TaxTMI 
TaxTMI 
2020 (8) TMI 799
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.... the following additions/disallowances: i) Disallowance of fees paid to ROC Rs. 2,26,500/- ii) Disallowance u/s 14A Rs. 22,22,893/- iii) Deemed Dividend u/s 2(22)(e) Rs. 2,90,27,890/- iv) Addition of credits u/s 68 Rs. 72,00,000/- 2.1 Aggrieved, the assessee approached the Ld. First Appellate Authority challenging the additions and disallowances. The Ld. CIT (A) partly allowed the assessee's appeal by deleting the disallowance u/s 14A but upheld the addition pertaining to payment of fees to ROC, addition pertaining to deemed dividend and addition u/s 68. The Ld. CIT (A) also upheld the action of the AO in making the disallowance of Rs. 26,22,677/- on account of expenditure claimed in the profit and loss account on the ground that no business activities have been carried out during the year under consideration. 2.2 Aggrieved, the assessee is now before the ITAT and has challenged the action of the Ld. CIT (A) in upholding the additions disallowance by raising the following grounds of appeal: 1. "That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. ....
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.... Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs. 72,00,000/- on account of unsecured loan u/s 68, is bad in law and against the facts and circumstance of the case. 8. That having regard to the facts and circumstances of the ease, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234B and 234D of Income Tax Act, 1961. 9. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other." 3.0 The Ld. AR submitted that as far as addition of Rs. 2,26,500/- pertaining to fees paid to ROC is concerned this includes an amount of Rs. 5,500/- which was paid as fees for filing the annual return with the ROC. It was submitted that this could not have been disallowed under any circumstances. With respect to the remaining amount, the Ld. AR submitted that the same was not being pressed. 3.1 With respect to ground No. 2 pertaining to disallowance of Rs. 26,22,677/- confirmed by the Ld. CIT (A) on the ground that since there was no business activity, expenses could not be allowed, i....
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....essee is a shareholder in the lender company no deemed dividend can be brought to tax. The third proposition in this regard, as raised by the Ld. AR, was that the entire transactions related to the business of the company and were entered into the normal course of business. It was submitted that as the assessee company is an investment company, the provisions of section 2(22)(e) of the Act were not attracted. In this regard also reliance was placed on numerous judicial precedents which have been incorporated in the written submissions and are produced elsewhere in this order. The Ld. AR emphasised that although these facts were pleaded before the lower authorities, they were not even considered while making the impugned addition. 3.3 Arguing on ground Nos. 5, 6 and 7 relating to the addition of Rs. 72,00,000/-being amount of loan from M/s. Mega Trading Corporation added back u/s 68 of the Act, the Ld. AR submitted that M/s. Mega Trading Corporation is assessed to tax and during the course of assessment proceedings, confirmation from this company was filed along with the copy of the bank statement. It was submitted that even the company had responded to the notice issued u/s 133(....
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....ressed upon with the help of submissions and profit and loss account and balance sheet, that the business of the assessee has been duly set up and merely because no revenue has been earned by the assessee during the year, expenses cannot be disallowed, more so, when such expenses are of administrative character. PB 18-25 is the copy of acknowledgment of return, computation of income, balance sheet and profit & loss account of the assessee company for the A.Y. 2014-15 to show that the business was set up, investments were made and expenses incurred in running the business. PB 29-32 is the assessee's letter to Ld. A.O. submitting inter alia about the nature of business of the assessee company. PB 67-73 is the copy of assessee's letter to Ld. A.O. submitting at PB 68-69 a detailed note as to why claimed expenses cannot be disallowed. It has been held in the following judicial decisions that once business is set up expenses are allowable: - - Western India Vegetable Products Ltd. vs. CIT, 26 ITR 151 (Born.) - CIT vs. Sarabhai Management Corporation Ltd, 192 ITR 151 (SC) - CIT vs. Western India Seafood Pvt. Ltd, 199 ....
