TaxTMI 
TaxTMI 
2025 (2) TMI 440
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....n of Rs 90100000 on presumption that the fresh loan taken by Merino Industries Limited after repayment therefore the higher pick balance of loan account should be considered as deemed dividend in the hand of the assessee for the financial transaction between the assessee and its subsidiary company. 2. On the fact and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) did not justify in confirming the addition of Rs 90100000 under section 2(22) (e) out of the total addition of Rs. 393410000 made by the Ld. Assessing Officer whereas the actual nature of the financial transaction between holding and subsidiary company was during the normal course of business in view of commercial expediency as the transaction which was actually on current account basis and there are also several transactions between the assessee and its subsidiary company and some occasions, the assessee has taken financial assistance from its subsidiary company and similarly on the some occasion the assessee has given financial assistance to its subsidiary company and the account for the financial transaction was squared up fully at the end the financial year mutually. 3. For t....
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....sessing Officer to adopt the basis for allowing deduction for the eligible undertaking under section 80IA (4) (iv) of the Act but the CIT(A) ignored to give specific order for determination of the deduction amount. 10. For that the learned Commissioner of Income Tax (Appeals) is not justified to ignore the deduction claimed by the assessee in the revised return of income tax. 11. For that the learned Commissioner of Income Tax (Appeals) is wholly unjustified for not giving the specific amount of deduction and he did not require any specific calculation from the assessee. 12. That the Appellant craves leave to add, alter or abrogate any grounds of appeal at the time of hearing." 2.1 The assessee has taken the following additional grounds of appeal: "1. That on the facts and circumstances of the case and in law, The hon'ble CIT(A) has erred both in facts and laws, in not considering to allow the Focus Market Scheme (FMS) of Rs. 86,72,177/- as non-taxable income which was not considered by the Learned Assessing Officer during the course of assessment ignoring the fact as the central government granted such incentive subsidy to enhance Indian export potential in the Intern....
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....id because the Assessing Officer has passed the impugned assessment order in respect of original return of income filed by the assessee, whereas, the assessee had filed revised return of income within the limitation period prescribed under the Act, however, the Assessing Officer failed to consider the revised return of income and even did not issue notice u/s 143(2) of the Act in respect of the revised return of income. Therefore, the assessment order passed in respect of earlier return of income was bad in law and not sustainable. The ld. AR of the assessee in this respect has made the following submissions: "1. Matter related to the Assessment order which is null and void under the law because of not considering the revised return filed by the Assessee within the stipulated due date under section 139(5)of the Income Tax Act 1961. (A). The Learned Assessing officer considered the original return which was filed by the assessee on 1st December 2014(i.e. on Monday which was a working day). The due date for filing of the original return was 30th November 2014 (i.e. on Sunday which was a closed day). The assessee filed the original return on the following day being 01 sf December ....
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....ssing officer didn't consider our revised return as filed by your appellant company within the due date. It is settled law that the original return as filed earlier cannot form the basis of assessment whereas the revised return is filed. It is also to be noted that once the revised return is filed by the assessee, the original return must be taken to have been withdrawn and to have been substituted by a fresh return for the purpose of assessment. We attached herewith the judicial pronouncement of Hyderabad ITAT in Shri Ashok Reddy Cheruvu Vs. Dy. Commissioner of Income Tax-1, International Taxation, Hyderabad dtd. 26th March, 2021. Kindly refer to para 4-Page No. 5 which related to the ground no 21 and the para no 10-(6 )of page no.12 and also para no 10 of page no 13 of the judicial pronouncement. We highlighted the portion of the decision for your kind reference and attached with our additional paper books under page No 14 to 26. The Hyderabad ITAT held that the assessment is null and void if the assessment order is not based on the revised return. (D). Your kind attention is also invited to the decision of Hon'ble High court Calcutta in the case of Maya Debi Bansal Vs.....
