TaxTMI 
TaxTMI 
2021 (8) TMI 25
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..... The nature of income which can be earned out of such investment is dividend income, which is tax free as per the provisions of the Income Tax Act. Although, the assessee has not earned any exempt income, however, the AO observed that there are investments in the opening and closing balances of the accounts and the income likely to be received from such investment is exempt and interest and other expenses are claimed in the Profit & Loss Account. He, therefore, confronted the same to the assessee and asked the assessee to explain as to why provisions of section 14A r.w.r. 8D should not be applied. 4. The assessee submitted that it has not received any exempt income, therefore, provisions of section 14A r.w.r. 8D are not applicable. However, the AO was not satisfied with the arguments advanced by the assessee and applying the provisions of section 14A of the Act made addition of Rs. 1,42,80,173/- to the total income of the assessee. 4.1. The AO observed from the accounts of the assessee company with sister concerns that there are large number of transactions including payment by the sister concern to the assessee. He observed that the group companies are making the payments t....
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....d the reply of one of the lender company i.e. M/s Jaypee Capital Services Ltd. After analysing the details furnished by the assessee, the AO observed as under:- a. The companies namely M/s Jaypee Capital Services Pvt. Ltd.(JCPL), and M/s Gen X Commodities Ltd.(GCL), are closely held companies. The assessee has substantial holding in JCPL. There are large number of transactions including payments by the JCPL to the assessee. Further, the group companies are also making the payments to each other regularly as per the ledger account submitted. b. The ledger account submitted by the assessee, consists of large number of transactions in respect of shares transactions done by assessee, as client of JCPL, which are not covered u/s 2(22)(e) of the act. However, where there are cheque payments, the same has to be considered as loan/advance for the purpose of section 2(22)(e) of the act. 6. The AO further noted that JCPL, have granted advances in the nature of loan to the assessee, therefore, the payment received from the JCPL by assessee is to be treated as deemed dividend in the hands of the assessee. He accordingly invoking the provisions of section 2(22)(e) ....
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....late to the order of the learned CIT(A) in deleting the disallowance of Rs. 1,42,80,173/- u/s 14A of the Act. 10. The learned DR heavily relied upon the order of the Assessing Officer. 11. The learned counsel for the assessee, on the other hand, submitted that the assessee has not earned any exempt income during the year a fact stated during the course of assessment proceedings and also verified by the AO. Referring to various decisions, he submitted that disallowance u/s 14A r.w.r. 8D of the rules cannot be applied if no exempt income is earned during the year. For the above proposition, he relied on the decision of the Hon'ble Supreme Court in the case of PCIT vs Oil Industries Development Board (2019)103 taxmann.com 326(SC), the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs CIT (2015) 378 ITR 33(Del.), the decision of the Hon'ble Supreme Court in the case of CIT vs M/s Chettinad Logistics Pvt. Ltd. [2018] 95 taxmann.com 250(SC), the decision of the Hon'ble Delhi High Court in the case of PCIT vs Mcdonald's India Pvt. Ltd. (ITA No.725 of 2018) and various other decisions. 12. We have considered the rival arguments made by both the sides, peru....
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....the assessee has failed to demonstrate that the money advanced by the companies to it was in the nature of trade advance and therefore the learned CIT(A) was not justified in deleting the addition. 15. The learned counsel for the assessee on the other hand, while supporting the order of the learned CIT(A) submitted that the amount which has been credited and debited in the accounts of the assessee in association with the said party is on account of business transactions and transacted by the assessee being a client and shareholder of the company. Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of Gaurav Arora, he submitted that the Tribunal vide ITA Nos. 2034, 2035/Del/2016, order dated 17.12.2018 for Assessment year 2011-12 has deleted such addition. He submitted that the Tribunal has upheld the findings of the learned CIT(A) that the transactions in the ledger account of the assessee are in regular course of the business of purchase and sale of the shares/currency/derivates/ commodities etc. and the Ld. DR could not controvert the above factual findings of the learned CIT(A). He submitted that there are two capacity of the assessee i.e. the asses....
