TaxTMI 
TaxTMI 
2023 (9) TMI 971
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....en as lead case. ITA No. 189/Asr/2018 3. The assessee has taken the following grounds: "1. On the facts & in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the assessment, framed by the Ld. Assessing Officer without considering the objections filed by the assessee appellant that the amount received & paid back and vice-versa are current account transactions and are only in the nature of providing business expediency as both the assessees are working in the same line of the business and the amount remained continuously fluctuating during the year as also in the past. Therefore, order passed u/s 250 is unjustified and the same be quashed. 2. That the appellant craves leave to add or amend any grounds of appeal before the appeal is finally heard or disposed of." 4. Brief fact of the case is that the assessee is a Private Limited Company engaged in the trading of Edible Oils. The assessee is in the same line of business from the past many years. The assessee has a strategic investment in one of the group concerns namely M/s GurdasAgro Pvt Ltd. (hereinafter referred to as 'GAPL') in which the asses....
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....1,17,17,142, thus, the Ld. AO calculated the amount of deemed dividend amounting to Rs. 3283186 i.e. Rs. 1,50,00,328- Rs. 1,17,17,142. 6. The ld. AR, Mr. Sudhir Sehgal, Advocate further argued and placed that the assessee has a regular business transaction with GAPL. The assessee obtains funds from GAPL as per its own business requirements and the same is advance or repaid to the Company GAPL as per the said Company's requirement. Further, there being many occasions where there are debit/credit balances between these two companies and the amount has been received/lent on account of business expediency. 6.1. Both the assessee are in the same line of business and they are engaged in the business of making transactions of high sea sales and at the time of purchase of edible oil, the amount is required by one company and other for the purpose of giving the margin money and for which, the funds are required and later on maturity of letter of credit as well and which are taken by both the group companies from each other at various intervals of time. If this transaction is not entered into on account of non-providing of margin money, it will result into loss to the company and, thus....
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....in any manner." 6.4. In the case of Pradip Kumar Malhotra v. Commissioner of Income-tax, West Bengal, [2011] 15 taxmann.com 66 (Calcutta) "11. In the case before us, the assessee permitted his property to be mortgaged to the bank for enabling the company to take the benefit of loan and in spite of request of the assessee, the company is unable to release the property from the mortgage. In such a situation, for retaining the benefit of loan availed from Vijaya Bank if decision is taken to give advance to the assessee such decision is not to give gratuitous advance to its shareholder but to protect the business interest of the company. 12. The view we propose to take finds support from the two decisions, one of the Bombay High Court and the other of the Delhi High Court relied upon by Mr. Khaitan as indicated earlier. 13. We, therefore, find that the authorities below erred in law in treating the advance given by the Company to the assessee by way of compensation to the assessee for keeping his property as mortgage on behalf of the company to reap the benefit of loan as deemed dividend within the meaning of Section 2(22) (e) of the Act. 14. We, ....
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....d facts, the business expediency is amply proved on record. It is also a fact that the agreement has not been reported or doubted by the AO, but the AO has taken his view because the assessee's concern was not pursuing the business of money lending. The sister-concern has taken over the entire business of the assessee when the assessee failed to fulfil the terms of the agreement. Thus, the amount of advance received by the assessee, under this agreement is a normal business requirement and nothing else. As we have already discussed, the fixed assets of the assessee concern have increased substantially during the relevant period." 6. A perusal of the facts and the above extract reveals that the revenue failed to adduce any evidence to prove that the transaction between the assessee and the company was a mere smoke screen to cover a surreptitious payment of money to a shareholder. M/s Nexo Products (India) received certain export orders but was not in a position to execute the orders as its manufacturing facility was situated in a remote area and was beset with labour problems and erratic supply of electricity. The Company, therefore, entered into an agreement, dated 1.8....
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....e fiction created in section 2(22)(e) only refers to pure advances or loans. Any amount paid on account of genuine business transaction between the entities falls outside the ambit of section 2(22)(e).As a result of globalization during the recent past, various giant infrastructure projects have sprung up and many are in the pipeline. Multi-various activities are involved in promoting these giant projects. All these activities collectively strive to complete the projects. Each activity is distinct in character. For each activity, different kinds of commercial agreements and technical agreements are required. The financial structure of every activity differs. The risk and reward involved in every activity also differs. In order to meet such complex constraints, the flagship company/the promoter may create various distinct entities being special utility vehicles (SUV) to deal in each of these activities independently. The promoter along with these SUV jointly works to complete the over-all project. In such situation, funds being the bloodline for all these entities flow from one entity to the other. Such transfer of funds arising out of commercial expediency may not be in the nature ....