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....ubmit that it is settled proposition of law that when due date falls on a date which happens to be a holiday, the due compliance can be made on the following working day and in that case, the due date will be the last working day and not the holiday. He in this respect has relied upon various case laws, the reference of which has been given in his written submissions as reproduced above. He therefore has submitt4ed that since 30.11.2014 was a Govt. holiday, hence the return filed on the next working day i.e. on 01.12.2014 was within the prescribed limitation period and further that the Assessing officer had accepted the same and did not reject it on the ground of limitation. The ld. counsel has further submitted that the revised return was filed by the assessee u/s 139(4) of the Act on 31.03.2016 which was also within the due date. That the Assessing Officer failed to take note of the revised return filed by the assessee. The Assessing Officer did not issue notice u/s 143(2) of the Act in respect of revised return, which was held by the Hon'ble Supreme Court in the case of 'ACIT vs. Hotel Blue Moon' reported in 321 ITR 362 (SC) is a sine qua non for the Assessing Officer to assume ....
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....ield. The relevant part of the order of the Coordinate Hyderabad Bench of the Tribunal (supra) is reproduced as under: "7. We have given our thoughtful consideration to rival hearings qua assessee's petition dt.18.02.2021 seeking to raise the impugned additional grounds. It is not in dispute that he had canvassed the corresponding substantive ground Nos.7 to 9 before the CIT(A) to the very effect. It is thus clear that the impugned issue duly emanates form the lower appellate order not requiring any afresh factual examination. Coupled with this, learned co-ordinate bench decision in ITA No.22/Mds/2016 & CO No.56/Mds/2016 M/s. Yes & Yes Hitech Premier Homes India Pvt. Ltd. Vs. ITO Dt.19.06.2017; after considering honourbale apex court judgment in NTPC Ltd Vs. CIT (supra), holds that we can very well entertain such a pure question of law provided the relevant facts are already on record so as to determine the correct tax liability of an assessee. We adopt very reasoning to admit the assessee's foregoing additional grounds. 8. We stay back in the assessee's additional grounds going to the root of the matter and notice that the CIT(A) has dealt with this issue of validi....
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....sion of sec. 139(5) provides an opportunity to the assessee to file revised return if the assessee discovers any omission or any wrong statement in the original return filed vi]«. 139(1). Having utilized such opportunity, the appellant cannot turn back and argue that the scrutiny assessment proceedings, initiated on the basis of the original return, do not survive. 7.4 Similarly, the other decisions in the cases of Niranjan Lal Ram Chandra and Machine Tool Corporation of India Limited, cited by the appellant, do not support the argument made by the appellant. Nowhere it is said that the validly initiated pending legal proceedings, on the basis of the original return, will die a natural death with the filing of the revised return. 7.5 As the scrutiny assessment proceedings were already pending (based on original return), there was no legal requirement to once again initiate the proceedings, separately, with reference to the revised return. Legally, the AO was required to logically conclude the pending scrutiny assessment proceedings. Also, to treat the revised return as a valid return and consider the same for the purpose of making assessment. Both of these have been done.....
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....iled a revised return u/s.139(5) on 30.11.2012 disclosing an income of Rs. 5,67,630/-. It was a further submission that subsequently the second revised return was filed by the assessee on 26.02.2014 declaring Nil income. It was a submission that the AO had issued notice u/s.143(2) on 12.09.2013 in response to the return filed by the assessee on 30.11.2012. It was a submission that no notice u/s.143(2) was issued by the AO in respect of the revised return filed on 26.02.2014. It was a submission that once revised return was filed the earlier returns stands effaced. It was a submission that as no notice u/s.143(2) had been issued in respect of the return filed on 26.02.2014, the assessment was liable to be annulled. It was a submission that the assessment was getting time barred on 31.03.2015. It was a further submission that the factum of non-issuance of notice u/s.143(2) was also brought to the attention of the AO vide letter dated 27.03.2015 in response to the show cause notice issued by the AO dated 23.03.2015. It was submitted by the Ld.AR that in the Assessment Order, the AO recognized the existence of the revised return filed on 26.02.2014 by e-filing at Page No.4 Para No.6 of....
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....d more so, the said return have not been treated as invalid, the consequential assessment is bad in law, in view of the principles laid down in the Hon'ble Supreme Court in the case of ACIT vs. Hotel Blue Moon reported in 321 ITR 362 (SC). Further, in view of the position in law that if a revised return is filed u/s.139(5) and if such return is a valid return then the assessment can be completed only on the basis of such revised return as has been held by the Hon'ble High Court of Orissa in the case of Orissa Rural Housing Development Corporation Ltd. reported in 343 ITR 316, the assessment is liable to be annulled. 6. In these circumstances, as notice u/s.143(2) has not been issued in respect of the valid revised return filed by the assessee u/s.139(5) on 26.02.2014, the consequential Assessment Order u/s.143(3) dated 30.03.2014 for the AY 2012-13, in the case of the assessee is bad in law and stands annulled. 7. In the result, the appeal filed by the assessee in ITA No.22/Mds/2016 is stands allowed, the appeal filed by the Revenue in ITA No.351/Mds/2016 is stands dismissed and the CO No.56/Mds/2016 filed by the assessee is stands dismissed." Learned co-ordinate benc....
