TMI Blog2021 (5) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... 22) (e) of the IT Act against the assessee for making the addition. Disallowance u/s 40(a)(ia) - scope of amendment of second proviso to Section 40(a)(ia) - HELD THAT:- CIT(A) remitted the issue to AO to verify the issue in line with the decision of Hon ble Delhi High Court in the case of CIT vs. Ansal Landmark Township. [ 2015 (9) TMI 79 - DELHI HIGH COURT] wherein has held that the insertion of second proviso to Section 40(a)(ia) to be declaratory and curative in nature and it has retrospective effect from 1st April 2005, being the date from which sub clause (ia) of Section 40(a) was inserted by the Finance (No.2) Act 2014. It has further held that as long as the payee has filed the return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the assessee would not be treated as a person in default. Before us, Revenue has not pointed to any fallacy in the findings of CIT(A). In such a situation, we find no reason with the order of CIT(A) and thus the ground of Revenue is dismissed. - ITA No.6168/Del/2017 - - - Dated:- 16-3-2021 - Sh. Anil Chaturvedi, Accountant Member And Ms. Suchitra Kamble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which assessee has substantial interest. The loan was also repaid during the year. The assessee was asked to explain as to why the aforesaid loan not be treated as deemed dividend within the meaning of Section 2(22)(e) of the Act to which the assessee made the submissions which were not found acceptable to AO. AO noted that no direct nexus could be established by the assessee between the loan advanced and the trade obligations of the assessee and also according to him assessee was not able to substantiate that the loan was taken in the ordinary course of trading advance. He thereafter, following the various decisions cited in his order, held the amount of ₹ 2,41,50,000/- received by the assessee as deemed dividend and made its addition u/s 2(22)(e) of the Act. Aggrieved by the order of AO, assessee carried the matter before the CIT(A) who deleted the addition by observing as under: 20. I have considered the facts stated by the assessee in his submission and the grounds raised in appeal. 21. Ground No(s) 2 to 2.1 of Grounds of Appeal relate to addition of ₹ 2,41,50,000/- representing deemed dividend u/s 2(22)(e) of the Act. The foremost con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant that case of the appellant is covered under exceptions to section 2(22)(e) of the Act. The Bombay High Court in the case of CIT v. Jayant H. Modi 232 Taxman 737 has held that Where lending of money was substantial part of business of company, loan advanced by it to its shareholder dividend u/s 2(22)(e) in hands of shareholder . 21.2 It is noted that during the financial year 2012-13 (Assessment Year 2013-14) M/s Ramsan Communication Ltd. had under the head Income shown nil income from revenue from operations and only interest income of ₹ 18,20,197/- has been declared . M/s Ramsan Communications Ltd. had no business as such except lending money on which interest was received. This position is also supported by the tabular chart hereunder: Sr.No. Assessment Year Interest earned. Other Income Total Income (page of Paper Book) (page of Paper Book) (page of Paper Book) i) 2008-09 9,86,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo companies are current account transactions which are entered in the ordinary course of business, the same cannot be classified as advance or loan under section 2(22)(e) of the Act. 25. The Mumbai Bench of the Tribunal in the case of NH Securities Ltd. vs. DCIT 11 SOT 302 has held as under. 37. In the light of the discussion made in paragraphs above, it is to be seen that payments made by a company through a running account in discharge of its existing debts or against purchases or for availing services, such payments made in the ordinary course of business carried on by both the parties could not be treated as deemed dividend for the purpose of section 2(22)(e). The deeming provisions of law contained in section 2(22)(e) apply in such cases where the company pays to a related person an amount as advance or a loan as such and not in any other context. The law does not prohibit business transactions between related concerns, and, therefore, payments made in the ordinary course of business cannot be treated as loans and advances. Therefore, in the facts and circumstances of the case and in the light of the judicial pronouncements considered above, especially in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuations where the loan/ advance will not be treated as a deemed dividend, but that's all. The same cannot be expanded further to take away the basic meaning, intent and purport of the main part of Section 2(22)(e). We feel that this interpretation of ours is in accordance with the legislative intention of introducing Section 2(22)(e) and which has been extensively dealt with by this Court in the judgment in Raj Kumar's case(supra). This Court in Raj Kumar's case (supra) extensively referred to the report of the Taxation Enquiry Commission and the speech of the Finance Minister in the Budget while introducing the Finance Bill. Ultimately, this Court in the said judgment held as under: 10.3 A bare reading of the recommendations of the Commission and the Speech of the then Finance Minister would show that the purpose of insertion of clause (e) to section 2(6A) in the 1922 Act was to bring within 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 mind, it is clear that sub-clause (e) of section 2(22) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the appellant hammered the fact that the amount was shown by the assessee himself in his books of accounts as unsecured loan and, therefore, the order of the Assessing Officer was correct. 