TaxTMI 
TaxTMI 
TaxTMI 
2020 (10) TMI 774
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....e Income Tax Act, 1961 and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of Income Tax Act, 1961 and the Rules made there under. l(b) On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in considering the intercorporate deposits as deemed dividend chargeable to tax u/s 2(22)(e) of the Act and reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of Income Tax Act, 1961 and the Rules made there under. l(c) On the facts and circumstances of the case and in law, the learned lower authorities erred in considering the money received from lending companies as deemed dividend chargeable to tax u/s 2(22)(e) of the Act without appreciating that the money received from the lending companies (i.e., M/s. Yasham Chemphar Pvt. Ltd and M/s. Yasham Importers & Exporters Pvt. Ltd.) were during the course of business exigency as trade advance on current account basis to give effect to commercial transaction and as such the deeming provisions of the said section cannot be invoked in the hands of the assessee compa....
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....e of assessment proceedings, the AO observed that assessee has received loans from sister concerns under the same management having common shareholders as per details below: Sr.No. Name of the party Additions during the year 1. Yasham Cemphar Pvt. Ltd. Rs. 10,00,000/- 2. Yasham Importers & Exporters Pvt. Ltd. Rs. 1,82,00,000/- Total Rs. 1,92,00,000/- Accordingly, the AO asked the assessee to furnish the details of shareholding pattern and balance sheets of the lender companies in order to examine the applicability of section 2(22)(e) of the Act which were duly supplied the details whereof are as under:. Shareholdings: Name of the company Ms. Namita Samant Mr. Vivek Samant Others Yasham Bioscience Pvt Ltd. 50000 (20%) 100000(40%) 100000 Yasham Chemphar Pvt Ltd 23990 (16%) 126010 (84%) NIL Yasham Importers &Exporter Pvt Ltd 9750 (18.57%) 29250 (55.71%) 13500 The AO after considering the share holding pattern in the assessee and these two lender companies the details whereof is given in para 4.2 of the assessment order came to conclusion that assessee has received these amounts by way....
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....ong and against the facts of the case and was confirmed by wrongly relying on a decision of the Hon'ble Supreme Court in the case of Gopal & Sons, HUF vs. CIT, Kolkata in CA No.12274 dated 04.01.2017 which is not applicable to the assessee's case as the facts in the said case are distinguishable vis-à-vis the facts of the assessee. The Ld. A.R. submitted that the Hon'ble Supreme Court in the case of Gopal and Sons as reported in 145 DTR 289 (SC) has held that loan obtained by the HUF from a company in which Karta was a shareholder is held to be deemed dividend whereas in the present case the facts are totally different as one sister company has advanced money to the another sister company for the purpose of business and out of commercial expediency. The Ld. A.R. also submitted that the decision of the Hon'ble Supreme Court in the case of Gopal & Sons (supra) has been distinguished by the various decisions of the co-ordinate benches in the following cases: "i). M/s. Neha Home Builders Pvt. Ltd., v DCIT 13(1)(1) ITA No.3157/Mum/2018' B Bench dated 5/10/2018 (Para No. 19 to 21 of the order) ii) Income Tax Officer 6(1)(2) v Best CFS Private Limited I.T.A. No.4075/Mum/2013 &#....
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....atter on importing bulk quantity of all kinds and varieties of speciality chemicals and ingredients used in pharmaceuticals, cosmetics and food industries and sell it across the country in small-small quantity to customers.Mr. Vivek Samant is the managing director and Mrs. Namita Vivek Samant is the whole time director of the above mentioned three companies. Thus, both the above companies and the appellant are under the common management. However, for the purpose of increasing its market share of such products in the market the sales were increased from Rs. 8.95 crores in FY 2009-10 to Rs. 17.50 crores in FY 2010-11. Therefore as and when the need arises for working capital purposes and on the availability of surplus funds with group concerns, the assessee was provided funds of Rs. 1,82,00,000/- from Yasham Importer & Exporter Private Limited (YIEPL) (Amalgamated company - Now known as Yasham Speciality Ingredients Private Limited) & Rs. 10,00,000/- from Yasham Chemphar Private Limited (YCPL) in AY 2011-12 for the purpose of business which were repaid within the same year at the competitive interest rate of 12.5%. Accordingly, as per the management decision, the funds were diverte....