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....nor the same could be held to be a valid order as the same has not been passed in respect of valid/revised return of income filed by the assessee. Therefore, this legal issue is decided in favour of the assessee and against the revenue. The assessment order passed by the Assessing Officer is hereby quashed. 9. However, at the instance of the parties, we also proceed to decide the issues on merits also. Issue of Deemed Dividend: 10. All the Grounds of the revenue's appeal and Grounds No. 1 to 3 of the assessee's appeal pertain to issue of deemed dividend u/s 2(22)(e) of the Act. The assessee is aggrieved by the action of the ld. CIT(A) in sustaining the addition to the extent of Rs. 9,01,00,000/- out of the total addition made by the Assessing Officer of Rs. 39,34,10,000/- whereas, the revenue is aggrieved from the action of the ld. CIT(A) in deleting the remaining part of the addition. 11. Brief facts relevant to the issue are that the assessee is a private limited company engaged in the business of manufacturing of laminates, panel products, furniture, potato flakes and also engaged in agro products. During the assessment year 2014-15, the assessee company filed its return of ....
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....erved from the case laws that the Courts and Tribunal have enlarged the scope of exception from "ordinary course of business" to "normal/day to day course of business" or "cases where commercial expediency remain present". He however observed that in his understanding, the said overstretching was not justified and held that the provisions of section 2(22)(e) being deeming provisions should be strictly interpreted. He, therefore, rejected the contention of the assessee that the loan was given and taken in the normal course of business and out of commercial expediency only on the ground that he was not convinced with the proposition of law settled on this issue by his higher judicial forums including by the decisions of various High Courts and Tribunal. He also rejected the contention of the assessee that since the interest was also paid on the said loan, therefore, this was a pure commercial transaction. He, however, observed that the loan was given by the subsidiary company to the assessee company throughout the year and at regular intervals and the said loan was also repaid from time to time by the assessee company to the subsidiary company and thereafter again fresh loan was take....
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....produced a single piece of evidence to prove that loan was given in ordinary course of business. Hence, this judgement is not applicable. * In the case of M/s Sree Krishna Gyanodya Flour Mills Pvt. Ltd. -vs. PCIT (Supra)the assessee company held substantial beneficial interest in SVPL. The assessee company has taken loan form its subsidiary company (i.e. SVPL) of Rs. 14.26 crores. The AO treated the same as loan and advances and held it to be as deemed dividend u/s 2(22)(e). However, in this case it is observed that the assessee company maintained regular account from where it is clearly visible that the assessee has taken loan/advance from SVPL, correspondingly, on many occasions it has given advance to SVPL. Thus there was a change of balance shown by the assessee. Therefore, it cannot be termed as advance taken by the assessee because the flow of transactions is not only from the subsidiary to holding but also vice versa, which is not similar to the present case. Therefore, this judgement is not in support of the appellant company. * In the case of Sunil Kapoor -vs.- CIT (Supra)the assessee is an individual hold more than 60% shares in M/s Kapoor Imaging Pvt. Ltd. (for short....
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....ce the conditions specified in said sections are satisfied than the advance/loan has to be taxed as deemed dividend in the hands of the recipient. The only limitation or reprieve available to the recipient of the loan is that the above loan was granted by the lender company in the ordinary course of business. The Legislature in its wisdom has given only one circumstances or exception under which said loan or advanced cannot be taxed deemed dividend. This exception of loan given in ordinary course of business provided in the statute to protect the assessee's from genuine hardship from taking loan from any finance or NBFCS companies which also might be its related concern. Otherwise, any loan or advance given partake the colour of deemed dividend. 2.3.5. I have gone through the cases cited by the AR of the appellant and also examined various cases on the subject on my own. On careful examination of those cases it appears that Courts and Tribunals had enlarged the scope of the exception from "Ordinary course of business" to "Normal/Day to Day course of business" or cases where commercial expediency remain present. In my understanding, the said overstretching is not justified as ....
