TaxTMI 
TaxTMI 
2021 (7) TMI 81
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....ot the shareholder of M/s Skyways Industrial Estate Pvt. Ltd. 2. On the facts & circumstances of the case & in law also Ld. Lower Authorities grossly erred in making addition ignoring the fact that the transaction made with M/s Skyways Industrial Estate Pvt. Ltd were business transaction & were in the nature of current account. 3. On the facts & circumstances of the case & in law also Ld. Authorities grossly erred in making addition of Rs. 58,78,803/- u/s 2(22)(e) of the Income Tax Act without considering the submission that addition of Rs. 58,78,803/- has already been made under section 2(22)(e) of the Act during the A.Y. 2014-15." Grounds of ITA No. 824/JP/2019 A.Y. 2014-15. " 1. On the facts & circumstances of the case Ld. Lower Authorities grossly erred in making and confirming addition of Rs. 58,78,803/- in hands of assessee company, despite of this fact that assessee company is not the shareholder of M/s Skyways Industrial Estate Pvt. Ltd. 2. On the facts & circumstances of the case & in law also Ld. Lower Authorities grossly erred in making addition ignoring the fact that the transaction made with M/s Skyways Industrial Estate Pvt....
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.... in the business of purchasing lands and developing residential township projects on such lands. The return of income was filed by the assessee on 25/09/2015 declaring loss of Rs. 23,18,780/-. Notices were issued to the assessee. The assessee filed reply before the A.O. and after considering the material placed on record, the A.O. made two additions, namely: o Firstly, of Rs. 58,78,803/- in the hands of the assessee company u/s 2(22)(e) of the Income Tax Act (hereinafter, 'the Act'). o Secondly, of Rs. 42,00,000/- u/s 40(A)(3) of the Act. 5. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of both the parties and material placed on record, confirmed the action of the A.O.. Against the said order of the ld. CIT(A), the assessee is in appeals before the ITAT by taking the grounds mentioned above. 6. Grounds No. 1 to 3 of this appeal are interlinked and interrelated and relates to challenging the order of the ld. CIT(A) in confirming the addition of Rs. 58,78,803/-. In this regard, the ld. AR appearing on behalf of the assessee has reiterated the same arguments as were r....
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....turned by the assessee and the balance has been squared up. 13. That in the earlier years, no such addition has been made for similar transactions. 14. That to establish that these transactions were in the nature of business - it is key to look at one such transaction of Rs. 42,00,000/- that has been received by Skyway Township Pvt. Ltd. on 1.07.2013 [Page number 1 of APB 2] which the assessee used to pay Smt. Santosh Devi after withdrawing the same amount from bank on 2.07.2013, the addition for the same has been made in the case of the assessee under section 40A(3). 15. That the assessee company and the Skyways Industrial Estate Pvt. Ltd. are in the same business of real estate and money has been taken for the ordinary course of business. He relied on the decision of Hon'ble ITAT Delhi in M/s Exotica & Infrastructure Company Pvt. Ltd. [decided on 24.06.2020]. 7. On the other hand, the ld. DR has vehemently supported the orders of the authorities below and submitted that the ld. CIT(A) has passed a speaking order considering all the material available on record. 8. We have heard the ld. Counsels of both the parties and have perused the material....
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....o the extent to which it is so set off; (iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956); (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company). Explanation 1.-The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2.-The expression "accumulated profits" in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in forc....
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....behalf, or for the individual benefit of any such shareholder..." Thus, the substance of the requirement is, that the payment should be made on behalf of, or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is paid by the company, whether to the shareholder, or to the concern firm. In which event, it would fall within the expression "deemed dividend". Obviously, income from dividend, is taxable as income from other sources, under Section 56 of the Act, and in the very nature of things, the income has to be, of the person earning the income. The assessee in the present case is not shown to be one of the persons, being shareholder. Of course the two individuals being Roop Kumar and Devendra Kumar, are the common persons, holding more than requisite amount of share holding, and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, be....
