Case Law Details
Yogesh Mehra Vs DCIT (ITAT Mumbai)
Co-ordinate Bench has given categorical finding that all these loans and advances given to different companies by other companies are in the nature of loans and advances out of commercial consideration and business expediency. The co-ordinate Bench has given detailed reasons which stated that company has purchased land in the name of related companies for the purpose of setting up Wind farm and therefore, there is loan and advances in the land holder companies for business purposes. While holding so, the co-ordinate Bench also relied on several judicial precedents as well as CBDT Circular No. 19/2017 dated 12.06.2017.
Further, following the same decision of co-ordinate Bench in assessee’s own case for AY 2012-13, ITAT has also deleted the identical addition.
The learned Departmental Representative could not show us any reason that how those decisions are not applicable in case of assessee for this year. Further, the CBDT has also taken a view vide CBDT Circular No. 19/2017 dated 12.06.2017 stating that where loans and advances are in the nature of commercial transactions, would not fall within the ambit of word ‘ advance’ in section 2(22) (e) of the Act. In view of the above facts, respectfully following the decision of co-ordinate bench in assessee’s own case for earlier years as well as circular of CBDT, we hold that the addition made of Rs. 1,60,50,281/- in the hands of the assessee on substantive basis is not sustainable. Therefore, the orders of the lower authorities are reversed and Assessing Officer is directed to delete the deemed dividend under section 2(22)(e) of the Act.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
01. This appeal is filed by the assessee against the order of Commissioner of Income-tax (A) -51, Mumbai [CIT(A)] for AY 2012-13 dated 18/11/2019 raising the following grounds of appeal:-
“1. On the facts and in the circumstances of the appellant’s case and in law the Ld. CIT(A) erred in not adjudicating the ground relating to AO’s action in considering the commercial and business transaction between EIL and group companies which were undertaken by EIL for the purpose of carrying on its business as payment by way of loans and advances for the purpose of section 2(22)(e).
2. On the facts and in the circumstances of the appellant’s case and in law the Ld. CIT(A) erred in directing the AO to verify the ledger accounts of WWIL/EIL in the books of 6 related concerns for ascertaining the claim of the appellant that there are no actual payments made/received and only journal entries were passed and if found correct delete the addition of Rs. 1,64,85,310/- on account of deemed dividend made by the AO in respect of transaction between WWIL/EIL with 6 related companies despite the fact that the ledger accounts were available before the AO during the course of assessment proceedings and the same were also filed before the Ld. CIT(A) instead of deleting the addition of Rs. 1,60,00,893/- made by the AO.
3. The appellant prays before the Hon’ble Tribunal to delete the addition of Rs. 1,64,85,313/- made by the AO by invoking the provisions of section 2(22)(e).
4. The appellant craves leave to add to, alter, amend and/or delete all or any of the foregoing grounds of appeal.”
02. Brief fact of the case shows that assessee is an individual and derived income from house property, remuneration from the partnership firm and income from other sources. He filed his return of income on 11.10.2012 at Rs. 2,16,52,010/-. On 14.03.2013, search under section 132 of The Income-Tax Act, 1961 (the Act) was carried out on Wind World (India) Ltd. The assessee was also covered. It was found during the course of search that six companies of the group have received loans from Wind Word ( India ) Limited amounting to Rs. 1,64,85,313/-. which are related concern of Wind World (India) Ltd. It was also found that assessee along with his mother is holding more than 10% shares of Wind World (India) Ltd. and also holding shares more than 20% in the said 6 related concerns. Therefore, provisions of Section 2(22)(e) of the Act are applicable.
03. The learned Assessing Officer issued notice under section 153A of the Act on 28.01.2014. The assessee filed return on 11.08.2014 at Rs. 2,16,52,008/-. During the course of assessment proceedings, assessee was asked explanation on taxability of deemed dividend. Assessee submitted that [1] he is not the recipient of loan [2] Loans are business advances [3] Advances are through journal entries and therefore deemed dividend cannot be taxed in his hands. The learned Assessing Officer after considering the explanation of the assessee invoked the Provisions of Section 2(22)(e) of the Act and made addition on substantive basis in the hands of the assessee and his mother and further made additions on protective basis in the hands of 6 related concerns, who received loans. The learned Assessing Officer on 28.06.2017 passed assessment under section 143(3) read with section 153A of the Act, wherein addition of Rs. 1,60,50,281/- was made in the hands of the assessee on substantive basis.
04. The assessee preferred the appeal before the learned CIT(A). The learned CIT(A) rejected the contention of the assessee that the loans and advances are business advances. He further directed ld AO to examine contention that in case of journal entries, the provisions of section 2(22)(e) of the Act cannot be invoked as he found that only in few of instances actual payments have been made or received and for all others only journal entries have been passed. Therefore, he directed the learned Assessing Officer to verify the ledger account and recompute amount of deemed dividend.
05. The assessee is aggrieved with that order of the learned CIT(A) and has preferred this appeal.
06. The assessee has challenged the order of the learned CIT(A) stating that on commercial advances and on journal entries the deemed dividend cannot be invoked. Further, as the ledger accounts were available with the learned CIT(A) it is not proper for him to direct the Assessing Officer for verification.
07. The learned Authorized Representative submitted that identical issue arose in case of assessee for AY 2012-13, wherein in ITA No. 1003/Mum/2020 dated 21.12.2021, the co-ordinate Bench has considered the very same issue in issue no. 1 and 2 and deleted the addition. He submitted that the co-ordinate bench further relied in that case on assessee’s own case for AY 2007-08 and 2009-10 dated 22.07.2021, wherein categorical finding of ITAT that all these advances were given out of commercial consideration and business expediency. The learned Authorized Representative submitted that this issue is not further agitated by the Revenue in those cases and therefore, the order of the Tribunal in assessee’s own case cover this matter in favour of the assessee.