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.... (TM) "It is also true that the principles of res judicata do not apply to income tax proceedings but equally important, is the rule of consistency, which has been held to be applicable in tax proceedings. If the facts and circumstances of the earlier year are similar, the same view should ordinarily be followed in the subsequent years." d. RadhasoamiSatsang Vs CIT (1992) 193 ITR 321 (SC) "Strictly speaking, res judicata does not apply to income tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year". e. CIT V/s Arthur Andersen & Co.(2009) 318 ITR 229 (Bom) "Held, dismissing the appeal, that admittedly for the Assessment Year 1997-1998 the Assessing Officer had allowed deduction under the very head, except to the extent of 20 per cent, which was set aside in appeal. Havin....
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....pparent that the appellant is liable to be taxed on the loans and advances received from M/s GurdasAgro Private Limited, as dividend, on account of the legal fiction created by the provisions of section 2(22)(e) of the Act. It is an admitted and undisputed fact that the appellant company was shareholder of M/s GurdasAgro Private Limited during the year under consideration and received loan. In the Tax Audit Report in Form No. 3CD [column 31a & 31b] also, there is an ad idem disclosure of acceptance & repayment of loan from and to M/s GurdasAgro Private Limited. Similar disclosure has been made in the Balance Sheet and the Tax Audit Report of M/s GurdasAgro Private Limited. The fact of loan taken by the appellant company, thus, stands established from its own financial statements as well as the statutory Tax Audit Report as also the financial statements and the statutory Tax Audit Report of the lender company. Thus, plea taken by the appellant at the appellate stage that the transactions of loans and advance was in the nature of current account for the purposes of business is fallacious. The receipt of loan/advance as reflected in the Ledger account does not either expressly or by n....
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....a primary fact, is in fact admitted. The genuineness of a loan or advance, i.e., creates an actual liability - an absence of which would attract s. 68, is not in issue. However, that the loan/advance represents an actual liability of the shareholder, which may have been repaid since, which could even be in the relevant year itself, did not find favour with the Apex Court in view of the clear, unambiguous language of the provision; it further noting that the object of the provision had a rational nexus with income, so that the provision, which it agreed was harsh, was within the legislative competence of the Parliament and, therefore, had to be given affect to. Parallel in this context stands drawn by us with section 68 of the Act. The argument of the sum not representing 'real income', though not specifically advanced before us, is implicit in the argument advanced with reference to the genuineness of the loan/ advance, and therefore considered. The same would not carry the assessee's case further, as would even otherwise be apparent from the host of decisions by the Apex Court. As explained in Poona Electric Supply Co Ltd. v. CIT [1965] 57 ITR 521 (SC), the concept of 'real income....
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....garded as dividend only under its artificial definition, as explained, per an irrebuttable presumption, statutorily provided. The question of the genuineness of the loan or advance, is, for the same reason, of no significance. The decisions cited are, besides being without reference to binding judicial precedents, distinguishable on facts. Further, being not a regular dividend, declared and paid by company, the same does not fall to be covered u/s. 10(34) and, thus, is not excepted u/s. 56. The same has, accordingly, been rightly brought to tax u/s. 2(24)(ii) r/w ss. 2(22)(e) and 56 of the Act by the Revenue, whose action is upheld. The assessee, in this view of the matter, fails. We decide accordingly." 13. We heard the rival submission and relied on the documents available in the record. The transaction between assessee and the GAPL is quite a business exigency and the assessee deducted TDS on the interest on the balance amount of the current account. We respectfully relied on the order of the Pradeep Kumar Malhotra (supra) and Amrik Singh, (supra). The ld.AR also relied on the CBDT Circular No. 19/2017 dated 12.06.2017 as per this Circular the CBDT relied on the order of the ....
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....cability of the provisions of Section 2 (22)(e) of the Act doesn't arise. 13.2. The reliance was place in order of Mrs Tarulata Shyam (supra) the question for applicability section 2(22)(e) of the Act (corresponding to section 2(6A)(e) of the Indian Income-tax Act, 1922) the nature of business exigency was not considered. It is distinguishable from other point that in the case Mrs Tarulata Shyam the beneficiary was individual, and no business exigency was formed. In the impugned appeal the transaction was made between two companies. We are, therefore, of the considered view that the case laws relied on by the authorities has no relevance to the present issue. 13.2 The ld. DR respectfully relied on the order of the jurisdictional tribunal in assessee's own case bearing ITA No.508/Asr/2017 (supra), where the issue related to business exigency was not covered and relied on the order of Poona Electric Supply Co. Ltd. Vs. CIT 57 ITR 521 (SC) the concept of the real income .is ascertained. We fully relied on the order on ITAT-Bangalore Bench in the case of M/S Bagmane Construction Pvt Ltd(supra). The section 2(22)(e) is deeming provision. A plain reading of the provisions reveal....