Chartered Accountant Finance: [aaykarbhavan] Judgments and Information [1 Attachment]

  IT : Where companies in which assessee was holding more than 10 per cent   shareholding gave loans to partnership firms in which she had   substantial interest but there was no corresponding transfer of funds   from said firms to companies, assessee's explanation that loans were   advanced in ordinary course of business was not accepted and,   consequently, amount in question was to be taxed as deemed dividend
■■■
  [2014] 45 taxmann.com 29 (Chandigarh - Trib.)
  IN THE ITAT CHANDIGARH BENCH 'B'
  Smt. Sunita Jindal
v.
  Deputy Commissioner of Income-tax, Central Circle -1, Chandigarh*
T.R. SOOD, ACCOUNTANT MEMBER 
  AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
  IT APPEAL NOS. 1144 TO 1152 (CHD.) OF 2013
[ASSESSMENT YEARS 2003-04, 2004-05, 2006-07 TO 2009-10]
  FEBRUARY  25, 2014 
Section   2(22) of the Income-tax Act, 1961 - Deemed dividend (Amount advanced in   course of business) - Assessment years 2003-04, 2004-05, 2006-07 to   2009-10 - In course of assessment, Assessing Officer noted that assessee   was holding more than 10 per cent shares/voting rights in certain   companies and said companies had given loans to partnership firms in   which assessee had substantial interest - Assessing Officer thus invoked   provisions of section 2(22)(e) and added amount of loan to assessee's   taxable income as deemed dividend - In appellate proceedings, assessee   challenged said addition contending that loan was given in ordinary   course of business - It was noted that companies had advanced various   amounts to registered firms through cheques or bank transfers but there   was no corresponding receipt of money from said partnership firms in   hands of company - Whether continuous outflow of money from company to   partnership concern did not establish case of assessee that there were   frequent transfers i.e. inflow and outflow of amounts as and when there   were business exigencies - Held, yes - Whether, therefore, impugned   addition was to be confirmed - Held, yes [Para 27] [In favour of   revenue]
  FACTS
 
■   During   the course of assessment proceedings, the Assessing Officer noted   certain complexities in assessee's books of account and, thus, case was   referred to the Special Auditor under section 142(2A).
■   The   Special Auditor, thereafter furnished its report under which it was   noted by him that the assessee was holding more than 10 per cent shares   /voting rights in certain companies and the said companies had given   loans to the partnership firms in which the assessee had substantial   interest.
■   The Assessing Officer thus invoked provisions of section 2(22)(e) and added amount of loan to assessee's taxable income as deemed dividend.
■   The Commissioner (Appeals) confirmed the order of Assessing Officer.
  ■ On second appeal:
HELD
   
  ■ Under the provisions of section 2(22)(e)   where any payment is made by a company which should not be a public   limited company, of any sum of money by way of advance or loans to a   shareholder, who is beneficial owner of shares holding not less than 10   per cent of the voting power, or to any concern in which the shareholder   is a member or partner and where he has substantial interest, and to   the extent where the company possesses accumulated profits, then, such   advances or loans are to be treated as deemed dividend in the hands of   the shareholder. Section 2(22)(e) creates a fiction under which   the amounts which are advanced by way of loan or advances are to be   treated as dividend and included as receipt in the hands of the   beneficial owner. [Para 17]
■   Where   the company advancing the loan or advance is a company in which public   are substantially interested, then the provisions of section 2(22)(e)   are not attracted, where such company makes any advance or loan to its   shareholder. Further in cases where the loan or advance has been made by   the company in the ordinary course of carrying on the business then   also the provisions of section 2(22)(e) are not attracted.   However, where the amount is given by way of loan or advance to a   shareholder or to a concern in which such shareholder is a member or   partner, having substantial interest in the said concern, then any such   payment made by the company to the extent of accumulated profits in the   hands of the company, is to be treated as dividend in the hands of such   shareholder. [Para 22]
■   Coming   to the facts of the present case, the assessee is admittedly holding   shares more than 10 per cent of the voting power and is an eligible   person, as defined under section 2(22)(e). The assessee is a   Director in 'M' Ltd. and is holding more than 10 per cent shares/voting   power, which is an admitted position. The said company had advanced   certain loans to partnership firms, in which the assessee has   substantial interest. The assessee fairly pointed out that she satisfies   both the preliminary conditions laid down under section 2(22)(e).
