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TMI Blog2021 (7) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. 2. On the facts & circumstances of the case & in law also Ld. Lower Authorities grossly erred in making addition ignoring the fact that the transaction made with M/s Skyways Industrial Estate Pvt. Ltd were business transaction & were in the nature of current account. 3. On the facts & circumstances of the case & in law also Ld. Authorities grossly erred in making addition of Rs. 58,78,803/- u/s 2(22)(e) of the Income Tax Act without considering the submission that addition of Rs. 58,78,803/- has already been made under section 2(22)(e) of the Act during the A.Y. 2014-15." Grounds of ITA No. 824/JP/2019 A.Y. 2014-15. " 1. On the facts & circumstances of the case Ld. Lower Authorities grossly erred in making and confirming addition of Rs. 58,78,803/- in hands of assessee company, despite of this fact that assessee company is not the shareholder of M/s Skyways Industrial Estate Pvt. Ltd. 2. On the facts & circumstances of the case & in law also Ld. Lower Authorities grossly erred in making addition ignoring the fact that the transaction made with M/s Skyways Industrial Estate Pvt. Ltd were business transaction & were in the nature of current account. 3. On the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on 25/09/2015 declaring loss of Rs. 23,18,780/-. Notices were issued to the assessee. The assessee filed reply before the A.O. and after considering the material placed on record, the A.O. made two additions, namely: o Firstly, of Rs. 58,78,803/- in the hands of the assessee company u/s 2(22)(e) of the Income Tax Act (hereinafter, 'the Act'). o Secondly, of Rs. 42,00,000/- u/s 40(A)(3) of the Act. 5. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of both the parties and material placed on record, confirmed the action of the A.O.. Against the said order of the ld. CIT(A), the assessee is in appeals before the ITAT by taking the grounds mentioned above. 6. Grounds No. 1 to 3 of this appeal are interlinked and interrelated and relates to challenging the order of the ld. CIT(A) in confirming the addition of Rs. 58,78,803/-. In this regard, the ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the contents of the same are reproduced as under: "1. That it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one such transaction of Rs. 42,00,000/- that has been received by Skyway Township Pvt. Ltd. on 1.07.2013 [Page number 1 of APB 2] which the assessee used to pay Smt. Santosh Devi after withdrawing the same amount from bank on 2.07.2013, the addition for the same has been made in the case of the assessee under section 40A(3). 15. That the assessee company and the Skyways Industrial Estate Pvt. Ltd. are in the same business of real estate and money has been taken for the ordinary course of business. He relied on the decision of Hon'ble ITAT Delhi in M/s Exotica & Infrastructure Company Pvt. Ltd. [decided on 24.06.2020]. 7. On the other hand, the ld. DR has vehemently supported the orders of the authorities below and submitted that the ld. CIT(A) has passed a speaking order considering all the material available on record. 8. We have heard the ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. As per facts of the present case, registered company invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the demerged company (whether or not there is a reduction of capital in the demerged company). Explanation 1.-The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2.-The expression "accumulated profits" in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place. Explanation 2A.-In the case of an amalgamated company, the accumulated profits, whether capitalised or not, or loss, as the case may be, shall be increased by the accumulated profits, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the company, whether to the shareholder, or to the concern firm. In which event, it would fall within the expression "deemed dividend". Obviously, income from dividend, is taxable as income from other sources, under Section 56 of the Act, and in the very nature of things, the income has to be, of the person earning the income. The assessee in the present case is not shown to be one of the persons, being shareholder. Of course the two individuals being Roop Kumar and Devendra Kumar, are the common persons, holding more than requisite amount of share holding, and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the company to the concern. Thus, the significant requirement of Section 2(22) (e) is not shown to exist. The liability of tax, as deemed dividend, could be attracted in the hands of the individuals, being the shareholders, and not in the hands of the firm." 10. We also observed that, in any case, this addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 above issue have been considered by the different Benches of the ITAT as reproduced above in which various decisions of different High Courts have been considered and it was held that "when current account is maintained between the parties, provisions of Section 2(22)(e) of the I.T. Act, 1961, would not apply." Thus, the issue is covered by the aforesaid decisions of the Tribunal in favour of the assessee as well as various decisions considered by the Hon'ble jurisdictional Delhi High Court. In view of the above, we do not find any justification to sustain the addition. In view of the above findings, we set aside the Orders of the authorities below and delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been decided by the Coordinate Bench by relying on the judgment of the Coordinate Bench in the case of M/s A Daga Royal Arts Vs ITO in ITA No. 1065/JP/2016 order dated 15/05/2018 and held that: "7. In our opinion, there is little merit in this contention. Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermined that such intention has been violated, then certainly, the assessee deserves the disallowance of the expenditure so claimed. 24. The Hon'ble Supreme Court referring to the provisions of section 40A(3) as existed at relevant point in time which talks about considerations of business expediency and other relevant factors and Rule 6DD(j) which provides for the exceptional or unavoidable circumstances and the fact that the payment in the manner aforesaid was not practical or would have caused genuine difficulty to the payee and furnishing the necessary evidence to the satisfaction of the Assessing Officer as to the genuineness of the payments and the identity of the payee has held that: "The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition so laid down by the Hon'ble Supreme court regarding consideration of business expediency and other relevant factors has been diluted in any way. At the same time, we also believe that Rule 6DD as amended are not exhaustive enough and which visualizes all kinds and nature of business expediency in all possible situations and it is for the appropriate authority to examine and provide for a mechanism as originally envisaged which provides for exceptional or unavoidable circumstances to the satisfaction of the Assessing officer whereby genuine business expenditure should not suffer disallowance. 28. Further, the Courts have held from time to time that the Rules must be interpreted in a manner so as to advance and not to frustrate the object of the legislature. The intention of the legislature is manifestly clear and which is to curb the chances and opportunities to use or create black money and to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. And Section 40A(3) continues to provide that no disallowance shall be made in such cases and under such circumstances as may be prescribed having regard to the nature and extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfied in the instant case. Therefore, being a case of genuine business transaction, no disallowance is called for by invoking the provisions of section 40A(3) of the Act."... ... 29. In the instant case, we find that the identity of the persons from whom the purchase of various land parcels have been made by the assessee has been established and the source of cash payments is clearly identifiable in form of the withdrawals from the assessee's bank accounts and the said details were submitted before the lower authorities and have not been disputed by them. It is not the case of the Revenue either that unaccounted or undisclosed income of the assessee has been utilised in making the cash payments. The genuineness of the transaction has been established as evidenced by registered sale deeds wherein the payments through cheque as well as cash has been duly mentioned and lastly, the test of business expediency has been met as the initial payments as insisted by the sellers most of whom are farmers have been made in cash to secure the transaction. Further, as held by the Hon'ble Rajasthan High Court in case of Smt. Harshila Chordia (supra), the consequences, which were to bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred supra, no disallowance is called for under section 40A(3) of the Act and the same is directed to be deleted. In the result, the ground of the assessee's appeal is allowed. In the result, appeal of the assessee is allowed." 15. In view of the above facts and circumstances as well as by respectfully following the decision of the Coordinate Bench in similar matter, we are of the considered view that we find merit in the contention of the assessee and we direct to delete the addition made U/s Section 40(A)(3) of the Act qua this issue. We direct accordingly. 16. Now we take ITA No. 251/JP/2019 for the A.Y. 2015-16. In this appeal, the grounds of appeal taken by the assessee are identical to grounds of appeal in ITA No. 250/JP/2019 for the A.Y. 2015-16. The facts of the case as well as the submissions of both the parties are also similar to the facts and submissions made by both the parties in ITA No. 250/JP/2019 for the A.Y. 2015-16. Therefore, the findings given by us in ITA No. 250/JP/2019 for the A.Y. 2015-16 shall apply mutatis mutandis in this year also. 17. In the result, all these appeals of the assessee are allowed. Order pronounced in the open court on 22/06 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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