TaxTMI 
TaxTMI 
2020 (10) TMI 774
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....,000/- as deemed dividend under section 2(22)(e) of the 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 t....
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....in the business of importing chemicals from overseas suppliers and dealing thereof. During the course 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 ....
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....hold the addition made by the A.O. in this regard. This Ground of Appeal is therefore dismissed." 5. The Ld. A.R. submitted before the Bench that the addition as sustained by Ld. CIT(A) is wrong 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. N....
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....s between sister concerns under common management for meeting business expediency cannot be treated as loans or advances u/s 2(22)(e) of the Income Tax Act, 1961. The ld AR submitted that the assessee company was engaged in the business of acting as commission agent for & then latter 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 Ingr....
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....at the transactions between sister concern were always for business exigencies. 7. The ld. AR submitted that transfer of funds between group concerns under the same group for business purposes and being current account cannot be called as loans/advances and hence, cannot be treated as 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 t....
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....ted that not a single Rupee is diverted to share holder by borrowing company for benefit of share holder In contrast funds are used for the business of the company. Object of section 2(22)(e) is to plug the loophole by not declaring dividend and not paying tax u/s 115O by share holder. The ld AR finally prayed that the appeal of the assessee may be allowed. 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....
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....ein there is a continuous exchange of transactions and the account was squared up during the year, no part of 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 the sister concern inter se out of commercial expediency to maximise the profits 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 t....
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....T(A) and direct the AO to delete the addition wherein the Ld. CIT(A) has sustained the addition as substantive. 12. Accordingly, the appeal of the assessee is allowed. ITA No.3015/M/2017 13. The issue raised in ground No.1 is against the order of Ld. CIT(A) confirming the disallowance on proportionate basis on account of interest of Rs. 3,57,651/- out of interest 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.....
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....d. CIT(A) affirmed the said addition by observing and holding as under: "Under this Ground of Appeal, the Appellant has agitated disallowance of Rs. 2,13,012/- u/s 14A r. w. Rule 8D. I have carefully considered the contentions of the Appellant and the Assessment records in this regard. On perusal of the same, I find that the A.O. has made above disallowance by holding that the same 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, disa....