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Case Law Details

Case Name : TCI Exim Pvt. Ltd. Vs ACIT (ITAT Delhi)
Appeal Number : ITA No. 4194/Del/2018
Date of Judgement/Order : 02/11/2021
Related Assessment Year : 2013-14

TCI Exim Pvt. Ltd. Vs ACIT (ITAT Delhi)

The Delhi bench of the Income Tax Appellate Tribunal (ITAT), Delhi bench has held that loan on interest received from the sister concern to fulfill the enhanced requirement of working capital for export orders does not attract the provisions of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.

The assessee received the loan on interest from M/s TCI India Ltd. of Rs.52,00,000/- during the F.Y. 2012-13 to fulfill the enhanced requirement of working capital for export orders. TCI India Ltd. is a closely held company holding 50,000 equity shares of the assessee company which is 2.5% of the total equity shares issued and subscribed. The AO made an addition based on the fact that Mrs. Urmila Agarwal having more than 20% equity holding is also holding more than 10% of equity holding in the lender company.

Before the authorities, the assessee contended that the assessee company does not have any shareholding in the TCI India Ltd., and hence the provisions of Section 2(22)(e) are not attractive. It was further argued that the trade loans do not fall under the category of loans and advances as envisaged under section 2(22)(e) of the Act.

No deemed dividend on loan given on interest to Sister Concern for business

The assessee also relied on the Delhi High Court decision in the case of CIT Vs. Ambassador Travels Pvt. Ltd., where the Court has held that “since the transactions were normal business transactions, which were carried out during the course of the relevant previous year, they cannot be described as advances or loans, which form a distinct category of financial transactions.”

After considering the arguments, the bench comprising Judicial Member Mr. Amit Shukla and Accountant Member B R R Kumar relied on the decision of the Supreme Court in the case of Rameshwarlal Sanwarmal Vs. CIT and the and a few High Court judgments wherein the Courts granted relief to the taxpayers.

Relying on the above rulings, the Tribunal held that “after giving due credence to the circular of the CBDT and looking into the facts of the instant case, where it can be held that the transaction is a commercial transaction and hence the provisions of Section 2(22)(e) are not attracted.”

FULL TEXT OF THE ORDER OF ITAT DELHI

The present appeals have been filed by the assessee against the orders of the ld. CIT(A)-9 , New Delhi dated 09.03.2018.

2. Since, the issues involved in both the appeals are identical, they were heard together and being ad judicated by a common order.

3. In ITA No. 4194/Del/2018 , following grounds have been raised by the assessee:

“1. That on facts and circumstances of the case, the order passed by the Ld. CIT (Appeal) is bad both in the eyes of law and on facts.

2. That on the facts and circumstances o f the case and in law the Ld. CIT(A) erred in law as the provisions of section 2(22)(e) of the Act are not applicable as the impugned transaction is in the nature of business transaction and not in the nature of loan or advances.

3. That on the facts and circumstances o f the case and in law the Ld. CIT(A) erred in interpreting the provisions o f section 2(22)(e) of the Income Tax Act, 1961 ignoring the judgment of Hon’ble Supreme Court in case of CIT v Madhur Housing and Development Co.

4. That on the facts and circumstances of the case , the Ld. CIT(A) erred in law in sustaining addition of Rs 37,00,000/- in the hands of the appellant company, who is not the shareholder of the company, u/s 2(22)(e) of the Act.”

4. The moot issue pertains to the ob jection to the addition of Rs.52 ,00,000/- u/s 2(22)(e) of the Income Tax Act, 1961 .

5. The undisputed facts are ,

  • That there is cross holding of shares between the assessee and M/s TCI India Ltd.
  • The assessee received loan on interest from M/s TCI India Ltd. o f Rs.52 ,00,000/- during the F.Y. 2012-13 to fulfill the enhanced requirement of working capital for export orders.
  • TCI India Ltd. is closely held company holding 50,000 equity shares of the assessee company which is 2.5% of the total equity shares issued and subscribed.
  • The AO made addition based on the fact that Mrs. Urmila Agarwal having more than 20% equity holding is also holding more than 10% of equity holding in the lender company.
  • The lender company and the assessee do not share more than 2.5% of cross holding having the voting power.
  • The ld. CIT(A) confirmed the addition based on the fact that Mrs. Urmila Agarwal is the common umbilical cord between the assessee and the lender company.