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....de by the Ld. AO are unwarranted and may please be deleted. GROUND NO. 3-4 Ld. A.O. has made an aggregate addition of Rs. 2,90,27,890/- on account of deemed dividend u/s 2(22)(e) on the ground that assessee has received loans from three companies and there were accumulated profits available with these lender companies and accordingly treated the amount of loans received to the extent of accumulated profit of these companies as deemed dividend namely M/s Goyal Engineering Polymers P. Ltd. (GEPPL) of Rs. 13,00,000/-, M/s Gurgaon Poly Plastic Ltd. (GPPL) of Rs. 43,15,216/-, M/s Poly Plastic Automotive India P. Ltd. (PAIPL) of Rs. 2,34,12,674/-, which comes to Rs. 2,90,27,890/-. Ld. A.O. has disused this issue at page 5-10 of the assessment order, whereas Ld. CIT (A) has discussed this issue at page 47-48 of the appeal order. Assessee raised several Issues during assessment proceeding and appeal proceeding & submitted that impugned amounts do not constitute deemed dividend but those issues were not adverted to by any of the authorities. Issues raised by assessee were as follows: - 1. There cannot be any deemed dividend in respect of any loan raised by a holdi....
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....law that unless assessee is shareholder in the lender company no dividend can be brought to tax as held by Delhi High Court in the case of CIT vs. Ankitech (P) Ltd. & Ors. 340 ITR 14, which has been affirmed by Hon'ble Supreme Court in the case of CIT vs Madhur Housing and Development Company, 401 ITR 152 (SC) 3. That the entire transactions were of the business nature and entered on regular course of business. In this regard it is respectfully submitted that the impugned amount received by the assessee were in business nature and were undertaken in regular course of business as the assessee company is in nature of investment company. In the following judicial precedents, it has been held that advances/ loans received in ordinary course of business cannot attract the provisions of section 2(22)( e) - DCIT v. Lakra Brothers-l06-TTJ-250(CHD' A') Debt/advances in the regular course of business- Advances made during the ordinary course of business for business expediencies do not constitute 'loan' for purposes ofs.2(22)(e) and cannot be taxed as deemed dividend - CIT vs. Creative Dyeing & Printing (P) Ltd. 30 DTR 143(Delh....
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....s-Assessee, a travel agency, booking resorts for the customers of the companies, they were normal business transactions and could not be treated as deemed dividend under s. (22)( e) because of shareholding pattern-No substantial question of law arises - CIT vs Creative Dyeing & Printing (P) Ltd., 318 ITR 476 (DHC) Dividend-Deemed dividend under s. 2(22)( e)-Advance for commercial purpose-Assessee company received funds for expansion of production capacity from PE Ltd. which has 50 per cent shareholding in the assessee and has common directors with the assessee-Transaction in question was a business transaction which would benefit both assessee company and PE Ltd.-Admittedly, the amount is to be adjusted against the moneys payable by PE Ltd. to the assessee company in the subsequent years-Contention of the Revenue that since PE Ltd. is not into the business of money lending, the payments made by it to the assessee company would be covered by s.2(22)(e)(ii) and consequently payments even for business transactions would be deemed dividend is not acceptable-Once it is held that business transactions do not fall within s. 2(22)( e), there is no need to go further to s.....
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....sheet of M/s PAIPL, wherein at PB 59 it is coming out clearly the assessee became shareholder during the year. PB 125-127 is the copy of ledger a/c of PAIPL in the books of assessee. Perusal of same unambiguously ascertains that out of total alleged loan of Rs. 3,84,60,867/- amount of Rs. 2,56,00,000/- were received before the shares of PAIPL were acquired by the company and only Rs. 1,28,60,867/- were received after the transfer. PB 128 is the copy of ledger a/c of the assessee in books of PAIPL. PB 130 is the copy of ledger a/c of M/s Goyal Engineering Polymers Pvt. Ltd. in the books of assessee PB 132 is the copy of ledger a/c of assessee III the books of M/s Goyal Engineering Polymers Pvt. Ltd. PB 131 is the copy of ledger a/c of M/s Goyal Polypastics Pvt. Ltd. in the books of assessee Further, as per explanation 2 to section 2(22) "accumulated profits" for the purpose of sub-clause (e) shall include all profits of the company upto date of distribution or payment. Thus, it is a matter of law that in the absence of any contrary evidence on record, accumulated profits shall be deemed to accrue on day to day basis. Therefore, Ld. AO are....
