2018 (9) TMI 1014

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....hakuntala is the Director. Both of them are having substantial and n controlling share in both the companies. The Assessing Officer (AO) found that JHPL has purchased the lands from farmers by making payment through cheques and subsequently registered the said lands in the name of SIPL instead of registering in its name. For the assessment year 2008-09, the amount outstanding in the name of SIPL as debtor in the books of JHPL was Rs. 3,58,70,000/- and for the assessment year 2009-10, JHPL advanced further sum of Rs. 2,04,44,000/-. In the books of JHPL, SIPL was shown as a debtor and per contra in the books of SIPL, JHPL was shown as creditor to the extent of payments made by the JHPL for purchase of lands. In a nutshell JHPL advanced a sum of Rs. 3,58,70,000/- during the assessment year 2008-09 and further a sum of Rs. 2,04,44,000/- for the assessment year 2009-10 for purchase of lands in the name of SIPL. Payments were made directly by JHPL to the landlords and the lands were registered in the name of SIPL. SIPL has shown the lands as stock in trade in their books of accounts. Both Sri Madala Sundhakar and Smt.Madala Sakunthala are the directors in the SIPL with share holding of 5....

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....ents, sale deeds, purchase and sale accounts in the books of SIPL and JHPL, P&L account of both the companies, sale deeds of 2016 and observed that the transactions were business transactions, the said transactions were made to expand the base of customers and to support the business of sister concern, the JHPL had advanced the sums. The Ld.CIT(A) also observed that the subsequently the SIPL developed the said lands and transferred the lands in the normal course of business at market value to JHPL and offered profit to the tax. The assessee filed the ledger accounts before the Ld.CIT(A) to prove that the land in question was stock-in-trade as reflected in the accounts of both the companies. During the appeal proceedings, the Ld.CIT(A) has specifically asked the status of the lands and also the benefits directly or indirectly derived by the Director shareholders. Both the shareholders of SIPL vide letter dated 19.01.2018 confirmed that the company SIPL has developed the lands purchased from the farmers and part of it was sold to JHPL and offered the income. They have not derived any pecuniary benefit directly or indirectly from the said transaction. The SIPL also filed confirmatory ....

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....hus deleted the addition made by the AO. 4. Aggrieved by the order of the Ld.CIT(A), the revenue carried the matter to the Tribunal. During the appeal hearing, the Ld.DR argued that the transactions between the JHPL and SIPL cannot be held to be trade or business transactions. There were no regular trading transactions transpired between both the parties. The JHPL has paid the amount to the landlords directly by cheque and the lands were registered in the name of SIPL, thereby, the JHPL has advanced the amounts in the form of loans to the SIPL, wherein both the shareholders are having substantial controlling interest in the lending company as well as the borrowing company. Therefore, the provisions of section 2(22)(e) attracts and the AO has rightly taxed the amounts advanced to SIPL as deemed dividend u/s 2(22)(e) of the Act. Since it is only the sole transaction the same cannot be held to be business transaction and argued that the addition made by the AO is to be upheld and the order of the Ld.CIT(A) is to be set aside. 5. On the other hand, the Ld.AR submitted that the JHPL and SIPL are carrying on identical business, keeping in view of the activity or resources available....

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....lling shares in both the companies. In fact, Sri Madala Sudhakar and Smt. Madala Sakunthala are holding 100% shares in SIPL @ 50% each. Since the share holders are having substantial share in JHPL and the amounts were advanced to the borrowing company, where the directors are having substantial interest, the AO was of the view that the loans advanced to the borrowing company constitutes deemed dividend within the meaning of 2(22)(e) of the Act in the hands of the Shri Sudhakar and Smt. Shakuntala. The assessee's case is that both the companies are carrying on identical business and to stabilize the newly promoted company in the market and to deliver the products to the customers in time frame, the lending company has advanced the sums to the borrowing company by transfer of lands, therefore, the advances are to be treated as trading advances and there is no application of provisions of section 2(22)(e) of the Act. It is undisputed fact that the lending company has not given any cash to the borrowing company which was utilized by the directors for their personal benefit. The amount was transferred by way of journal entry and by registering the lands which was infact purchased by the....

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.... are result of business transactions between the parties (trade advances), the such payment cannot be treated as ban and advance and the money so received cannot be treated as deemed dividend within the meaning of section 2(22)(e). 2. Hon'ble ITAT Chandigarh in the case of DCIT Vs. Lakhra Brothers (2007) 106 TTJ (Chd); 250 (162 Taxman 170 (Mag.) has held that amount was advanced during the ordinary course of business for business expediencies. So it cannot be said that there was intention of the company to give a loan, the such advances cannot be treated as loan and advance and the money so received cannot be treated as deemed dividend within the meaning of section 2(22)(e). 3. Hon'ble ITAT Chennai in the case of Farida Holding P. Ltd vs. DCIT, 51 SOT 452 has held that assessee company manages the financial affairs of its subsidiary company in its ordinary course of business and assessee company involved in the activities of taking loan from the subsidiaries and advancing it to other subsidiaries in ordinary course of business cannot be treated as deemed dividend. 4. Hon'ble Apex court in the case of Bombay Steam Navigation Company P. Ltd. vs. CIT....