TMI Blog2021 (8) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 14A r.w.r. 8D can be made. Since, the assessee in the impugned assessment year has admittedly not received any exempt income or dividend income, therefore, the order of the learned CIT(A) in deleting the disallowance made by the AO u/s 14A r.w.r 8D is upheld and the grounds raised by the Revenue on this issue are dismissed. Deemed dividend addition u/s 2(22)(e) - as per AO assessee has failed to demonstrate that the money advanced by the companies to it was in the nature of trade advance and therefore the learned CIT(A) was not justified in deleting the addition - HELD THAT:- Since, the facts of the present appeal are identical to the facts of the related party decided by the Tribunal in the case of Gaurav Arora [ 2019 (3 ) TMI 1289 - ITAT DELHI] therefore, respectfully following the same we hold that regular/routine transactions cannot be termed as loans and advances so as to attract the provisions of section 2(22)(e) - Since, the learned CIT(A) while deleting the addition has thoroughly discussed the issue and has given a finding that these are trading/business transactions, therefore, in absence of any contrary material brought to our notice by the learned DR against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the group companies are making the payments to each other on regular basis. Further, the companies also are having cross shareholding with each other. From the various details furnished by the assessee, he observed the details of share holding of the companies which are as under:- (i) Gen-X Commodities Ltd (Formerly Arora Timber Ltd) Percentage of Share Holding AY Gaurav Arora Gaurav Arora(HUF) Futurtz Next Services Ltd 2006-07 24.67 36.37 2007-08 24.67 40.16 17.42 2008-09 42.72 46.83 2009-10 42.72 46.83 2010-11 42.72 46 .83 2011-12 42.72 46.83 2012-13 42.72 46.83 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt based upon the nature of transaction i.e. settlement A/c, dues A/c, client A/c and normal business exchange wise accounts. On the above basis viz, separate bank account of different nature of transactions, assessee has kept separate accounts of client/transactions with Mr. Gaurav Arora, Gen X Commodities (P) Ltd. and M/s Futurz Next Services (P) Ltd. etc. Since, the assessee has reiterated the reply submitted by the lender companies on this issue, the AO examined the reply of one of the lender company i.e. M/s Jaypee Capital Services Ltd. After analysing the details furnished by the assessee, the AO observed as under:- a. The companies namely M/s Jaypee Capital Services Pvt. Ltd.(JCPL), and M/s Gen X Commodities Ltd.(GCL), are closely held companies. The assessee has substantial holding in JCPL. There are large number of transactions including payments by the JCPL to the assessee. Further, the group companies are also making the payments to each other regularly as per the ledger account submitted. b. The ledger account submitted by the assessee, consists of large number of transactions in respect of shares transactions done by assessee, as client of JCPL, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted for in the books / cash sale. e. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts by holding that recasting of ledger account of assessee in the books of JCSL by the AO is not correct. f. That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law. g. That the grounds of appeal are without prejudice to each other. 9. Grounds of appeal no. a and b relate to the order of the learned CIT(A) in deleting the disallowance of ₹ 1,42,80,173/- u/s 14A of the Act. 10. The learned DR heavily relied upon the order of the Assessing Officer. 11. The learned counsel for the assessee, on the other hand, submitted that the assessee has not earned any exempt income during the year a fact stated during the course of assessment proceedings and also verified by the AO. Referring to various decisions, he submitted that disallowance u/s 14A r.w.r. 8D of the rules cannot be applied if no exempt income is earned during the year. For the above proposition, he relied on the decision of the Hon ble Supreme Court in the case of PCIT vs Oil Industries Development Board (2019)103 taxmann.com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year has admittedly not received any exempt income or dividend income, therefore, the order of the learned CIT(A) in deleting the disallowance made by the AO u/s 14A r.w.r 8D is upheld and the grounds raised by the Revenue on this issue are dismissed. 13. Ground of appeal no. C relates to the order of the CIT(A) in deleting the addition of ₹ 9147,56,196/- u/s 2(22)(e) of the Act. 14. The learned DR heavily relied on the order of the AO. He submitted that the assessee has failed to demonstrate that the money advanced by the companies to it was in the nature of trade advance and therefore the learned CIT(A) was not justified in deleting the addition. 15. The learned counsel for the assessee on the other hand, while supporting the order of the learned CIT(A) submitted that the amount which has been credited and debited in the accounts of the assessee in association with the said party is on account of business transactions and transacted by the assessee being a client and shareholder of the company. Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of Gaurav Arora, he submitted that the Tribunal vide ITA Nos. 2034, 2035/Del/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PL. There are large number of transactions including payments by the JCPL to the assessee. Further, the group companies are also making the payments to each other regularly as per the ledger account submitted. b) The ledger account submitted by the assessee, consists of large number of transactions in respect of shares transactions done by assessee, as client of JCPL, which are not covered u/s 2(22)(e) of the act. However, where there are cheque payments, the same has to be considered as loan/advance for the purpose of section 2(22)(e) of the act. c) The JCPL, have granted advances in the nature of loan to the assessee. The payment received from the JCPL by assessee is to be treated as deemed dividend in the hands of the assessee. 17. We find, in appeal, the learned CIT(A) deleted the addition by observing as under:- 9.4. I have carefully considered the assessment order, written submissions, case laws relied upon and oral arguments of the Ld. AR. The A.O. in the assessment order, has made an addition of ₹ 91,47,56,196/- u/s 2(22)(e), for the following reasons: (i) The companies namely M/s Jaypee Capital Services Pvt. Ltd.