■   However,   it was pointed out by the assessee that the provisions of the said   section were not applicable as the said loan and advances were made in   the ordinary course of business. The plea of the assessee was that in   order to better manage the business affairs of the different concerns in   which the assessee was either a shareholder or partner, the bank   accounts were opened only in two banks and whenever there was shortage   of funds, the amounts were transferred from one concern to the other or vice versa.   The said advance having been made in order to meet the business   exigencies, were thus advanced during the course of carrying on of the   business and hence the provisions of section 2(22)(e) were not attracted. [Para 23]
■   The   perusal of the ledger statements filed by the assessee reflect that   continuously, there is an increase in the debit balance in the ledger   accounts of the said concerns i.e. the company advanced various   amounts to the registered firms through cheques or bank transfers and   there were no corresponding receipt of money from the said partnership   firms in the hands of the company. The amounts had been advanced from   day-to-day either by way of bank transfer or by way of cheques or other   adjustments in the account. [Para 26]
■   The   assessee during the course of hearing was confronted with the aforesaid   position of the debit balances arising in the case of the different   concerns and it was vehemently pointed out by the assessee that the said   advance having been made during the course of carrying on of the   business, cannot be termed as deemed dividend under the provisions of   section 2(22)(e). However, there is no merit in the plea of the   assessee. The position as projected by the assessee that there were   frequent debits and credits of the amounts due by the said concern to   its partnership firms or vice versa, as per the demands of the assessee, does not stand proved from the perusal of the abovesaid ledger accounts.
■   The   continuous outflow of money from the company to the partnership concern   did not establish the case of the assessee that there were frequent   transfers i.e. inflow and outflow of the amounts as and when there were business exigencies. The modus operandi adopted   by the assessee could not by any different stretch of imagination to be   termed as a measure of commercial exigency. [Para 27]
■   In   the totality of the abovesaid facts and circumstances, the amounts   advanced by the company to the partnership concern are in the nature of   loan and advances and the assessee having shareholding limit of above 10   per cent in the said company and also being a partner with substantial   interest in the partnership concern, to which the said loan or advances   have been made by the company, which in-turn are loans or advances made   by the company to the partnership concerns, would attract the provisions   of section 2(22)(e).
■   Consequently,   the income arising to the extent of the share of the assessee in the   said partnership firm, being deemed dividend in the hands of the   assessee is to be included as income of the assessee under section   2(22)(e). [Para 34]
■   In the result, all the appeals filed by assessees are dismissed. [Para 37]
  CASE REVIEW
 
  Dy. CIT v. Lakra Bros. [2007] 162 Taxman 170 (Chd.) (Mag.) (para 28); Bombay Oil Industries Ltd. v.Dy. CIT [2009] 28 SOT 383 (Mum.) (para 29); CIT v. Smt. Savithiri Sam [1999] 236 ITR 1003 (Mad)(para 30); CIT v. Raj Kumar [2009] 318 ITR 462/181 Taxman 155 (Delhi) (para 31); Dy. CIT v.Madhusudan Investment & Trading Co. (P.) Ltd. [2011] 48 SOT 360/15 taxmann.com 252 (Kol.) (para 32) and CIT v. Ankitech (P.)   Ltd. [2012] 340 ITR 14/[2011] 199 Taxman 341/11 taxmann.com 100 (Delhi) (para 33) distinguished.
  CASES REFERRED TO
 
  Dy. CIT v. Lakra Bros. [2007] 162 Taxman 170 (Chd.) (Mag.) (para 13), Bombay Oil Industries Ltd. v.Dy. CIT [2009] 28 SOT 383 (Mum.) (para 13), CIT v. Smt. Savithiri Sam [1999] 236 ITR 1003 (Mad.)(para 13), CIT v. Raj Kumar [2009] 318 ITR 462/181 Taxman 155 (Delhi) (para 13), Dy. CIT v.Madhusudan Investment & Trading Co. (P.) Ltd. [2011] 48 SOT 360/15 taxmann.com 252 (Kol.) (para 13), CIT v. Ankitech (P.)   Ltd. [2012] 340 ITR 14/[2011] 199 Taxman 341/11 taxmann.com 100 (Delhi)(para 13), Sadhana Textiles Mills (P.) Ltd. v. CIT [1991] 188 ITR 318 (Bom.) (para 18), R. Dalmia v.CIT [1982] 133 ITR 169/9 Taxman   171 (Delhi) (para 19), Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC) (para 20) and G.R. Govindarajula Naidu v. CIT [1973] 90 ITR 13 (Mad.) (para 21).
