TaxTMI 
TaxTMI 
2021 (10) TMI 1149
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....n the ground that the provisions of sec.2(22)(e) would fail in the facts and circumstances of the case. 4. The facts relating to the case are stated in brief. The assessee is one of the Directors in M/s. Brindavan Beverages Pvt. Ltd. (BBPL) and also in M/s. Cauveri Aqua Pvt. Ltd. (CAPL). A search u/s 132 of the Act was carried out in the hands of the assessee and other group concerns on 18.12.2012. Consequently, the assessment of the assessment year under consideration was completed by the A.O. u/s 143(3) r.w.s. 153A of the Act. 5. The first issue relates to addition made u/s 2(22)(e) of the Act as deemed dividend. The A.O. noticed that the assessee held 33% of shares in CAPL and 25% of shares in BBPL. Thus, the assessee herein is a shareholder having substantial interest in both the above said companies. The A.O. noticed that M/s. BBPL has received loan of Rs. 1.00 crore from M/s. CAPL in the financial year relevant to the assessment year 2007-08. Since the loan was received by a concern, in which the assessee is substantially interested, the A.O. took the view that the loan received by the BBPL from CAPL shall be assessable as "deemed dividend" in the hands of the assessee,....
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....ni in deleting the addition of deemed dividend. The relevant portion of the order passed in the hands of Prakash Ladhani by this bench is extracted below:- "7. The Ld D.R submitted that M/s CAPL has given loans to BBPL in various years and the aggregate amount of loans so given from AY 2007-08 to 2013-14 was Rs. 13.84 crores. The assessee had placed reliance on assignment agreements dated 28-03-2015 for sale of undivided interest in land and built up space, as per which properties worth Rs. 13.64 crores were assigned in favour of CAPL by BBPL. Accordingly, the Ld CIT(A) has granted relief to the assessee. The Ld D.R submitted that a close perusal of the assignment agreements would show that the facts are not as claimed by the assessee before Ld CIT(A). She submitted that the CAPL got following properties as per assignment agreements:- Construction Agreement assigned - 10,63,17,108 Undivided interest in land assigned - 3,00,86,100 13,64,03,208 However, in the construction agreement, it is mentioned that the assignee/s have already paid a sum of Rs. 8,84,36,266/- and it has agreed to pay the balance of Rs. 1,78,80,842/- to th....
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.... Accordingly, the Ld A.R submitted that the AO was not correct in considering these transactions as loan transactions. He submitted that the Ld CIT(A) has correctly appreciated these transactions as business transactions. Accordingly, he submitted that the order passed by Ld CIT(A) on this issue does not call for any interference in all the three years. 10. The Ld. A.R. further submitted that the A.O., in the grounds of appeal filed by the revenue, has taken a contention that "there is no distinction between an advance and business advance". He submitted this contention is contrary to the provisions of section 2(22)(e) of the Act and also the decisions rendered by jurisdictional Karnataka High Court. 11. We heard the parties and perused the record. There is no dispute with regard to the fact that both CAPL and BBPL had entered into an agreement dated 14th November, 2005. The object of entering into the above said agreement is mentioned as under in the agreement:- "WHEREAS BBPL has made investment in property development mainly with The Embassy Group in Bangalore and BBPL has agreed to involve CAPL in some of these ventures to share the benefits of such in....
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....in these types of transactions. 14. At this juncture, we feel it pertinent to extract the order passed by Ld. CIT(A) in this regard:- "7.4 I considered the submissions made and materials on record. The contention of the appellant is that the deemed dividend cannot be assessed for the assessment years 2007-08, 2008-09, 2010-11 & 2011-12 because it was not based on any materials found at the time of search and these assessments had not abated on the date of search. The second contention of the appellant is that the advance paid by M/s. Cauvery Aqua Pvt. Ltd., to M/s. Brindavan Beverages Pvt. Ltd., is not a loan or advance since it was given in connection with property investments to be made after termination of the distribution business between the 2 companies when an amount of Rs. 1,97,11,809/-was due to M/s. Cauvery Aqua Pvt. Ltd., from M/s. Brindavan Beverages Pvt. Ltd. 7.5 I find that the appellant has been able to substantiate its explanation that the amounts advanced by M/s. Cauvery Aqua Pvt. Ltd., to M/s. Brindavan Bevarages Pvt. Ltd., is not a loan or advance but a business transaction between these 2 companies for purchase of real estate properties....
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....mbassy Group called "Embassy Lake Terraces". This assignment agreement is also endorsed by M/s. Embassy Group who has signed as consenting witness. This document was produced to substantiate the claim that there was an agreement between the companies to acquire real estate properties as per the agreement dated 14.11.2005 entered earlier. Since the said document has been executed on 28.03.2015 and very close to the assessment order dated 30.03.2015, the prayer of the appellant for admission of the same under Rule 46A of the I.T. Rules is considered. No specific objection has also been raised by the A.O. for admission of this additional evidence. 7.8 Taking into consideration the materials on record, I hold that the appellant has been able to establish that the amounts advanced by M/s. Cauvery Aqua Pvt. Ltd., to M/s. Brindavan Beverages Pvt. Ltd., are not mere loans or advances but the said advances constitute a bonafide business transaction between the 2 companies for acquisition and investments to be made in real estate development projects with Embassy Group. The A.O. observation that there was no acknowledgement of this arrangement from Embassy Group is also addressed si....
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....the intention of such advance or loan is to avoid payment of dividend distribution tax under s. 115-0 of the Act, such a payment by a company certainly constitutes a deemed dividend But if such a payment is made firstly not out of accumulated profits and secondly even if it is out of accumulated profits but as trade advance as a consideration for the goods received or for purchase of a capital asset which indirectly would benefit the company advancing the loan, such advance cannot be brought within the word 'advance" used in the aforesaid provisions. The trade advance which is in the nature of money transacted to give effect to commercial transactions would not fall within the ambit of the provisions of s.2(22)(e) of the Act". 7.10 Respectfully following the judgment of the Hon'ble Jurisdictional High Court [supra] I hold that a trade advance for purchase of capital assets or purchase of goods cannot be considered as a loan or advance within the scope of sec. 2(22)(e) of the Act. I have already held that the appellant has been able to substantiate its explanation that the amounts advanced by M/s. Cauvery Aqua Pvt. Ltd., to M/s. Brindavan Beverages Pvt. Ltd., was fo....