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....bsequently repaid to M/s Mega Trading Corporation further evidencing the genuinity of transaction and thus, the additions made by the Ld. AO being without any merit may kindly be deleted." 4.0 In response, the Ld. Sr. DR placed extensive reliance on the findings recorded by the AO and as confirmed by the Ld. CIT (A). The Ld. Sr. DR also filed written submissions which were taken on record and are being reproduced hereunder for a ready reference:- "In the above case, it is humbly submitted that the following points may kindly be considered with regard to deemed dividend u/s 2(22)(e) of I.T. Act in the present case: 1. The assessee has claimed that the loan availed by it from related parties is in the nature of Inter- Corporate Deposits (ICDs). ICDs are short term borrowings which are availed by corporates in need of funds from other corporates which have surplus funds. The period of such loans ranges from a week to generally six months. The rate of interest for such loans are more than the prevailing market rates since such loans are unsecured loans without a collateral and hence the risk involved for the lender is higher than the normal loans with some....
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....ee has availed interest free loans claiming them to be ICDs which is against the very character and purpose of ICDs as discussed above. It may also be stated here that ICDs are essentially loan transactions. Hence, with respect to certain instances cited by the appellant where concession has been granted to ICD transactions, it is emphasized that the present matter pertains to transactions between companies controlled by the same set of individuals. It makes it convenient for them, as has been executed in the matter at hand, to create selfserving documents and award whatever nomenclature they deem fit and suitable to the transactions undertaken by them. Resolutions, parallel entries in the books of accounts and audit reports are nothing more than self-serving nomenclatures. Under these circumstances, if the concession on the plea of ICDs citing examples of transactions between unrelated parties is allowed, it would spell death knell for provisions such as section 2(22)(e) which have been specifically brought into the Act in order to curb the very menace which the appellant has resorted to. This is not the intent of the Legislature and can also never be the intent of any in....
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.... Travel Services finding the same as erroneous. In light of the same, cases cited by the assessee which are based on the said judgment do not represent the applicable law as it stands. CIT vs. Navyug Promoters Pvt. Ltd [203 Taxman 618] and CIT-I vs. Bikaner Cuisine (Pvt.) Ltd [233 Taxman 106] , therefore, do not state the settled position of law." 5.0 We have heard the rival submissions and have also perused the material on record. We now take up the issues one by one for adjudication. 5.1 Ground No. 1 pertains to disallowance of Rs. 2,26,500/- on account of fees paid to ROC which was disallowed by the AO by holding that the same was of capital in nature. The limited point alleged by the Ld. AR on this issue is that out of the total amount of Rs. 2,26,500/- an amount of Rs. 5,500/- pertains to fee for filing of annual return with the ROC. We agree with the contention of the Ld. AR that this amount cannot be disallowed. Therefore, we delete the amount of Rs. 5,500/- and since the remaining amount is not pressed, we confirm the remaining amount of Rs. 2,21,000/-. Thus, this ground stands partly allowed. 5.2 Ground No. 2 pertains to disallowance of Rs. 26,22,677/- on account ....
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....Ltd., (1981) 129 ITR 58 (All) - L.VE. Vairavan Chettiar vs. CIT, (1969) 72 ITR 114 (Mad) 5.4 Respectfully following the judicial precedents enumerated above we delete the disallowance of Rs. 26,22,677/-. 5.5 Ground Nos. 3 and 4 are in respect of addition of Rs. 2,90,27,890/- as deemed dividend u/s 2(22)(e) of the Act. We have considered the submission of the assessee as well as the arguments of the Ld. Sr. DR on the issue. After taking into consideration the documents to which our attention has been drawn by the Ld. AR and which are placed in the paper book filed by the assessee, it is apparent that there are pleadings which were not made before the authorities below. It will be in fitness of things if this issue is restored to the file of the AO to examine and adjudicate this issue afresh after giving proper opportunity to the assessee. The assessee shall be at liberty to produce the documents and rely on pleadings as have been made before us in this respect. Accordingly, ground Nos. 3 & 4 stand allowed for statistical purposes. 5.6 Ground Nos. 5, 6 and 7 relate to addition of Rs. 72,00,000/- being amount of loan taken from M/s. Mega Trading Corporation treated a....