TaxTMI 
TaxTMI 
2011 (10) TMI 628
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....d 05-06, copies of which are placed at paper book pages 61 to 65. 5. On the other hand, the ld. Counsel of the assessee also stated that this issue is covered by the order of Tribunal for earlier year. 6. After considering the order of Tribunal for earlier year decided in ITA No. 910/JP/2009 vide order dated 07.05.2010, we noted that in earlier year also an addition of Rs. 4 lacs was made on account of packing material. The ld. CIT (A) confirmed the addition of Rs. 1 lac and the Tribunal following the order of earlier year i.e. for assessment year 2004-05 deleted the addition of Rs. 1 lac also which was sustained by ld. CIT (A). The findings of Tribunal have been recorded in para 9 of its order for assessment year 2005-06. Since facts are similar, therefore, we delete the addition of Rs. 1,00,000/- sustained by ld. CIT (A). 7. Ground No. 6 in appeal of the assessee is against confirming the invocation of provisions of section 41(1) of the IT Act and thereby confirming an addition of Rs. 64,215/-. 8. After considering the written submissions and perusing the material on record and taking into consideration the smallness of the amount, we are not inclined to interfere wit....
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.... & Stock Brokers Pvt. Ltd. 326 ITR 001 in Para 17 has observed that for attraction section 14A, there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income. Hon'ble Bombay High Court in Godrej & Boyce Manufacturing Co. Ltd Vs. DCIT 328 ITR 81 order dt. 12.08.2010 has held that Rule 8D is applicable from A.Y. 08-09 & the same can not be applied for earlier A.Y.'s but at the same time observed that AO is duty bound to compute the disallowance by applying a reasonable method having regard to the facts & circumstances of the case. After this order of Bombay High Court dt. 12.08.2010 various High Courts & the Tribunals have taken the following view in the matter of disallowance u/s 14A. (i) Minda Invsetment Ltd. Vs. DCIT 52 DTR 001 order dt. 13.10.2010 Disallowance under section 14A required finding of incurring of expenditure in relation to exempt income & where it was found that for earning exempted income no expenditure had been incurred, disallowance u/s 14A could not stand. (ii) DCIT Vs. Maharashtra Seamless Ltd. 52 DTR 005 order dt. 16.12.2010 In this case CIT(A) deleted the disallowance on the ground....
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.... Rs. 1190.08 lacs whereas investment in shares is only Rs. 688.45 lacs. Thus, interest free fund is much more than the investment in shares. Hence, in the absence of any proximate relation of borrowed funds with investment in shares, no expenditure can be disallowed u/s 14A as per the decisions relied supra. Without prejudice to above, it is to be noted that Hon'ble ITAT Chennai Bench in Siva Industries & Holdings Ltd. Vs. ACIT 59 DTR 182 held that Section 14A is applicable when there is income which is taxable under the Act for the relevant A.Y. and there should also be income which does not form part of the total income under the Act during the relevant A.Y. If either one is absent, section 14A has no applicability. An investment which does not give rise to any income deemed to accrue or arise can not form part of total income. Thus, once there is no claim of income which does not form part of total income under the Act, there can not be any disallowance u/s 14A in relation to an investment which may or may not give rise to any income which does not form part of total income. In view of above, disallowance of Rs. 92,94,092/- made by the AO u/s 14A is unwarranted....
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....al and reserve and surplus of Rs. 1190.08 lacs whereas investment in shares is only Rs. 688.45 lacs. Thus interest free funds available with the assessee are much more than the investment in shares. This fact could not be controverted by ld. D/R by bring any positive material. Therefore, in our considered view no disallowance under section 14A is possible. However, the AO is free to examine this issue afresh, if in his mind the investment made in shares was not out of interest free funds/reserves available with the assessee. In view of these facts and circumstances, we dispose off the grounds of the assessee and department as above. 14. Ground No. 8 in appeal of assessee is against confirming disallowance of Rs. 13,098/- out of telephone expenses. 15. The AO disallowed telephone expenses @ 10% for extra commercial consideration. The ld. CIT (A) has confirmed the same. 16. After considering the written submissions and perusing the material on record, we find that this is a case of company and no material has been brought that how the expenses were incurred on telephone or not for commercial expediency. In case of Metallizing Equipment Co. P. Ltd., 70 TTJ 358, the Jodhpur Be....