Sudhir Sehgal for the Appellant. Akhilesh Gupta for the Respondent.
  ORDER
 
  Ms. Sushma Chowla, Judicial Member - The above mentioned nine   appeals have been filed by two different assessees against the separate   consolidated orders of the Commissioner of Income Tax (Appeals),   Gurgaon, both dated 26.09.2013 relating to assessment years 2004-05,   2007-08, 2008-09 and 2003-04, 2004-05, 2006-07 to 2009-10 against the   order passed under section 153A(1)(b)/143(3) of the Income-tax Act, 1961   ('the Act' for short).
2. All   these appeals relating to two assessee's against various assessment   years on similar issue were heard together and are being disposed of by   this consolidated order for the sake of convenience.
3. The   assessees have raised identical grounds of appeal in all the appeals   and the grounds of appeal as raised in ITA No. 1144/Chd/2013 are   reproduced as under:
  "1.   That the Worthy Commissioner of Income Tax (Appeals)(Central), Gurgaon   has erred in confirming the order of the Assessing Officer in assessing   the income at Rs.1,25,310/- against the returned income of Rs. 43,200/-.
2.   That   the Worthy CIT (A) has also erred in dismissing the grounds of appeal   pertaining to objection of assessee with regard to reference to the   Special Auditor in terms of section 142 (2A).
3.   That   the Worthy CIT(A) has erred in not considering that the conditions for   reference to the special audit have not been fulfilled and since the   assessee had not been maintaining any personal books of account, no   complexity was there for the purpose of referring the case to the   special audit and, as such, the assessment having been completed beyond   the limitation time deserves to be quashed.
4.   (a)   Notwithstanding the above grounds of appeal, the CIT (A) has erred in   confirming the addition of Rs. 82,1097- made by the Assessing Officer   u/s 2(22)(e) as deemed dividend.

   4. (b)   That the CIT (A) has not considered that transactions so made were   neither loan nor advance but same were in the nature of commercial   expediency for which no addition as deemed dividend u/s 2(22)(e) can be   made.
5.   That   addition has been confirmed against the facts and circumstances of the   case and detailed submissions filed during the course of hearing along   with various case laws has not been considered properly."
4. In ITA Nos. 1150 & 1151/Chd/2013 (A.Y.2007-08 & 2008-09 - Smt. Gargi Jindal) ground No. 4(a) reads as under :
"4(a)   Notwithstanding the above grounds of appeal, the Commissioner of Income   Tax (Appeals) has erred in upholding the addition of Rs. 14,37,163/- /   Rs. 27,11,696/- made by the Assessing Officer under section 2(22)(e) of   the Income Tax Act."
5. The ground No. 1 raised in all the appeals being general is dismissed.
  6. The ground Nos. 2 & 3 were not pressed by the ld. AR for   the assessee in all the captioned appeals and the same are also thus,   dismissed.
  7. The issue in ground No. 4 raised by the assessee is against   the addition made under section 2(22)(e) of the Act. The facts in all   the appeals are identical. However, reference is being made to the facts   in ITA No. 1144/Chd/2013 to adjudicate the issue raised by the   assessee.