08. The learned Authorised Representative further referred to the paper book containing 71 pages filed before us wherein the various ledger accounts of the companies to whom loans were given are filed, which shows that these are merely journal entries. He therefore submitted that on that count also, the addition under section 2(22)(e) of the Act cannot be made.
09. The learned Departmental Representative vehemently supported the order of lower authorities and stated that there is a finding of the learned CIT(A) that advances are not for the purpose of business and are not driven out of business expediency and therefore, the addition has correctly been made under section 2(22)(e) of the Act.
010. We have carefully considered the rival contentions and perused the order of the lower authorities. We find that in assessee’s own case for AY 2007-08 and 2009-10 in ITA No. 4006 & 4008/Mum/2019 dated 22.07.2021 [2021 (8) TMI 894 – ITAT MUMBAI] wherein vide Para No. 12, the issue is decided as under :-
“12. The facts qua the loans and advances given by M/s. Wind World India Ltd. have already been discussed in the ground no 1 and are not being repeated here. After hearing the rival parties and perusing the material on records, we find that even on merits, the assessee has a very strong case in his favour. We note that these loans and advances were given out of commercial considerations and expediency. The Wind Word (India) Ltd. is engaged in the business of installing wind Mills and sales thereof. In order to install the windmills it needs land. The Wind Word (India) Ltd. purchases land in the name of these related companies in order to overcome the land ceiling conditions imposed by Land Ceiling Act in vogue in various States. For the said purpose, The Wind Word (India) Ltd. advances loans to these companies and thereafter the necessary adjustments are made upon purchase of land. We note that the Wind Word (India) Ltd. has to buy land in the name of related entities/companies and it is only that purpose the loans were advanced to the related companies. In our opinion the money was advanced out of business and commercial consideration and therefore not covered by the provisions of section 2(22)(e) of the Act. The case of the assessee is supported by the following decisions namely (i) Chandrashekhar Maruti vs. ACIT ITA No.5410/Mum/2012 47 CCH 0783, 183 TTJ 0459, (ii). Ackruti City Ltd. vs. DCIT [ITA No. 4869/Mum/2009(iii)CIT vs. Suraj Dev Dada [(2014) 46 taxmann.com 402 (Punjab & Haryana)]. In the case of Chandrasekhar Maruti vs. ACIT (supra) the co- ordinate bench of the Tribunal has held that where there is a running account between the two sister concerns wherein there is a continuous exchange of transactions and the account was squared up during the year, no part of the said amounts could be treated as being attributed to the shareholders. We find that in the case of the assessee, the facts are exactly same as the funds were transferred to various entities inter se out of commercial expediency in order to purchase land in the name of these entities in various states in view of the Land Ceiling Act in vogue in those states. As the installation of windmills and sales thereof is the business of the assessee and the necessary adjustments are made after purchase of land by these entities and therefore the advancing of loans is out of business and commercial consideration. Similarly, in the case of Akruti City Ltd. vs. DCIT (supra) the identical issue was decided in favour of the assessee by holding that financial transactions out of business expediency between two sister concerns can not be called as loans or advances for the purpose of invoking section 2(22)(e) of the Act. The same view as held by the Hon’ble High Court of Punjab & Haryana in the case of CIT vs. Suraj Dev Dada (supra) wherein it has been held that it will be a travesty of law to apply the provision of section 2(22)(e) of the Act where the assessee had running account with the company with whom the assessee advanced money to the company as and when required for the purpose of business and also in real sense the assessee has not derived any benefit from the funds of the company. The issue is also clarified by CBDT in its circular No.19/2017 dated 12.06.2017 wherein it has been clarified that trade advances in the nature of commercial transactions would not fall within the ambit of words “loans/advances within the meaning of section 2(22)(e) of the Act. Considering the facts and circumstances of the case in the light of various decisions as discussed above, we are of the considered view that the money advanced is used for the purpose of business of the former and therefore can not a loan/deposit to be treated as deemed dividend. Accordingly, we are not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue. Thus we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition.”
011. Co-ordinate Bench has given categorical finding that all these loans and advances given to different companies by other companies are in the nature of loans and advances out of commercial consideration and business expediency. The co-ordinate Bench has given detailed reasons which stated that company has purchased land in the name of related companies for the purpose of setting up Wind farm and therefore, there is loan and advances in the land holder companies for business purposes. While holding so, the co-ordinate Bench also relied on several judicial precedents as well as CBDT Circular No. 19/2017 dated 12.06.2017.
012. Further, following the same decision of co-ordinate Bench in assessee’s own case for AY 2012-13, ITAT has also deleted the identical addition.
013. The learned Departmental Representative could not show us any reason that how those decisions are not applicable in case of assessee for this year. Further, the CBDT has also taken a view vide CBDT Circular No. 19/2017 dated 12.06.2017 stating that where loans and advances are in the nature of commercial transactions, would not fall within the ambit of word ‘ advance’ in section 2(22) (e) of the Act. In view of the above facts, respectfully following the decision of co-ordinate bench in assessee’s own case for earlier years as well as circular of CBDT, we hold that the addition made of Rs. 1,60,50,281/- in the hands of the assessee on substantive basis is not sustainable. Therefore, the orders of the lower authorities are reversed and Assessing Officer is directed to delete the deemed dividend under section 2(22)(e) of the Act. Accordingly, the grounds no. 1 to 3 of the appeal are dismissed.
014. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 19.04.2022.