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.....8 One of the contention raised by the AR of the appellant company is that the assessee has paid interest on the said loan received from the subsidiary and therefore this is a pure commercial transaction. The above submission of the AR does not impress me as the provision of Sec. 2(22) (e) is very clear in this regard. Once the loan is granted and other conditions are fulfilled the provision of Sec. 2(22) (e) triggers. The fact that interest is paid on said loan is immaterial in deciding the taxability. The above view finds support from the decision of Calcutta HC in NandlalKanoria -vs.- CIT reported in [TS-5254-HC- 1979-CAL) where the Hon'ble Court has categorically held that payment of interest does not mean that loan does not confer any benefit to the borrower, therefore, the fact that interest is paid is not a relevant criterion to decide the taxability of deemed dividend. 2.3.9 I would also like to add that during the course of proceeding the AR submitted extract of leger of loan account. From the said loan account, it is evident that loan was given to the appellant company throughout the year and at regular interval the said loan also repaid by the appellant company and....
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....d with your appellant company as per order of NCLT, Bench, Kolkata. It is also to be noted that your appellant company provided money also to subsidiary company on some occasions for which the separate ledger is attached with our additional book as already filed. We attached again herewith the above-mentioned transactional ledger account for kind reference. Vide page 41 to 45. The Transactions between both companies under current account which is absolutely for maintaining the need of business under the running transactions during the financial year. It is also to be noted importantly that balance of the running transaction is squared off fully at the end of the financial year in the books of appellant company as well as Subsidiary company. (B). The department of Income tax has taken stands and cleared the disputed matter of the deemed dividend after taking into consideration the actual nature of the financial transactions between your appellant company and its subsidiary in the remand matter of A.Y 2013-14, The department of Income Tax held in the remand report that transaction between Your appellant company, Merino Industries Limited and its Subsidiary company, Merino Panel Pro....
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....ace during the financial year which is in nature of current account transactions therefore deemed divided is not applicable. We again attached herewith the above judicial pronouncement Vide page No - 59 to 64. Your kind attention is also invited to the decision of ITAT bench "B" Delhi M/s Exotica Housing and Infrastructure Company Pvt. Ltd. Vs. Income Tax Officer Ward- 8(4),New Delhi, in which it is decided that the financial transactions between holding and subsidiary company is not under preview of deemed dividend as the financial transactions taken place in several occasions during the financial year and balance at the end of the year is zero. Kindly refer to the page No 65 to 78 with our additional paper book. In our case, it -is also reflected in the ledger which is clearly showing the transaction are purely temporarily financial accommodation for the business purpose as taken place at several occasion during the financial year. In such cases, section 2 (22)(e) would not be attracted. It is also to be noted that where the transaction between holding and subsidiary is not in nature of loan the decision of Smt Tarulata Shaym v. CIT is not applicable at all. In our cases it is al....
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....of the Assessing Officer in the case of the assessee for assessment year 2013-14 on the same issue of deemed dividend, wherein, the Assessing Officer while relying upon various case laws and also considering that in the assessee's own case for earlier assessment years during A.Ys 2010-11 and 2011-12, the then Assessing Officer had not made any additions on account of deemed dividend u/s 2(22)(e) of the Act though, there were similar type of loan transactions between subsidiaries and assessee company and it was demonstrated that there was a systematic practice of loan transaction between subsidiaries and assessee which were in normal course of business. The Assessing Officer, therefore, has recommended in his report that the provisions of deemed dividend were not applicable in the case of the assessee. The relevant part of the remand report dated 10.05.2023 of the Assessing Officer is reproduced as under: "In view of the above, the following points are need to be highlighted; 1. The assessee company availed unsecured financial accommodation for working capital and other operational needs with M/s. Merino Panel Products Limited and the assessee company stated that the transaction....
