TaxTMI 
TaxTMI 
2025 (11) TMI 460
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....rutiny assessment and notice u/s 143(2) was issued on 05.09.2014. A perusal of the accounts would reveal that assessee is holding 99.99% shares in Creative Cable Network Pvt. Ltd. (hereinafter referred to as 'CCNPL'). Earlier Shri Gurdeep Singh was holding these shares but after transfer of the shares to the assessee, M/s CCNPL has become subsidiary of the assessee company during the year. The AO found that CCNPL transferred an amount of Rs. 17,67,23,500/- to assessee namely M/s Jujhar Construction & Travels Pvt. Ltd. (hereinafter referred to as JCTPL). A sum of Rs. 12,53,10,104/- has been returned by the assessee to CCNPL. The net amount of loan/advance outstanding in the name of the assessee in the books of CCNPL was of Rs. 5,14,13,296/-. The AO has assessed deemed dividend u/s 2(22)(e) of Rs. 12,24,72,654/- in the name of Shri Gurdeep Singh on substantive basis. The dispute travelled upto ITAT in ITA No. 170/CHD/2018. The ACIT, Circle-6, Ludhiana Vs Shri Gurdeep Singh, Pakhowal Road, Ludhiana. The Tribunal has recorded a finding vide its order dated 26.02.2020 that shares stand transferred and Shri Gurdeep Singh was not the beneficiary owner of the shares in CCNPL, hence no divi....
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....ed the interest to the other company to whom the funds were transferred. Even the amount is not given as interest free to M/s Jujhar Construction and Travels Pvt Ltd. In the case of the Assessee, it is a matter of fact that the amount has not been given as free of cost by M/s Creative Cable Network Pvt Ltd. to M/s Jujhar Construction and Travels Pvt Ltd. The Company has received an amount of Rs. 1,00,11,847/- during the year under consideration as interest income. So in no way the transaction in question can be termed as deemed dividend in the case of the Assessee. Reliance in this regard is being placed upon the following Judgment wherein it has been held that when there is passing of some iteration in the form of interest then it cannot be said that any benefit has been received. Smt. Sangita Jain vs ITO in ITA No. 1817/Kol/2009 vide order dated 11.03.2016. The amount has ultimately been invested in the share application money of the company namely M/s G.S. Majestic Developers P Ltd. The assessee has vehemently argued and which has also substance in considering that the amount has ultimately been received by M/s G.S Majestic Developers Private Limited from M/s Jujhar Con....
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.... out of the same Rs. 90.70 cr has been funded from the group Companies. From the perusal of the said chart it is also clear that the funds amounting to Rs. 90.70 cr have been funded by the following group Companies: Amount funded by M s Jujhar Construction and Transport Pvt Ltd. - 46.64 cr. Amount funded by Creative Cable Network - 24.10 cr. Amount funded by Other Group Companies - 19.96 cr. It has also been made clear that out of the total funds as contributed by Ms Construction and Transport Pvt Ltd., an amount of Rs. 18.08 cr has been received by M/s JCTPL from M/s Creative Cable Network. The chart as submitted earlier clarifies each and everything. It can also be seen from the said chart that M/s G.S Majestic has been able to get funds from the Banks only to the tune of Rs. 19.93 cr. It has also been stated earlier that M/s G.S Majestic was not able to procure any loan from the initial years of its project i.e. in the year ending 31.03.2011 and 31.03.2012 and even in the year 2013 the Company has able to procure only a meager amount of loan keeping in mind the huge investment. I find considerable weightage in the argument of the appellant tha....
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....ourt in case of CIT vs. Amrik Singh that in case of tangible business expediency has been established, Section 2(22)(e) can't be invoked. 4.15 During the course of appellate proceedings the appellant vehemently reiterated that, in the subsequent years the assessing officer Assessing Officer after examining all such facts, passed an order u/s 143(3) of the Income tax Act for the A.Y. 2014-15 has chosen not to make addition of deemed dividend on the basis of evidence furnished. On the same facts and circumstances, the Assessing has chosen not to make addition of deemed dividend on the basis of evidence furnished. This fact substantiates the claim of the appellant given at the time of appellate proceedings that the transactions as carried out during the assessment year are nothing but transaction is in the nature of commercial expediency and no personal benefit is involved in the entire transaction." The AR also referred to Circular No. 19/2017 dated 12th June, 2017 issued by the CBDT on this issue which for reference is reproduced below: Sub: Settled View on section 2(22)(e) of the Income Tax Act, trade advances -reg. Section 2(22) clause (e) o....
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.... between two concerns and the transaction did not attract section 2(22) (e) of the Act. (CIT, Agra vs Atul Engineering Udyog, Allahabad High Court). 3. In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word 'advance' in section 2(22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon. 4. The above may be brought to the notice of all concerned." Therefore, in view of the order dated 02.11.2017 passed by the CIT(A)-3, Ludhiana as reproduced above, and the Circular No. 19/2017 issued by the CBDT on the subject of deemed dividend u/s 2(22)(e), the arguments of the AR appear acceptable and the addition of Rs. 12,24,72,654/- made by the AO is deleted. Accordingly, these grounds of appeal are allowed. 4. The ld. CIT DR has relied upon the order of AO and submitted that CCNPL has given a loan to its shareholder who is holding substantial shares of 99.99%, hence the loan given to the assessee deserves t....
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....by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; (i) x x x (ia) x x x (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ; x x 5.1 As far as interpretation and construction of clause (e) of Section 2(22) is concerned, there is no dispute. The assessee fulfils all the necessary conditions for application of this clause, however, the dispute before us is whether the amount received by the assessee did fall within the exclusion clause contemplated under sub-clause (ii) of Section 2(22)(e) of the Income Tax Act or not. A perusal of the above provision would indicate that dividend would not include any advance or loan made to a shareholder by a company in the ordinary course of its bu....
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....work for the company so that the company could fulfill an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. (CIT vs Amrik Singh, P&H High Court). iii. A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilized gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister concern was a business transaction arising in the normal course of business between two concerns and the transaction did not attract section 2(22)(e) of the Act. (CIT, Agra vs Atul Engineering Udyog, Allahabad High Court)." 5.2 A perusal of this circular would reveal that it was always debatable before the adjudicating authorities whether a particular transaction falls within the ambit of ordinary course of business or not. Thus, it is always a factual situation where advance is to be construed as coming in the ordinary course of business and that would not fall under the deeming fiction o....