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TMI Blog2021 (12) TMI 1335X X X X Extracts X X X X X X X X Extracts X X X X ..... WWIL in the books of the six relatd concern which received loans and advances for ascertaining the claim of the assessee that there are no actual payments made/received and only journal entries have been passed and if found correct, to delete the additions made of Rs. 1,62,20,313/- on account of deemed dividend in respect of the transactions of M/s. WWIL with the said six concerns, as it amounts to setting aside the issue, which is impermissible in law.?" 3. The brief facts of the case are that the assessee is an individual and derives her income from House Property, remuneration from the partnership firm M/s. Sudershan & Co. and Income from other sources. The assessee filed his return of income u/s.139 on 11.10.2012 declaring an income of Rs. 2,16,52,010/-. Thereafter, a search and seizure action u/s. 132 of the I.T. Act was carried out on 14.03.2013 on M/S. Wind World (India) Ltd., which was formerly named as M/s. Enercon (India) Ltd. (henceforth referred to as WWIL/EIL) and its group companies. In the said search the appellant and the main persons of the group were also covered. In course of the search action, it was revealed that the M/s WWIL/EIL has given loans M/s. Enercon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r u/s 143(3) rws 153A dated 28.06.2017 of the AO. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who partly allowed the claim of the assessee but the revenue was not satisfied, therefore, revenue has filed the present appeal before us. ISSUE NOS. 1 & 2 4. Issue nos. 1 & 2 are in connection with the deletion of the addition of Rs. 1,62,20,313 made on account of deemed dividend by holding that the provisions of the Section 2(22)(e) are not applicable to the transactions of loans/advances made through journal entries and also challenged the direction of CIT(A) in which the AO is directed to verify the ledger accounts of the M/s WWIL/EIL in the books of the said 6 related group companies and recompute the amount of deemed dividend u/s 2(22)(e) after excluding the amounts related to journal entries and considering only those amounts wherein actual payments have been made/received. Before going further, we deem it necessary to advert the finding of the CIT(A) on record: - "6.5 The contentions of the assessee have been duly considered. The Hon'ble Supreme Court in the case of Navnitlal C Javeri (56 ITR 198) has explained the mischief which was sought to be cure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and holdings by individual companies. Thus, the contention of the assessee that the said amount considered for addition as deemed dividend u/s 2 22 e is of the nature of business advance is clear incorrect. 6.7 The assessee has raised an alternative contention that most of the transactions je entered into by M/s. Wind World India Ltd. with the said 6 other group companies which have been considered for addition as deemed dividend u/s 2(22)(e) are by way of journal entries and there are no actual payments made and therefore should have been excluded while making the said addition. On this contention, it is noted that the Hon'ble Kerala High Court in the case of P.V. John (181 ITR 1) has held that the provisions of section 2(22)(e) create a legal fiction for bringing payments of the nature of loans and advances, in the tax net as deemed dividend and therefore, it will have to be given strict construction, nevertheless, a construction so as to suppress the mischief which it sought to suppress. Similarly, the Hon'ble Jurisdictional High Court in the case of P.K. Badiani (supra) has held that sec. 2(6A)(e) creates a fiction which cannot be extended further or so interpreted as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for an interest which the assessee would ultimately be required to «a to the lender on the money lent cannot be regarded as payment made by the Company to the assessee. As such, the amount of Rs. 32,13,367/- which represents only the provision made for interest which the assessee was liable by way of an interest on the outstanding amount could not b payment made by AMPL within the meaning of clause (e) of Section 2(22) of the Act. Only the amount of Rs. 11,68,135/-which was actually received by the assessee as and by way of loan or advance from AMPL would fall within inclusive clause (e) of the definition of "dividend" appearing in Section 2(22)( e) of the Act. 6.7 Similarly, the Hon‟ble Madras High Court in the case of G.R. Govindarajalu Naidu (90 ITR 13) has held that the words "payment by way of a loan or advance" employed in Sec. 2(6A)(e) requires that there should be an outgoing or flow of money from the lender company to the shareholder assessee or related entity so as to attract the said provision. It was explained by the Hon‟ble Court that the provisions of Sec. 205(5) of the Company's Act, 1956 provides that no dividend shall be payable except in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court and Hon‟ble Madras High Court, the credit/debit entries by way of journal entries cannot be considered while invoking the provisions of deemed dividend as per Sec. 2(22)(e). From the ledger accounts of M/s WWIL/EIL in the books of M/s Enercon Wind Farms (Andhra Pradesh) P. Ltd., M/s Enercon Wind Farms (Kerala) P Ltd, M/s Enercon Wind Farms (Maharashtra) P Ltd, M/s Enercon Wind Farms (Tamil Nadu) P Ltd., M/s Enercon Wind Farms (Uttar Pradesh) P. Ltd., M/s Enercon Wind Farms (Gujarat) P Ltd, it is observed that only in few instances actual payments have been made / received and for the others only journal entries have been passed. The AO is accordingly directed to verify the ledger accounts of the M/s WWIL/EIL in the books of the said 6 related group companies and recompute the amount of deemed dividend u/s 2(22)(e) after excluding the amounts related to journal entries and considering only those amounts wherein actual payments have been made/received. Accordingly, Ground Nos.2 and 3 are partly allowed." 5. On appraisal of the above mentioned finding, we noticed that the CIT(A) has directed the AO to verify the ledger account of M/s. WWIL/EIL in the books of six relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said amounts could be treated as being attributed to the shareholders. We find that in the case of the assessee, the facts are exactly same as the funds were transferred to various entities inter se out of commercial expediency in order to purchase land in the name of these entities in various states in view of the Land Ceiling Act in vogue in those states. As the installation of windmills and sales thereof is the business of the assessee and the necessary adjustments are made after purchase of land by these entities and therefore the advancing of loans is out of business and commercial consideration. Similarly, in the case of Akruti City Ltd. vs. DCIT (supra) the identical issue was decided in favour of the assessee by holding that financial transactions out of business expediency between two sister concerns can not be called as loans or advances for the purpose of invoking section 2(22)(e) of the Act. The same view as held by the Hon‟ble High Court of Punjab & Haryana in the case of CIT vs. Suraj Dev Dada (supra) wherein it has been held that it will be a travesty of law to apply the provision of section 2(22)(e) of the Act where the assessee had running account with th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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