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.... that AO did not point out any defect in the books of account, stock register, purchase and consumable stock, therefore, he held that there is no justification in making lump sum addition of Rs. 50,00,000/-. Accordingly the same was deleted. 23. After considering the orders of the AO and ld. CIT (A) we find no infirmity in the finding of ld. CIT (A) who has deleted the addition following the order of Tribunal for earlier year where similar additions were made. Therefore, there is no reason to interfere with the finding of ld. CIT (A). Accordingly, we confirm the order of ld. CIT (A) in this respect. 24. Ground no. 2 has already been disposed off. 25. Ground No. 3 relates to deleting the addition of Rs. 25,000/- made on account of withdrawal of depreciation on the Wind Mill claimed. 26. The AO disallowed depreciation on foundation and room @ 80%. He estimated this addition at Rs. 25,000/-. The ld. CIT (A) deleted the disallowance by observing that similar disallowance was made for assessment years 2003-04 to 05-06 and the Tribunal has allowed this issue in favour of the assessee. 27. Since the ld. CIT (A) has allowed the issue following the order of Tribunal for earli....
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....d accordingly he deleted the entire addition made by the AO. 31. The ld. D/R while arguing his case, firstly placed reliance on the order of the AO. It was further submitted that the transaction between assessee and various other companies are akin to loan and advances. Further reliance was placed on the decision of Hon'ble Madras High Court reported in 259 ITR 507. 32. On the other hand, the ld. Counsel of the assessee placed reliance on the order of ld. CIT (A). Reliance was also placed on the written submissions filed here before the Tribunal. It was submitted that these are similar submissions as were made before ld. CIT (A). It was further explained that one has to see the volume of transaction. The AO has picked up certain transactions in some cases and ignored others. It was a trading account only as transactions related to purchase and sales of the respective party. This was a running account maintained by the assessee in respect to the company with whom the purchases and sales transactions are entered. Attention of the Bench was drawn on the details placed on record. It was further submitted that this is not a case that all the time there was a credit balance but the....
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.... (P.) Ltd.:- (i) Purchases from M/s Saurabh Agrotech (P.) Ltd. (ii) Realization of sales made to M/s Saurabh Agrotech (P.) Ltd. (iii) Payment received from parties against sales made by M/s Saurabh Agrotech (P.) Ltd. (iv) Trade advances received from M/s Saurabh Agrotech (P.) Ltd. (v) Utilization of cash credit limit of M/s Saurabh Agrotech (P.) Ltd. Similar is the position in respect of the entries in the debit side of the account. From the perusal of ledger account of M/s Saurabh Agrotech (P.) Ltd. in the books of the assessee company (PB 33-48) it is to be noted that the nature of transactions between them are business transactions inter se. It is a mutual, open, current, running & trade account running into 16 pages containing around 800 entries. The account is continuously moving & even on one single day there are as many as 20 transactions. On some day the balance is in credit & on some other day the balance is in debit as is evident from the daily balancing statement placed at PB 29-32. These transactions are in respect of purchase or sale or composite payment received from the parties against sale or composite payment ma....
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....ered to be a lender in the present facts & thus credit on certain days in its name in the books of the assessee company would not fall in the ambit of section 2(22)(e). (iii) In case of Ardee Finvset (P.) Ltd. Vs. DCIT 79 ITD 547 (Trib.) (Del.) it was held that loan means "a lending; delivery by one party to and receipt by another party of sum of moneys upon agreement, express or implied, to repay with or without interest. For a loan there must be a lender, a borrower, a thing loaned for use, as well as a contract between the parties for the return of the thing loaned. A loan contracted no doubt creates a debt, but there may be a debt without contracting a loan. In a loan the mind and intention of the two parties, the lender and the borrower must be ad idem." The expression "advance" means something which is due to a person, but which is paid to him ahead of time when it is due to be paid. In the Dictionary of Accounts by Eric L. Kohler (5th Edn.), the expression "advance" was defined as payment of cash or the transfer of goods for which accounting must be rendered by the recipient at some later date. Loan and advances could only be considered "deemed dividend" for the pur....
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....as to attract provisions of section 2(22)(e). It may also be noted that similar transactions have been made in earlier year also but never in past the same has been considered to be transaction attracting section 2(22)(e). In various cases, the nature of such mutual, open, current, running & trade account has been analyzed & it is held that credit balance in such account are not payment by way of loans or advances & therefore section 2(22)(e) is not attracted. The gist of these decisions is as under:- NH Securities Ltd. Vs. DCIT 11 SOT 302 (Trib.) (Mum.) (2007) As per the Schedule to the Limitation Act, 1963 and as per Articles 1 & 19 thereto, the limitation period prescribed in the case of mutual, open and current account is three years from the close of the year in which the last item is admitted or proved as entered in the account. On the other hand, in case of a loan, the limitation period is three years from the date on which the loan is made. This throws light on the characteristic feature of a running account and a loan account in a subtle manner. The Limitation Act, 1963 recognizes the running character of a mutual, open and current account by tak....