8. The   brief facts of the case are that search & seizure operations under   section 132(1) of the Act were carried out at the residential/business   premises of Jindal Group of cases, Panchkula on 15.07.2008. The assessee   was one of the persons covered under section 132 of the Income Tax Act.   Notice under section 153A(1) of the Act was issued to the assessee on   16.02.2009 to furnish return of income for the assessment year 2004-05.   The assessee failed to furnish any return of income in response to the   notice issued under section 153A(1) of the Act. The Assessing Officer   thus, initiated the penalty proceedings under section 271F of the Act   and penalty was levied vide order dated 29.03.2010. Notice under section   142(1) of the Act was issued to the assessee on 07.09.2010 along with   detailed questionnaire. The case of the assessee was also referred to   the Special Auditor under section 142(2A) of the Act as per the   procedure laid down under the Act. The group concerns had surrendered a   sum of Rs. 4 Crore. The Special Auditor in its report had pointed out   that the assessee was a shareholder in a number of companies in which   the assessee had substantial interest. The said company in-turn had   given loans to the assessee or the concerns in which assessee had   substantial interest. The details of the said transactions are   incorporated at pages 3 & 4 of the assessment order. The assessee   was show caused to explain as to why the amounts so advanced should not   be treated as deemed dividend under the provisions of section 2(22)(e)   of the Act. Show cause notice is reproduced under para 8.3 at pages 5 to   9 of the assessment order. The reply of the assessee to the said show   cause notice was that the amounts debited to the firms in which the   assessee was substantial shareholder were provided out of   commercial/business expediency and no loan or advances were made by the   assessee.
9. Another   plea raised by the assessee was that the amount provided to the firm in   which the assessee was partner, had not been personally withdrawn by   the assessee and thus, no individual benefit had been obtained by the   assessee. It was further pleaded by the assessee that entries were made   to settle the accounts of different persons. The Assessing Officer noted   that following transactions were made between the companies in which   the assessee had substantial shareholder and the concerns in which the   assessee was substantial partner :
  - The   funds were transferred from the company to the firm to keep the cash   credit A/c within limit and to clear the cheques drafts issued by the   firm in which the assessee has substantial interest.
-   The   funds were transferred by the way of transfer entries transfer because   of common parties in books of account of both the parties.
-   The funds were transferred to the bank account of the concern by the way of bank transfer or through cheques.
10. The   Assessing Officer, thus observed that the funds had been transferred   from the company to the firms as there were shortage of funds and this   could be treated only as loan and advances. Further, the transactions inter-se were   not simple transfer entries but through cheques/bank transfers, which   were issued as funds of the firms were short. The Assessing Officer held   that the said transfer of funds were not in the ordinary course of   business and there was no merit in the assertion of the assessee that   the loans were provided out of commercial and business expediency.   Further, as the assessee had failed to discharge the onus cast upon her,   the intention behind the transaction had to be looked into. Reliance   was placed on series of decisions and also the decisions relied upon by   the assessee were found to be distinguishable and it was held by the   Assessing Officer that as the assessee had failed to establish that the   amounts were advanced during the ordinary course of business and that   these were for commercial expediencies, the withdrawals made by the   assessee from the company amounted to grant of loan or advance by the   company to the shareholder. Even where the loan was not outstanding at   the year end, the same had to be treated as deemed dividend and hence,   addition of Rs. 82,109/- was made as deemed dividend under the   provisions of section 2(22)(e) of the Act.
11. The   Commissioner of Income Tax (Appeals) noted that it was an undisputed   fact that the assessee was a shareholder in a number of companies in   which she had substantial interest and these companies had given loans   to the assessee as well as firms in which she had substantial interest.   The Commissioner of Income Tax (Appeals) further held that ,"It   is therefore evident that assessee was holding more than 10% in M/s   Heera Moti Agro Ltd. The company also have accumulated profits. They   have in turn given loans to other concerns wherein assessee has   substantial interest." The Commissioner of Income Tax (Appeals) held   that in view thereof, the Assessing Officer proceeded to calculate the   proportionate share of deemed dividend on the basis of holding for all   the years under consideration. The plea of the assessee before the   Commissioner of Income Tax (Appeals) was that though each of the   partners//Directors of the group concerns were separate and independent,   but in order to achieve the objects of the business of the companies or   trust, the bank accounts in different names of the firms/companies were   opened in Oriental Bank of Commerce, Mani Majra and State Bank of   India, Baddi with the intent that no cheque drawn on any of the bank   accounts of the group concerns would be dishonoured. As per the   assessee, there were standing instructions to clear the cheques by   debiting to some other account where there was sufficient balance. The   Commissioner of Income Tax (Appeals) held as under :
"This modus operandi cannot   by any stretch of imagination be termed as a measure of commercial   expediency. It is clearly to circumvent the law. It is to avoid being   hit by the provisions of section 2(22)(e). The payments are being routed   in around about fashion wherein the assessee in the ultimate analysis   is the benefiter. The assessee has alleged that the case laws cited have   not been distinguished. I find that the A.O. in the impugned order has   elaborately tackled the issue. Hence considering the facts and   circumstances of the case, I have no hesitation in upholding the   additions made on this account by the A.O. in all the years."