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....me has to be considered as loan/advance for the purpose of section 2(22)(e) of the act. c) The JCPL, have granted advances in the nature of loan to the assessee. The payment received from the JCPL by assessee is to be treated as deemed dividend in the hands of the assessee. 17. We find, in appeal, the learned CIT(A) deleted the addition by observing as under:- 9.4. I have carefully considered the assessment order, written submissions, case laws relied upon and oral arguments of the Ld. AR. The A.O. in the assessment order, has made an addition of Rs. 91,47,56,196/- u/s 2(22)(e), for the following reasons: (i) The companies namely M/s Jaypee Capital Services Pvt. Ltd.(JCPL), and M/s Gen X Commodities Ltd.(GCL), are closely held companies. The assessee has substantial holding in JCPL. There are large number of transactions including payments by the JCPL to the assessee. Further, the group companies are also making the payments to each other regularly as per the ledger account submitted. (ii) The ledger account submitted by the appellant, consists of large number of transactions in respect of shares transactions done by assessee....
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....sale of share/currency/derivatives. (b) Both the above alleged accounts extracted by the special auditor and A.O., did not take into consideration, the business transactions entered into by the appellant/concern with this company. This fact is evident from the amount of Rs. 91,47,56,196/-, computed by the A.O. in the case of JCPL on the basis of alleged re-casted copy of account, as against the actual copy of account maintained in the books of accounts of this company. (c) It has been further submitted that the even alleged account prepared by the special auditor (in case of JCPL), which has not been followed by the A.O. and has prepared another account. The A.O. has taken alleged loan amount by adopting lesser of the payment made by JCPL to the appellant/concerns and net balance available on a particular date. Therefore, it is, submitted that even the alleged account prepared by the A.O.. does not reflect the correct nature of the account, as same is prepared without following any accounting principles and ignoring the nature of each transaction. It is argued that the A.O. cannot ignore the nature of business transactions entered into by the assessee/group concer....
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.... (c) The transactions entered into are in the regular course of business and it is not a case where it has been alleged by the A.O. that transactions of sale/purchase of share/currency /derivatives, are not genuine. In fact, these purchase and sale transactions, have not even doubted by the special auditor in the audit report as well as by the A.O. in assessment order. The special auditor and A.O. has re-casted the ledger account by not considering the business transaction of sale/purchase of share/currency/derivatives, which is not correct, since deemed dividend cannot be computed by way of pick and choose of few transactions, rather an account has to be considered in its entirety. The above view, is also supported by the ratio laid down in the decision by Jurisdictional High Court of Delhi in the case of CIT Vs. Creative Dyeing & Printing (P.) Ltd., [2009] 184 TAXMAN 483 (DELHI), as under: " 11. The counsel for the appellant has very strenuously urged that neither the Tribunal nor the judgment of this Court in Raj Kumar's case (supra) deals with that part of the definition of deemed dividend u/s 2(22)(e) which states that deemed dividend does not include an ....
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.... (e) of section 2(6A) of the 1922 Act. plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner that they assist the shareholders in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan. 10.5. If this purpose is kept in mind then, in our view, the word 'advance' has to be read in conjunction with the word 'loan '. Usually attributes of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan: it generally carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning the term 'advance ' may or may not include lending. The word 'advance' if not found in the company of or in conjunction with a word 'loan' may or may not include the obligation of repayment. If it does then it would be a loan. Thus, arises the conundrum as to M'hat meaning on....
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..... CIT(A) however, after detailed verification of the facts has observed that these transactions were in the nature of the trade advance. As far as the share holding of the company in those companies is concerned, there is no dispute between the Revenue and the assessee. The only dispute is in respect whether the advances were in the nature of trade or not. The Ld.CIT(A) has noted that those companies were engaged in the brokerage of stock derivatives, currency and commodities etc. and the transactions of the assessee with those companies are in respect of dealing with shares, commodities, etc. Relevant finding of the Ld. CIT(A) on the issue in dispute are reproduced are as under :- "8.3 Findings: The findings are as under: 8.4 I have carefully considered the assessment order, written submissions, case laws relied upon and oral arguments of the Ld. AR. The A.O. in the assessment order, has made an addition of Rs. 7,88,99,522/- u/s 2(22)( e), for the following reasons: (i) The companies namely M/s Jaypee Capital Services Pvt. Ltd.(JCPL), M/s Futurz Next Services Ltd.(FNSL) and M/s Gen X Commodities Ltd.(GCL), are closely held companies, in....