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....ssments during the AY- 2010-11 and AY-2011-12, the then AO has not made any additions on account of 2(22)(e), though there were loan accommodation transaction between the subsidiaries companies Merino Panel Products limited and Merino Industries Limited, the assessee submitted Assessment Orders or AY-2010-11 and AY-2011-12 and board resolutions agreeing unsecured financial accommodations between the subsidiaries which shows there is a consistent practice of financial transaction(loan accommodation between the subsidiaries are in general course of business Therefore, deemed dividend is not applicable in such cases of transactions." 15. For the Assessment year under consideration also, there is no denial of fact that the transactions between the assessee and its subsidiary company was like that of a current account. It is noticed that from time to time the assessee and its subsidiaries had given and taken loan from each other as per the business needs and the loans were squared up at the end of the year. The transactions were continuous and running as per business needs and expediency. The issue is covered by the various decisions including the decision of the Coordinate Kolkata Ben....
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.... distinction between the intercorporate deposits viz-a-vz loans/advances, according to us the authorities below were not right in treating the same as deemed dividend u/. 2(22)(e) of the Act" [emphasis supplied] Similarly, we also support and guidance from the judgment of Hon'ble jurisdictional High Court in the case of Pradip Kumar Malhotra v. CIT 338 ITR 538 (Cal) wherein the Hon'ble High Court held as under:- "The phrase "by way of advance or loan" appearing in sub-clause (e) of section 2(22) of the Income-tax Act, 1961, must be construed to mean those advances or loans which a shareholder enjoys simply on account of being a person who is the beneficial owner of share (not being share entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a share-holder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. thus, gratuitous loan or advance given by a company to those cl....
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.... assessee which have been done regularly and consistently and has noted that the same being in the ordinary course of business and out of commercial expediency and the account between the assessee and its subsidiary was in the nature of current account and further since the issue is squarely covered by the decision of the various High Courts/Tribunal decisions, therefore, in view of the above discussion, the addition made/confirmed by the lower authorities u/s 2(22)(e) of the Act is not sustainable in this case and the same is accordingly ordered to be deleted. In view of the above observations, Ground Nos.1 to 3 of the assessee's appeal are hereby allowed, whereas, the appeal of the revenue is hereby dismissed. Issue relating to claim of deduction u/s 80IA of the Act - 16. The assessee vide its Ground No.4, 6 to 11 has contested the action of the lower authorities in not allowing the deduction claimed by the assessee u/s 80IA of the Act. 17. The assessee company claimed deduction of Rs. 3,85,61,826/- for its steam generation unit from the boiler plant U-I located at Hapur. During the assessment proceedings, the assessee duly explained about its eligibility to claim the said ded....
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....t the outset that our return as filed on 01-12-2014 which is within due date u/s 139(1) as the Ld A.O accepted and mentioned that the assessee is eligible to revise the return u/s 13915). Kindly refer to the page no 8 of the assessment order as we highlighted the portion. (C) The Ld A.O mentioned wrongly that the assessee did not file the revised return as your appellant had filed the revised return within due date on 31- 03-2016 and claimed deduction u/s 80IA. The copy of original return and revised return as attached herewith. Vide Page No-10 10 11 with our additional paper book. The ignorance of our valid revised return by the Ld Assessing Officer is attracted & invited to invalid the assessment order as we argued during hearing and also mentioned herein above under clause no-1. (D) Your honour is requested to vide the para no 6.1.1 of the order of CIT(A) in which the CIT(A) mentioned that "No claim has been made regarding 80IA in Return of Income u/s 139(1)/139(5)" It is very clear that the CIT(A) also ignored our revised return as filed u/s 139(5) and mentioned the above fact which is wrong. (E) Your honour is requested to vide the para no 6.1.2 of page no 15 of the CIT(....
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.... of deduction u/s 80IA as per line of judgement of the Supreme court and in the line of the order of the ITAT Bench-C Kolkata. The CIT(A) also agreed and recommended to allow the deduction in our case based on market rate. We attached herewith the calculation of deduction u/s 80IA based on market rate for your kind consideration. 20. The ld. Counsel has duly demonstrated that the deduction u/s 80IA was duly claimed in the revised return. As observed above, both the lower authorities failed to take note of the revised return filed by the assessee. Therefore, the denial of deduction on this ground was not justified. So far as the computation of deduction is concerned, the issue is squarely covered by various decisions of the higher courts including the decision of the Hon'ble Supreme Court in the case of CIT vs. M/s Jindal Steel & Power Ltd. in Civil Appeal No.13771 of 2015 vide order dated 06.12.2013, wherein, the Hon'ble Supreme Court has held as under: 30. Thus on a careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should n....