12. The   appeal of the assessee was thus, dismissed by the Commissioner of   Income Tax (Appeals). The assessee is in appeal against the said order   of Commissioner of Income Tax (Appeals).
13. The   ld. AR for the assessee pointed out that the assessee was Director in   group companies and was also partner in some concerns. It was further   pointed out by the ld. AR for the assessee that both the companies and   the firms had bank accounts in Oriental Bank of Commerce, Mani Majra and   State Bank of India, Baddi. Further contention of the assessee was that   no amount of cheque/draft had been given to the ladies and when there   were insufficient funds, money was transferred from one account to the   other. It was pointed out by the ld. AR for the assessee that there was   debit balance in either the accounts of the firm or the company. The ld.   AR for the assessee fairly conceded that there was no dispute that   share holding was more than 10% and there was also no dispute about the   debit balances between the concerns but the provisions of section   2(22)(e) of the Act were not applicable as the amounts transferred were   only bank transfers. Further plea of the ld. AR for the assessee was   that the said transfers were made on account of commercial expediency.   Reliance was placed upon the following judicial decisions by the ld. AR   for the assessee :
  (i)   Dy. CIT v. Lakra Bros. [2007] 162 Taxman 170 (Chd.) (Mag.)
(ii)   Bombay Oil Industries Ltd. v. Dy. CIT [2009] 28 SOT 383 (Mum.)
(iii)   CIT v. Smt. Savithiri Sam [1999] 236 ITR 1003 (Mad.)
(iv)   CIT v. Raj Kumar [2009] 318 ITR 462/181 Taxman 155 (Delhi).
(v)   Dy. CIT v. Madhusudan Investment & Trading Co. (P.) Ltd. [2011] 48 SOT 360/15 taxmann.com 252 (Kol.)
(vi)   CIT v. Ankitech (P.) Ltd. [2012] 340 ITR 14/[2011] 199 Taxman 341/11 taxmann.com 100 (Delhi)
14. The   ld. DR for the revenue pointed out that section 2(22)(e) of the Act   stipulated certain conditions which were not satisfied in the present   case and hence, the provisions of the said section were applicable to   the assessee. Further, it was pointed out by the ld. DR for the revenue   that the plea of business expediency is not proved in the case as the   perusal of the ledger accounts filed by the assessee reflect continuous   debit balances which have increased from year to year and there is no   re-payment of the said amount by the firms to the companies. Similar   pleas were raised by both the authorized representatives in the case of   Smt. Gargi Jindal.
15. We   have heard the rival contentions and perused the record. The present   bunch of appeals have been filed by different assessees against the   order passed under section 143(3) read with section 153A(1)(b) of the   Act. Search & seizure operations under section 132(1) of the Act   were carried out at the business/residential premises of the Jindal   Ground of Companies on 15.07.2008. The assessee was issued notice under   section 153A(1) of the Act but the assessee failed to furnish the return   of income in response to the same and penalty under section 271FA of   the Act was levied upon the assessee. During the course of assessment   proceedings, the Assessing Officer noted certain complexities and the   case of the group concerns along with the assessee were referred to the   Special Auditor under section 142(2A) of the Act. The Special Auditor,   thereafter furnished its report under which it was noted by him that the   assessee was shareholder in certain companies wherein the assessee had   substantial interest and the said companies had given loans to the   concerns in which the assessee had substantial interest. Consequently,   the provisions of section 2(22)(e) of the Act were invoked in order to   work out the addition on account of deemed dividend. The assessee is in   appeal before us against the said addition made in the hands of the   assessee under section 2(22)(e) of the Act. The assessee is in appeal   for the following assessment years :
Smt. Sunita Jindal   
Assessment yearAddition u/s 2(22)(e)
(i) 2004-05Rs. 82,109/-
(ii) 2007-08Rs. 2,44,394/-
  (iii) 2008-09Rs. 1,48,000/-
Smt. Gargi Jindal 
  Assessment yearAddition u/s 2(22)(e)
(i) 2003-04Rs. 8,34,225/-
(ii) 2004-05Rs. 13,84,971/-
(iii) 2006-07Rs. 1,39,685/-
(iv) 2007-08Rs. 14,37,163/-
(v) 2008-09Rs. 27,11,696/-
(vi) 2009-10Rs. 7,00,000/-
  
16. Section 2(22)(e) of the Act reads as under :
  "(e) any payment by a company, not being a company in which the   public are substantially interested, of any sum (whether as representing   a part of the assets of the company or otherwise) made after the 31st   day of May, 1987, by way of advance or loan to a shareholder, being a   person who is the beneficial owner of shares (not being shares 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, 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 benefit, of any such   shareholder, to the extent to which the company in either case possesses   accumulated profits."