(JCPL), and M/s Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments made by JCPL during the year and the negative balance appearing after the payments. Lower of the two figures i.e. amount paid by the company and the negative balance appearing after the payment, has been taken as the deemed dividend by the A.O.. The A.O. has adopted pick and choose, whereby he picked up only the debit entries of the cheque payments, but has ignored the debit and credit side of the transactions relating to purchase and sale of share/currency/derivatives. (b) Both the above alleged accounts extracted by the special auditor and A.O., did not take into consideration, the business transactions entered into by the appellant/concern with this company. This fact is evident from the amount of ₹ 91,47,56,196/-, computed by the A.O. in the case of JCPL on the basis of alleged re-casted copy of account, as against the actual copy of account maintained in the books of accounts of this company. (c) It has been further submitted that the even alleged account prepared by the special auditor (in case of JCPL), which has not been followed by the A.O. and has prepared another account. The A.O. has taken alleged loan amount by adopting lesser of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n NSE, BSE, USE and MCX Sx. The transactions entered by the said company with appellant and group concerns are related to its business only. The appellant and the group concerns, maintain client account with this company, where in large number of share/currency/derivatives trading transactions, has taken place in the year under consideration. These transactions are nowhere prohibited under any existing law and not covered u/s 2(22)(e) of the act. (c) The transactions entered into are in the regular course of business and it is not a case where it has been alleged by the A.O. that transactions of sale/purchase of share/currency /derivatives, are not genuine. In fact, these purchase and sale transactions, have not even doubted by the special auditor in the audit report as well as by the A.O. in assessment order. The special auditor and A.O. has re-casted the ledger account by not considering the business transaction of sale/purchase of share/currency/derivatives, which is not correct, since deemed dividend cannot be computed by way of pick and choose of few transactions, rather an account has to be considered in its entirety. The above view, is also supported by the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, which is pari material with clause (e) of section 2(6A) of the 1922 Act. plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner that they assist the shareholders in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan. 10.5. If this purpose is kept in mind then, in our view, the word advance has to be read in conjunction with the word loan . Usually attributes of a loan are that it involves positive act of lending coupled with acceptance b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is having substantial share holding in few companies namely M/s. Jaypee Capital Services Ltd. (JCSL) ; M/s. Futurz Next Services Ltd. (FNSL) M/s. Gen X Commodities Ltd. The AO noticed receipt of money by the assessee from these companies. The AO has also noted certain transactions inter se in these companies. According to the AO, these transactions falls in the nature of deemed dividend in the hands of the assessee. Ld. CIT(A) however, after detailed verification of the facts has observed that these transactions were in the nature of the trade advance. As far as the share holding of the company in those companies is concerned, there is no dispute between the Revenue and the assessee. The only dispute is in respect whether the advances were in the nature of trade or not. The Ld.CIT(A) has noted that those companies were engaged in the brokerage of stock derivatives, currency and commodities etc. and the transactions of the assessee with those companies are in respect of dealing with shares, commodities, etc. Relevant finding of the Ld. CIT(A) on the issue in dispute are reproduced are as under :- 8.3 Findings: The findings are as under: 8.4 I have carefully con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account and recasted account without following any accounting norm. For the purpose of making the alleged addition by the A.O., the method adopted is discussed as under: (a) The special auditor, while recasting the account, has picked up the figures of cheque received and paid by the 2 companies. After taking the figure of money received and money paid, the special auditor has worked out the peak balance of the same and treated it as deemed dividend in the hands of the appellant. The A.O., while recasting the account, has picked up the figure of payments made by the 2 companies during the year and the negative balance appearing after the payments. Lower of the two figures i.e. amount paid by the companies and the negative balance appearing after the payment, has been taken as the deemed dividend by the A.O. The A.O. has adopted pick and choose, whereby he picked up only the transactions relating to purchase and sale of share / currency / derivatives /commodities . (b) Both the above alleged accounts extracted by the special auditor and A.O., did not take into consideration, the business transactions entered into by the appellant/concern with these companies. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one, otherwise it will not be possible to settle the accounts. It is not possible to settle the trading transactions without transfer of the funds/money. Therefore, the method adopted by the special auditor in the audit report, which has not been considered and also the method adopted by the A.O. in assessment order, is not correct. The positive and the negative balances, emerging out of the said accounts, is the result of business activities, which cannot be considered as loans/advances, as to cover the same within the provisions of section 2(22)( e). (b) The 2 companies JCPL and FNSL are the registered stock, derivative, currency and commodities brokers. The JCPL deals in stock, currency and derivatives on NSE, BSE, USE and MCX Sx and the FNSL, deals in commodities on NCDEX and MCX. The transactions entered by the said companies with appellant and group concerns are related to their business only. The appellant and the group concerns, maintain client account with these 2 companies, where in large number of share / currency / derivatives / commodities trading transactions, has taken place in the year under consideration. These transactions are nowhere p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of section 2(22)(e)( ii) gives an example only of one of the situations 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f business and are relating to sale/purchase of share/currency/derivatives/commodities only. Therefore, I further hold that since these transactions are trading/business transactions, accordingly, provisions of section 2(22)(e), do not apply to the facts of the case of the appellant. Accordingly, the addition made by the A.O. on account of deemed dividend of ₹ 7,88,99,522/-, is hereby deleted. 9. The ground no. 15, is relating to charging of interest u/s 234A, 234B, 234C and 234D of the Act. This ground is consequential in nature. Accordingly, A.O. is directed to charge interest u/s 234A, 234B, 234C and 234D as per provision of the Act, on total income after giving effect to this order. Therefore, for statistical purposes, ground no. 15, is treated as allowed. 10. In the result, the appeal is partly allowed. 5. The Ld. CIT(A) has observed that the transactions in the ledger account of the assessee are in regular course of the business of purchase and sales of the shares/currency/ derivatives/commodities etc. The Ld. DR could not controvert the above factual findings of the Ld. CIT(A) before us. In view of the above facts, the Ld. CIT(A) is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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