TMI Blog2021 (7) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Ambrish Bedi (CIT-DR) ORDER PER: SANDEEP GOSIAN, J.M. These are the appeals filed by the assessees are directed against the separate orders of ld. CIT (A), Ajmer dated 28/01/2019 and 29/01/2019 and the ld. CIT(A)-2, Jaipur dated 29/04/2019 for the assessment years 2015-16 and 2014-15 respectively. The grounds taken by the assessees in these appeals are reproduced as under: Grounds of ITA No. 250/JP/2019 A.Y. 2015-16. 1. On the facts circumstances of the case Ld. Lower Authorities grossly erred in making and confirming addition on protective basis for ₹ 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 circumstances of the case in law also Ld. Authorities grossly erred in making addition of ₹ 58,78,803/- u/s 2(22)(e) of the Income Tax Act witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt. Ltd and M/s Skyways Township Pvt. Ltd were business transactions and not loan, ignoring the ledgers of inter account transaction between companies which were submitted before him. 2. The hearing of the appeal was concluded trough video conference in view of the prevailing situation of Covid-19 Pandemic. 3. In all these appeals, common issues are involved, therefore, all these appeals were heard together and for the sake of convenience and brevity, a common order is being passed. 4. As a lead case, we take ITA No. 250/JP/2019 for the A.Y. 2015-16 for deciding the appeals. The brief facts of the case are that the assessee is a registered company involved in the business of purchasing lands and developing residential township projects on such lands. The return of income was filed by the assessee on 25/09/2015 declaring loss of ₹ 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 ₹ 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisputed that there were intercorporate current account business transactions between Skyways industrial Estate Pvt. Ltd. and Skyways Township Pvt. Ltd. 9. That it is humbly submitted that these transactions are in the current account and therefore no addition can be made u/s 2(22)(e). 10. That no amount has gone to the shareholder. 11. That the amounts have been received by the assessee company for business consideration and business transactions only carried out by the group companies. 12. That initially the assessee company received amount from the subsidiary, but later on the amount has been returned by the assessee and the balance has been squared up. 13. That in the earlier years, no such addition has been made for similar transactions. 14. That to establish that these transactions were in the nature of business - it is key to look at one such transaction of ₹ 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965 ; (ii) any advance or loan made to a shareholder or the said concern 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 ; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off; (iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956); (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders 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 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that addition in the hands of Mrs. Manju Gupta for the AY 2015-16 is being contended on merits. In this regard, we draw strength from the decision of Hon ble Rajasthan High Court, Jodhpur as relied upon by the ld. AR in the case of M/s Hotel Hilltop [ITA 25 of 2005] wherein it has been categorically held that: The more important aspect, being the requirement of Section 2(22)(e) is, that the payment may be made to any concern, in which such shareholder is a member, or the partner, and in which he has substantial interest, or any payment by any such company, on behalf, or for the individual benefit of any such shareholder... Thus, the substance of the requirement is, that the payment should be made on behalf of, or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is 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 nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the ordinary course of business. We draw strength from the decision of Coordinate Bench of Delhi ITAT in the case of M/s Exotica Infrastructure Company Pvt. Ltd. in ITA No. 5188/Del/2019 [decided on 24.06.2020] where too the company in question was having the same business nature as its subsidiary and a current account was being maintained between the company in question and its subsidiary. The Coordinate Bench of ITAT Delhi has categorically held that: The crux of the above decisions are that the transactions carried out through current account for business purposes would not fall within the definition of Deemed Dividend . Considering the facts of the case in the light of above decisions, we examined the ledger account of the subsidiary company in the books of the assessee company, copy of which is filed at page-7 of the PB, which reveals that initially the assessee company 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der that ₹ 42,00,000 has been paid to Smt. Santosh Devi for purchase of land and disallowed the same stating that it is in violation of Section 40A(3). It was submitted before us by the ld AR that the cheques of ₹ 42,00,000/- which are placed at page Nos. 11 and 12 of the paper book, issued by the assessee were dishonoured and therefore, the assessee was under legal obligation to honour the registered sale deed agreement. The assessee had to make payment in cash as the seller was not ready to accept payment through cheques. On the request of the seller, the amount of ₹ 42,00,000/- was withdrawn from the bank. Copy of the cash book statement and bank account statement is placed at page No. 13 of the assessee s paper book. The ld AR has relied on the decision of ITAT Jaipur Bench in the case of M/s Vijayeta Buildcon Pvt. Ltd. Vs ACIT in ITA No. 980/JP/2018 order dated 27/10/2020 and we also draw strength from this decision wherein identical issue 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 opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing stock-in-trade and raw materials and also affirmed the decision of Hon'ble Rajasthan High Court in case of Fakri Automobiles v. CIT [1986] 160 ITR 504 (Raj) to the effect that the payments made for purchasing stock-in-trade or raw material should also be regarded as expenditure for the purposes of section 40A(3) of the Act. 23. The Hon'ble Supreme Court has therefore upheld the constitutional validity of section 40A(3) of the Act and has held that the provisions are not intended to restrict the business activities and restraint so provided are only intended to curb the chances and opportunities to use or create black money and the same should not be regarded as curtailing the freedom of trade or business. The Hon'ble Supreme Court has thus laid great emphasis on the intention behind introduction of these provisions and it would therefore be relevant to examine whether in the present case, there is any violation of such intention and if ultimately, it is determined 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive enough and which visualizes all kinds and nature of business expediency in all possible situations. 26. If we look at the legislative history of section 40A(3) and Rule 6DD, we find that initially, section 40A(3) provides for disallowance of 100% of the expenditure unless the matter falls under exception as provided in Rule 6DD(j) Later on, section 40A(3) has been amended to provide for disallowance of 20% of the expenditure incurred in cash and Rule 6DD(j) was omitted. Thereafter, by virtue of another amendment, disallowance under section 40A(3) was increased from 20% to 100%, however, Rule 6DD(j) was not reintroduced in original form to provide for exceptional and unavoidable circumstances rather it was restricted to payment by way of salary to employees and thereafter, by virtue of lastest amendment in year 2008 to payments made on a day on which the banks were closed on account of holiday or strike. 27. We do not believe that by virtue of these amendments, the legal proposition 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 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case and respectfully following the legal proposition laid down by the various Courts and Coordinate Benches referred supra, we are of the view that the identity of the persons from whom the various plots of land have been purchased and source of cash payments as withdrawals from the assessee's bank account has been established. The genuineness of the transaction has been established as evidenced by the registered sale deeds and lastly, the test of business expediency has been met in the instant case. Further, as held by the Hon'ble Rajasthan High Court in case of Harshila Chordia (supra), the consequences, which were to befall on account of nonobservation of sub- section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration. The intent and the purpose for which section 40A(3) has been brought on the statute books has been clearly satisfied 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. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. 12. The aforesaid observation does apply in the instant case. The Assessing Officer on the facts noticed has been unable to make out a case of involvement of unaccounted money. 13.It is also a finding of fact recorded by the Commissioner of Income- tax (Appeals) that copies of the ledger accounts were produced before the Assessing Officer who has not found any discrepancy in such books of account and no unaccounted transaction has been reported/noticed by the Assessing Officer. 30. In the entirety of facts and circumstances of the case and respectfully following the legal proposition laid down by the various Courts including that of the Jurisdictional High Court and the Coordinate Benches 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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