17. Under   the provisions of section 2(22)(e) of the Act where any payment is made   by a company which should not be a public limited company, of any sum   of money by way of advance or loans to a shareholder, who is beneficial   owner of shares holding not less than 10% of the voting power, or to any   concern in which the shareholder is a member or partner and where he   has substantial interest, and to the extent where the company possesses   accumulated profits, then, such advances or loans are to be treated as   deemed dividend in the hands of the shareholder. Section 2(22)(e) of the   Act creates a fiction under which the amounts which are advanced by way   of loan or advances are to be treated as dividend and included as   receipt in the hands of the beneficial owner.
18. The Hon'ble Bombay High Court in the case of Sadhana Textiles Mills (P.) Ltd. v. CIT [1991] 188 ITR 318 held that the provisions of s.2(22)(e) are applicable also to the advances or loans made to corporate entity.
19. The Hon'ble High Court of Delhi in the case of R. Dalmia v. CIT [1982] 133 ITR 169/9 Taxman 171held   that payments made by way of loan or advance to shareholder or any   payment made on behalf or for the benefit of shareholders are to be   treated as dividend in either case to the extent to which the company   possesses accumulated profit, the emphasis in this connection must be on   the word "possesses". If the company does not possess the amount, it   cannot pay the same. A company can be said to have profits or to be   possessed of profit when it actually possesses the amount or is in its   control.
20. The Hon'ble Apex Court in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 held   that there are four conditions which must be specified before this   provision can be invoked against the shareholder which are as under :
  "(i)   The first condition is that the company in question must be one in which the public are not substantially interested.
  (ii)   The second condition is that the loan was advanced to a shareholder at the date when the loan was advanced;
  (iii)   The third condition is that the loan advanced to a shareholder by such a   company can be deemed to be dividend only to the extent to which it is   shown that the company possessed accumulated profit on the date of the   loan;
(iv)   The fourth condition is that the loan must not have been advanced by the company in the ordinary course of its business."
21. The Hon'ble Madras High Court in the case of G.R. Govindarajulu Naidu v. CIT [1973] 90 ITR 13having   regard to word "payment by way of loan or advance" held that there   should be an outgoing or flow of money from the company to the   shareholder so as to attract the said provision and a notional payment   by way of book entries will not be included.
22. In   view of the abovesaid judicial precedents where the company advancing   the loan or advance is a company in which public are substantially   interested, then the provisions of section 2(22)(e) of the Act are not   attracted, where such company makes any advance or loan to its   shareholder. Further in cases where the loan or advance has been made by   the company in the ordinary course of carrying on the business then   also the provisions of section 2(22)(e) of the Act are not attracted.   However, where the amount is given by way of loan or advance to a   shareholder or to a concern in which such shareholder is a member or   partner, having substantial interest in the said concern, then any such   payment made by the company to the extent of accumulated profits in the   hands of the company, is to be treated as dividend in the hands of such   shareholder.