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.... purposes would not fall within the definition of "Deemed Dividend". Considering the facts of the case in the light of above decisions, we examined the ledger account of the subsidiary company in the books of the assessee company, copy of which is filed at page-7 of the PB, which reveals that initially the assessee company has taken amount from the subsidiary company which was repaid and thereafter, it is the assessee company which has given the amount to the subsidiary company on most of the occasions and later on the subsidiary company has returned the amount to the assessee. Therefore, such facts would clearly reveal that provisions of Section 2(22)(e) would not be attracted in the case of assessee company because on most of the occasions the assessee company has advanced the amount to the subsidiary company and ultimately the balance is squared-up at the end of the year... ...The above issue have been considered by the different Benches of the ITAT as reproduced above in which various decisions of different High Courts have been considered and it was held that "when current account is maintained between the parties, provisions of Section 2(22)(e) of the I.T. Act, 1961,....
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....s. 42,00,000/- was withdrawn from the bank. Copy of the cash book statement and bank account statement is placed at page No. 13 of the assessee's paper book. The ld AR has relied on the decision of ITAT Jaipur Bench in the case of M/s Vijayeta Buildcon Pvt. Ltd. Vs ACIT in ITA No. 980/JP/2018 order dated 27/10/2020 and we also draw strength from this decision wherein identical issue has been decided by the Coordinate Bench by relying on the judgment of the Coordinate Bench in the case of M/s A Daga Royal Arts Vs ITO in ITA No. 1065/JP/2016 order dated 15/05/2018 and held that: "7. In our opinion, there is little merit in this contention. Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted ....
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....ed to curb the chances and opportunities to use or create black money and the same should not be regarded as curtailing the freedom of trade or business. The Hon'ble Supreme Court has thus laid great emphasis on the intention behind introduction of these provisions and it would therefore be relevant to examine whether in the present case, there is any violation of such intention and if ultimately, it is determined that such intention has been violated, then certainly, the assessee deserves the disallowance of the expenditure so claimed. 24. The Hon'ble Supreme Court referring to the provisions of section 40A(3) as existed at relevant point in time which talks about considerations of business expediency and other relevant factors and Rule 6DD(j) which provides for the exceptional or unavoidable circumstances and the fact that the payment in the manner aforesaid was not practical or would have caused genuine difficulty to the payee and furnishing the necessary evidence to the satisfaction of the Assessing Officer as to the genuineness of the payments and the identity of the payee has held that: "The terms of section 40A(3) are not absolute. Consideration of business ....
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....increased from 20% to 100%, however, Rule 6DD(j) was not reintroduced in original form to provide for exceptional and unavoidable circumstances rather it was restricted to payment by way of salary to employees and thereafter, by virtue of lastest amendment in year 2008 to payments made on a day on which the banks were closed on account of holiday or strike. 27. We do not believe that by virtue of these amendments, the legal proposition so laid down by the Hon'ble Supreme court regarding consideration of business expediency and other relevant factors has been diluted in any way. At the same time, we also believe that Rule 6DD as amended are not exhaustive enough and which visualizes all kinds and nature of business expediency in all possible situations and it is for the appropriate authority to examine and provide for a mechanism as originally envisaged which provides for exceptional or unavoidable circumstances to the satisfaction of the Assessing officer whereby genuine business expenditure should not suffer disallowance. 28. Further, the Courts have held from time to time that the Rules must be interpreted in a manner so as to advance and not to frustrate th....
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.... Hon'ble Rajasthan High Court in case of Harshila Chordia (supra), the consequences, which were to befall on account of nonobservation of sub- section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration. The intent and the purpose for which section 40A(3) has been brought on the statute books has been clearly satisfied in the instant case. Therefore, being a case of genuine business transaction, no disallowance is called for by invoking the provisions of section 40A(3) of the Act."... ... 29. In the instant case, we find that the identity of the persons from whom the purchase of various land parcels have been made by the assessee has been established and the source of cash payments is clearly identifiable in form of the withdrawals from the assessee's bank accounts and the said details were submitted before the lower authorities and have not been disputed by them. It is not the case of the Revenue either that unaccounted or undisclosed income of the assessee has been utilised in making the cash payments. The genuineness o....