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....ents 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 law does not prohibit business transactions between related concerns & therefore payment made in the ordinary course of business can not be treated as loans or advances. Therefore, payments made by a company in the course of carrying on of its regular business through a mutual, open & current account to a related party does not come under the purview of section 2(22)(e). CIT Vs. Ambassador Travels (P.) Ltd. 318 ITR 376 (Del.) (HC) Assessee engaged in the business of travel agency entered into certain business transactions with M/s Holiday Resort (P) Ltd. & M/s Ambassador Tours (India) (P.) Ltd. As a result of these business transactions, there were some financial transactions but the AO came to the conclusion that because of the shareholding pattern, these financial transactions would fall in the category of deemed dividend u/s 2(22)(e) of the I.T. Act. This view was uphel....
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.... certain conditions attached to them, either as regards the period of such deposits or loans or with regard to their repayments. From the copies of the accounts furnished all that can be gathered is that funds have been transferred from and to the sister concerns as and when required and since the managing partner is common to all the sister concerns, the decision to transfer the funds from one concern to another concern or to repay the funds could be said to have been largely influenced by the same individual. In other words, the decision to give and the decision to take rested with either the same group of people or with the same individual. In such circumstances of the case, it is held that the transactions inter se between the sister concerns and the assessee cannot partake of the nature either "deposit" or "loan", though interest might have been paid on the same. Expecting for the transfer of funds being witnesses in the books of account of the concerned firms, no material is on record to show issue of receipt or pronote in evidence of accepting a deposit or accepting a loan. Therefore, the transactions as are found in the books of accounts of the assessee cannot be termed as ....
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....me tax, but the fiction cannot be extended further or so interpreted as to go beyond the legislature's intention in creating the fiction. CIT Vs. Creative Dyeing & Printing P. Ltd. 318 ITR 476 (Del.) (HC) The assessee-company was engaged in the business of dyeing and printing of cloth and was an ancillary unit of P. Both the assessee company and P had common shareholders and directors, two of whom held more than 20% of the shares in both companies and P held 50% of the shares in the assessee-company. P, in order to increase its export business and to compete with the international standards in garments exports proposed modernization and expansion of the plant and machinery of the assessee-company. The assessee-company being unable to invest such a large amount, P agreed to invest 50% of the project cost, the rest of the 50% to be arranged by the shareholders/directors of the company. The funds advanced were to be adjusted against the dues payable by P to the assessee-company in subsequent years for the job work of printing and dyeing to be done by the assessee for P. The Assessing Officer held that the amount paid to the assessee-company was a deemed dividend unde....
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....nstance wherein such balances are in debit have also been given by the appellant and mentioned in the order (supra). Under this scenario, it is imperative to determine the nature of such entries whether; these are the loan or advances or business transaction. The provision of section 2 (22)(e) of the Income-Tax Act' 1961 are attracted only under the circumstances, when the transactions are in the nature of loans or advances and not otherwise. It is also seen that the nature of the business of the assessee company and Saurabh Agrotech (P) Ltd are the same. Both the companies are engaged in the crushing of mustard seed, purchase and sale oil and oil cake. Both the companies are having the business transaction inter-se, which fact has remained undisputed. It is found on verification of the account and on fact that the account of the assessee with the Saurabh Agrotech (P) Ltd is a running, current, open and trade account. The business transactions entered into between the assessee company and Saurabh Agrotech (P) Ltd has been routed through the said account. The assessee company does not have any other account except the account considered by the Assessing Officer. This is single a....
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....o the regular and normal course of business and are not in the nature of loans or advances, therefore the provision of section 2(22)(e) of the Income-Tax Act' 1961 are not applicable upon such transaction and the Assessing Officer has erroneously considered the same to be covered u/s 2(22)(e) of the Income-Tax Act' 1961. While arriving at this conclusion, reference is also made to the decision of jurisdictional High Court in the case of Commissioner of Income-Tax v/s Maheswari Nirman Udyog 302 ITR 201 (Rajasthan) wherein it has been held that the transaction inter se between the, sister concerns and the assessee could not partake the nature of either "deposit" or "loan" even though the interest might have been paid on the same and the same view have been upheld by Income Tax Appellate Tribunal, Bench-Jaipur, Jaipur in the case of Income Tax Officer v/s Mahavir Stores, Alwar ITA No. 1834 & 1835/JP/981 dated 23.11.1993. Therefore considering all the above fact and latest case laws on the subject it is categorically held that the transaction of assessee company with the Saurabh Agrotech (P) Ltd, is the business and trade transaction entered into the normal course of business a....