7. It is trite law that mere nomenclature of entry in the books of accounts is not determinative of the true nature of transaction. See Commissioner of Income Tax vs. India Discount Co. Ltd. 75 ITR 191 (SC), Commissioner of Income Tax vs Provincial Farmers (P) Ltd. 108 ITR 219 (Cal) and KCP Ltd. vs. CIT 245 ITR 421 In the present case after going through the relevant evidence as well as account maintained between the parties, it has been established that the payment made were the result of trading transaction between the parties and the amount was not given by way of loan or advance. 21.7 It is further noted that, so far the alleged advances received by the assessee from RCL are concerned, it will be seen from the copy of account furnished that, the assessee company had in the instant year received ₹ 2,41,50,000/- whereas the assessee had also similarly received sums in proceding years in excess of accumulated profits and as even if the amount received as a advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt available for being distributed as profits, that profits can accumulate even within a single year, that accumulated means earned bit by bit and accumulated, and that the entire amount which is available for distribution as profits on a particular date would be the accumulated profits and any amount paid as advance or loan to the shareholder to the extent of this amount of accumulated profits will be dividend within the meaning of section 2(6A)( e). It is also held that the accumulated profits cannot be reduced by the amount of dividend subsequently declared. 11. In Smt. Tarulata Shyam s case (supra), it was held by the Supreme Court that the statutory fiction created by section 2(6A)( e) would come into operation at the time of payment of advance or loan to a shareholder and tax is attracted to the loan or advance to the extent to which the company possesses accumulated profits the moment the loan or advance is received, and even if the loan or advance ceases to be outstanding at the end of the previous year, it can still be deemed to be dividend if the conditions of the section are satisfied. It was also observed that the language of the section is clear and unambiguo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut in the decisions refer- red to above, the repayments of the advances or loans will have no effect either on the advance or loan treated as dividend or on the accumulated profits as reduced by such advance or loan. As such, it does not seem to be neither practicable nor proper to postpone the whole process of ascer taining the accumulated profits till the department chooses to treat a particular advance as deemed dividend. If the contention of the department is accepted, then if the ITO ignores the advances in earlier years and then goes down on the assessee in an assessment year in which he has drawn substantial advances, it will amount to allowing the department to take advantage of its omissions to assess the earlier loans and advances as deem-ed dividends and to allow such omissions to bloat the accumulated profits, so that the whole of the large advances taken in the last assessment year are converted into deemed dividends. As rightly pointed out by the Com-missioner (Appeals), the advances or loans in the earlier assessment years should be treated as dividend which the department omitted to assess. If so, it follows that the accumulated profits should be reduced by the earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t since it was a commercial transaction and similar transactions were entered into in earlier and subsequent assessment year and no addition have been made on account of deemed dividend against the assessee, therefore, rule of consistency do apply. The assessee further claimed that the assessee has entered into an agreement to sell with M/s. Ramsan Communication Limited for sale of the industrial land in Delhi. They wanted to shift their business to Delhi, therefore, advance of ₹ 1.12 crores was treated against the purchase of industrial plot. The assessee deducted TDS on the interest paid (PB-95), therefore, it was a commercial transaction entered into between into between assessee and M/s. Ramsan Communication Limited. Section 2 (22) (e) of the IT Act was inserted to bring within the purview of taxation all those amounts which are actually a distribution of profits but are disbursed as loan. Further it is pertinent to note, when dividends are declared by a company, it is solely the shareholders, who benefit from the transaction, thus section 2 (22) (e) of the Act, covers only such situation where the shareholder alone benefits from the loan transaction, wherea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,93,035/- to RITES Ltd. He also noticed that no TDS was deducted on the payment of ₹ 3,93,035/- to RITES Limited. AO was of the view that the provision of Section 194J of the Act are applicable and since assessee has not deducted TDS, the amount of Testing charges on which no TDS was deducted needs to be disallowed by invoking the provision of Section 40(a)(ia) of the Act. He accordingly disallowed ₹ 3,93,035/-. Aggrieved by the order of AO, assessee carried the matter before the CIT(A) who by following the order of Hon ble Delhi High Court in the case of CIT vs. Ansal Landmark Township reported in 376 ITR 635 directed the AO to verify the claim of the assessee that ₹ 3,93,035/- has been declared as income by RITES Limited and thereafter decide the issue in line with the aforesaid decision of Delhi High Court. Aggrieved by the order of CIT(A), Revenue is now before us. 13. Before us, Learned DR supported the order of AO. On the other hand, Learned AR supported the order of CIT(A). 14. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to disallowance u/s 40(a)(ia) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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