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....s deemed dividend u/s 2(22)(e) of the Act. In this regard, reliance was placed on the following decisions: Case laws for Funds given for business purposes 1). Chandrashekhar Maruti vs. ACIT ITA No.5410/Mum/2012 47 CCH 0783, 183 TTJ 0459 , 2). Ackruti City Ltd. vs. DCIT [ITA No. 4869/Mum/2009 Case laws for current & running account 3). Mr. Girish Vazirani, v ITO 9(2)(1) ITA No.83/Mum/2013 `G` bench Mumbai 4). M/s. Exotica Housing & Infrastructure Company Pvt. Ltd. v ITO 8(4) ITA.No.5188/Del./2019 Bench "B" : DELHI 5). CIT vs. Suraj Dev Dada [(2014) 46 taxmann.com 402 (Punjab & Haryana)] 6.) Ravindra R Fotedar v ACIT 10 (2) ITA No.6778/Mum/2013 (Mumbai) 7) M/s. Neha Home Builders Pvt. Ltd., v DCIT 13(1)(1) ITA No.3157/Mum/2018 8. The ld. AR also referred to CBDT vide its Circular No. 19/2017 dated 12/06/2017 had clarified that trade advances which are in the nature of commercial transactions would not fall within the ambit of word "loan/advance" in section 2(22)(e) of the Act. Thus, the intention of legislature was not to cover the commercial business transactions within the purview of deemed dividend u/s 2(22)(e) of the Act. 9. The ld. AR contended that inter-corpo....
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....owed. 10. The Ld. D.R., on the other hand, relied on the order of authorities below by submitting that the financial transactions have taken place between three sister concerns having common shareholders. Since there is no dispute as to share holding pattern of both the sister concerns, therefore the money advanced by the two sister concerns to the assessee has to be treated as deemed dividend under section 2(22)(e) of the Act. The Ld. D.R. submitted that though the Ld. CIT(A) has changed the substantive and protective addition inter se between the assessee and its shareholders, however the principle and substantive issue remain the same. In the case of Gopal & Sons vs. CIT, Kolkata (supra) the similar issue was decided and the said decision can not be distinguished merely by the fact that the money was advanced to a HUF by a company in which karta was a shareholder whereas in the present case the money was advanced by two sister concerns to their sister concern having common shareholders. Therefore, principally and broadly the issue remained same that the beneficial benefit of the shareholders remain the same though the money was advanced by one concern to another concern may be....
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.... which were fully repaid during the year after providing interest @ 12.5% p.a. can not be attributed for the benefit of the shareholders of the assessee company . 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 the company with whom the assessee advanced money to the company as and when required for the purpose of business and also in real sense the assessee has not derived any benefit from the funds of the company. The issue is also clarified by CBDT in its circular No.19/2017 dated 12.06.2017 wherein it has been clarified that trade advances in the nature of commercial transactions would not fall within the ambit of words "loans/advances within the meaning of....
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....expenditure claimed by the assessee. 14. The facts in brief are that the AO during the course of assessment proceedings observed that the assessee has claimed interest payment of Rs. 7,62,640/- on borrowed funds and also advanced interest free advances. Accordingly, the AO called upon the assessee as to why the proportionate interest attributable to advancing of interest free loans should not be disallowed and added to the income of the assessee. The assessee vide letter dated 23.12.2013 submitted that interest attributable to interest free advances worked out to Rs. 3,57,651/-. Accordingly, the same was disallowed and added to the income of the assessee. 15. The assessee challenged the said issue before the Ld. CIT(A) who confirmed the addition by holding that assessee himself admitted vide letter dated 23.12.2013 that interest of Rs. 3,57,651/- is attributable to interest free advances and thus admitted the disallowance. 16. After hearing both the parties and perusing the material on record, we observe that the assessee's own funds were more than Rs. 3.40 crores whereas the advances on which these interest paid advances were given were only to the tune of Rs. 27 lakhs. Therefo....
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....is attracting Rule 8D(ii) and 8D(iii). On the other hand, the Appellant has contended that the A.O. has not considered capital account in partnership. On careful perusal of the same, I find that the contention of the A.O. is tenable because share of profit received by the Appellant from the partnership is exempt from tax and therefore liable to be included while calculating disallowance u/s 14A r.w.Rule 8D. As regards the disallowance made under Rule 8D(iii) it is seen that the AO has calculated the same @ 0.5% on the average value of the investment which works out at Rs. 63,113/- as per the calculation submitted by the Appellant vide letter dated 26.5.2015, however, the AO has added only Rs. 49,675/- which is found to be reasonable under the facts and circumstance of the case. Accordingly, disallowance of Rs. 2,13,012/- made by the AO under this ground needs to be upheld. Ground No.l is accordingly dismissed." 20. After hearing both the parties and perusing the material on record, we find that the interest disallowance of Rs. 1,63,337/- under rule 8D2(ii) whereas the facts on record are that the assessee has capital balance of Rs. 3,40,02,741/- whereas the investment in shares ....