distinction between deposits and loans in the context of Section 370 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. After hearing both the parties and perusing the material on record, we find that the undisputed facts are that there are three sister concerns namely Yasham Bio Sciences Pvt. Ltd., the assessee, Yasham Chemphar Pvt. Ltd. and Yasham Importer Exporter Pvt. Ltd. the two sister concerns of the assessee. There were common shareholders companies namely Shri Vivek D. Samant and Smt. Namita V. Samant and both were holding substantial share holdings in all these companies. We note that the money was advanced by these two sister concerns to the assessee, more particularly, Yasham Importer Exporter Pvt. Ltd. advanced ₹ 1,82,00,000/- to the assessee whereas Yasham Chemphar Pvt. Ltd. advanced ₹ 10,00,000/- for the purpose of business of the assessee which were duly repaid within the same year along with interest @ 12.5% after due deduction of TDS. We note that the funds were diverted from its group companies to another group company, the assessee, for importing the products for trading purposes in order to realize higher profits and the funds were received on short term basis depending on the business requirements. The said money borrowed was repaid during the year itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nter corporate deposits (ICD) which does not fall within the ambit of section 2(22)(e) of the Act as in the present case the assessee has accepted short term funds of ₹ 1,82,00,000/- from Yasham Importer Exporter Pvt. Ltd. and ₹ 10,00,000/- from Yasham Chemphar Pvt. Ltd. which were repaid during the year along with interest @ 12.5% per annum. Therefore, the ICDs between group companies can not be treated as loans/advances for the purpose of section 2(22)(e) of the Act. The case of the assessee is supported by the decisions of Bombay Oil Industries vs. DCIT (supra) Spl Bench, Gujarat Gas Financial Services Pvt. Ltd. vs. ACIT (supra) wherein similar ratio is laid. Considering the ratio laid down in the above decisions, we hold that ICDs between the common group companies can not be equated with the loans and advances for the purpose of deemed dividend under section 2(22)(e) of the Act. We further note that the money was not at all diverted for the benefit of shareholders by the assessee company but in fact used for its business. Considering the facts and circumstances of the case in the light of various decisions as discussed above, we are of the considered view that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. A.R. that the funds were advanced out of own funds and not out of borrowed funds. The case of the assessee is squarely covered by decision of the Hon ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom) wherein it has been held that if the interest free funds available with the assessee are sufficient to meet the its investments and at the same time the assessee has raised loan , then it can be presumed that investments were out of interest free funds available with the assessee. Under these circumstances, we are not in agreement with the conclusion drawn by the Ld. CIT(A) and the addition of ₹ 3,57,651/- is ordered to be deleted. So far as the issue of assessee s own admission that interest of ₹ 3,57,651/- relates to the interest free deposits is concerned, it is not a bar in challenging the issue before the appellate authorities as has been held in the following cases namely Dinanath Premkumar vs. ITO 13 TTJ 442 Del., Rachpal Singh vs. ITO 93 TTJ 283 (Asr) and AS Vannia Sons vs. ACIT 62 ITD 48 (Madras). In view of these facts, the ground is allowed and AO is directed to delete the disallowance. 17. The 2n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he investment in shares and PPF aggregated to only ₹ 44,79,813/- on which the assessee received dividend income of ₹ 3,255/- and PPF interest of ₹ 1,15,254/- aggregating to ₹ 1,18,509/-. We find merit in the contentions of the Ld. A.R. that when assessee s own funds are more than the investment made in tax free securities then presumption has to be drawn that investment made in securities yielding exempt income is out of own funds and not out of borrowed funds. The case of the assessee is squarely covered by the decision of jurisdictional Bombay High Court in CIT vs. HDFC Bank Ltd 366 ITR 505 Bom. Accordingly, we hold that interest disallowance of ₹ 1,63,337/- is wrongly sustained by the ld CIT(A) and has to be deleted. So far as the disallowance of ₹ 49,675/- is concerned, being 0.5% of average investment, we find that the assessee has not claimed any expenses in the profit loss account which could be attributed as having been attributable to earning of exempt income. We have noted after examination of profit loss account of the assessee that expenses claimed from business income were only ₹ 7,87,273/- comprising ₹ 7,62,640/- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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