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....peak balance of the same and treated it as deemed dividend in the hands of the appellant. The A.O., while recasting the account, has picked up the figure of payments made by the 2 companies during the year and the negative balance appearing after the payments. Lower of the two figures i.e. amount paid by the companies and the negative balance appearing after the payment, has been taken as the deemed dividend by the A.O. The A.O. has adopted pick and choose, whereby he picked up only the transactions relating to purchase and sale of share / currency / derivatives /commodities . (b) Both the above alleged accounts extracted by the special auditor and A.O., did not take into consideration, the business transactions entered into by the appellant/concern with these companies. This fact is evident from the amount of Rs. 7,43,00,000/-, computed by the A.O. in the case of JCPL and Rs. 45,99,522/-, in the case of FNSL on the basis of alleged re-casted copy of account, as against the actual copy of account maintained in the books of accounts of these 2 companies. (c) It has been further submitted that the even alleged account prepared by the special auditor, which ....
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.... of the said accounts, is the result of business activities, which cannot be considered as loans/advances, as to cover the same within the provisions of section 2(22)( e). (b) The 2 companies JCPL and FNSL are the registered stock, derivative, currency and commodities brokers. The JCPL deals in stock, currency and derivatives on NSE, BSE, USE and MCX Sx and the FNSL, deals in commodities on NCDEX and MCX. The transactions entered by the said companies with appellant and group concerns are related to their business only. The appellant and the group concerns, maintain client account with these 2 companies, where in large number of share / currency / derivatives / commodities trading transactions, has taken place in the year under consideration. These transactions are nowhere prohibited under any existing law and not covered u/s 2(22)(e) of the act. (c) The transactions entered into are in the regular course of business and it is not a case where it has been alleged by the A.O. that transactions of sale/purchase of share / currency / derivatives / commodities, are not genuine. In fact, these purchase and sale transactions, have not even doubted by t....
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....cing section 2(22)(e) and which has been extensively dealt with by this Court in the judgment in Raj Kumar's case (supra). This Court in Raj Kumar's case (supra) extensively referred to the report of the Taxation Enquiry Commission and the speech of the Finance Minister in the Budget while introducing the Finance Bill Ultimately, this Court in the said judgment held as under: "10.3 A bare reading of the recommendations of the Commission and the Speech of the then Finance Minister would show that the purpose of insertion of clause (e) to section 2(6A) in the 1922 Act was to bring within the tax net monies paid by closely held companies to their principal shareholders in the guise of loans and advances to avoid payment of tax. 10.4 Therefore, if the said background is kept in mind, it is clear that sub-clause (e) of section 2(22) of the Act, which is pari materia with clause (e) of section 2(6A) of the 1922 Act, plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons who manage such closely held companies should not arrange their aff....
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....f Rs. 7,88,99,522/-, is hereby deleted. 9. The ground no. 15, is relating to charging of interest u/s 234A, 234B, 234C and 234D of the Act. This ground is consequential in nature. Accordingly, A.O. is directed to charge interest u/s 234A, 234B, 234C and 234D as per provision of the Act, on total income after giving effect to this order. Therefore, for statistical purposes, ground no. 15, is treated as allowed. 10. In the result, the appeal is partly allowed." "5. The Ld. CIT(A) has observed that the transactions in the ledger account of the assessee are in regular course of the business of purchase and sales of the shares/currency/ derivatives/commodities etc. The Ld. DR could not controvert the above factual findings of the Ld. CIT(A) before us. In view of the above facts, the Ld. CIT(A) is justified in holding that the transactions between the assessee and those companies are in the nature of trading transactions which are beyond the ambit of deemed dividend in view of the decisions of the Hon'ble Jurisdictional High Court in the case of CIT vs. Creative Dyeing & Printing (P.) Ltd. (Supra). The Ld. CIT(A) has followed the above decision of the ....