6. The ld. AR relied on the fact that the assessee company do not have any share holding in the TCI India Ltd. and hence the provisions o f Section 2(22)(e) are not attracted. Further, he argued that the trade loans do not fall under the category of loans and advances as envisaged u/s 2(22)(e) o f the Act.

7. The ld. DR relied on the provisions of the Act with specific reference to the later part “or to any concern in which such shareholder is a Member or partner in which he has a substantial interest” .

8. Heard the arguments of both the parties and perused the material available on record.

9. The Hon’ble High Court of Delhi in the case of CIT Vs. Raj Kumar (2009) 318 ITR 181, held that “Keeping the aforesaid rule in mind, the word ‘advance’, which appears in the company of the word ‘loan’, can only mean such advance which carries with it an obligation of repayment Trade advance, which is in the nature of money transacted to give effect to a commercial transaction, would not fall within the ambit of the provision of section 2(22)(e).”

10. Reliance was also placed on the judgment of the High Court of Delhi in the case of CIT Vs. Ambassador Travels Pvt. Ltd., where the Court has held that “since the transactions were normal business transactions, which were carried out during the course of the relevant previous year, they cannot be described as advances or loans, which form a distinct category of financial transactions.”

11. We are aware of the circular of the CBDT below w.r.t the section 2(22)(e) which is as under:

Circular No. 19/2017
F. No . 279/Misc ./140/2015/ITJ
Government o f India
Ministry of Finance
Central Board of Direct Taxes

New Delhi, Dated 12th June, 2017

Sub: Settled View on section 2(22)(e) o f the Income Tax Act, trade advances -reg.

Section 2(22) clause (e) o f the Income Tax Act , 1961 (the Act) provides that “dividend” includes any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner o f shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in pro fits holding not less than ten per cent o f the vo ting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf , or for the individual bene fit, of any such shareholder, to the extent to which the company in either case possesses accumulated pro fits.

2. The Board has observed that some Courts in the recent past have held that trade advances in the nature o f commercial transactions would not fall within the ambit of the provisions of section 2(22)(e) of the Such views have attained finality .

2.1 Some illustrations/examples of trade advances/commercial transactions held to be no t covered under section 2(22)(e) of the Act are as follows:

(i) Advances were made by a company to a sister concern and adjusted against the dues for job work done by the sister concern. It was held that amounts advanced for business transactions do not to fall within the definition o f deemed dividend under section 2(22)(e) o f the (CIT vs. Creative Dyeing & Printing Pvt. Ltd , Delhi High Court).

(ii) Advance was made by a company to its shareholder to ins tall plant and machinery at the shareholder’s premises to enable him to do job work for the company so that the company could fulfil 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 (Pr.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 o f electricity generators belonging to the sister The company utilised 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 o f business between two concerns and the transaction did not attract section 2(22)(e) o f 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 , hence forth, 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

5. Hindi version follows.

12. After perusing the judgments of the Hon’ble Supreme Court in the case of Rameshwarlal Sanwarmal Vs. CIT (122 ITR 162), judgment of Hon’ble Bombay High Courts in the case CIT Vs. Impact Containers (P.) Ltd. (367 ITR 346) and in the case of CIT Vs. Jignesh P. Shah (ITA No . 197/2013) and the judgment of Division Bench of Hon’ble Delhi High Court in the case of CIT Vs. Ankitech Pvt. Ltd. and after giving due credence to the circular of the CBDT and looking into the facts of the instant case, where it can be held that the transaction is a commercial transaction and hence the provisions of Section 2(22)(e) are not attracted.

13. The ground pertaining to prior period expenses not pressed.

14. In the result, both the appeals of the assessee are allowed.

Order Pronounced in the Open Court on 02/11/2021.

Download Judgment/Order

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