23. Now   coming to the facts of the present case, the assessee is admittedly   holding shares more than 10% of the voting power and is an eligible   person, as defined under section 2(22)(e) of the Act. The assessee is a   Director in Hiramoti Healthcare Products Ltd. and is holding more than   10% shares/voting power, which is an admitted position. The said company   had advanced certain loans to M/s Hiramoti Agro Industries and Hiramoti   Agro Products respectively and both the said concerns are partnership   firms, in which the assessee before us has substantial interest. The ld.   AR for the assessee fairly pointed out that the assessee satisfies both   the preliminary conditions laid down under section 2(22)(e) of the Act.   However, it was pointed out by the ld. AR for the assessee that the   provisions of the said section were not applicable as the said loan or   advances were made in the ordinary course of business. The plea of the   ld. AR for the assessee before us was that in order to better manage the   business affairs of the different concerns in which the assessee was   either a shareholder or partner, the bank accounts were opened only in   two banks i.e. Oriental Bank of Commerce and State Bank of India and   whenever there was shortage of funds, the amounts were transferred from   one concern to the other or vice-versa. The said advances having   been made in order to meet the business exigencies, were thus advanced   during the course of carrying on of the business and hence the   provisions of section 2(22)(e) of the Act were not attracted.
24. The   assessee, in the Paper Book has furnished the copy of accounts of M/s   Hiramoti Agro Industries in the books of M/s Hiramoti Healthcare Product   Ltd. for the financial year 2003-04, 2006-07 and 2007-08 at pages 1, 3   & 5 of the Paper Book. The assessee has also furnished the copy of   account of M/s Hiramoti Agro Products in the books of M/s Hiramoti   Healthcare Products Ltd. for the financial year 2003-04, 2006-07 and   2007-08 at pages 2, 4 and 6 of the Paper Book. The said ledger accounts   are hereby enclosed as Annexure A-1 to A-6 to this order.
25. Further   in the case of Smt. Gargi Jindal, the other assessee before us, there   are two companies in which assessee is a shareholder which in-turn had   advanced loans to different partnership firms in which assessee had   substantial interest and the Assessing Officer had accordingly computed   her share of deemed dividend in the advances made by the said concern to   different registered firms. The assessee has furnished on record the   copies of account in the Paper Book, the same are enclosed as Annexure   B-1 to B-13 to this order.
26. The   perusal of the copies of ledger account filed by the assessee in the   case of Sarita Jindal reflect that for the financial year 01.04.2003 to   31.3.2004, there was an opening credit balance of Rs. 19,07,775/- and   thereafter, there were bank transfers on different dates falling within   the year and at the close of the year, the debit balance was   Rs.1,82,225/-. On 31.3.2004, there was an adjustment of the amount   transferred to M/s Anchal of Rs. 12,840/- and the closing balance was   Rs. 169385/-. In the succeeding financial year i.e. 2006-07, the opening   balance was debit balance of Rs. 1,19,374/- and thereafter, there were   bank transfers of Oriental Bank of Commerce of Rs. 1,00,000/-, Rs.   20,000/-, Rs. 60,000/- and cheques of Rs. 85,000/- and Rs.90,000/- and   further there are deposits of demand drafts of Rs. 20,000/- and Rs.   40,000/- as against the said debit entries, arising in the account of   M/s Hiramoti Agro Industries in the books of M/s Hiramoti Healthcare   Products Ltd. There were two credits, one of DD of Rs. 15,000/- of Shri   Rama, Shimla and another DD of Rs. 32,592/- of Shri Banarasi Dass. The   total debit balance at the close of the year was Rs. 5,11,782/-. The   assessee has also filed the ledger account for the financial year   2007-08 and as against the opening balance of Rs. 5,11,782/-, there is   cheque deposit of Rs.10,000/-, amount transferred from Oriental Bank of   Commerce of Rs. 1,60,000/- and amount of bank transfer from State Bank   of India of Rs.90,000/- as against credit of Rs. 9,672/-, resulting in   debit balance of Rs. 7,62,110/-. Similar is the position in respect of   the transactions of the concern M/s Hiramoti Healthcare Products Ltd.   with another partnership firm M/s Hiramoti Agro Products. The perusal of   the ledger statements filed by the assessee reflect that continuously,   there is an increase in the debit balance in the ledger accounts of the   said concerns i.e. the company advanced various amounts to the   registered firms through cheques or bank transfers and there were no   corresponding receipt of money from the said partnership firms in the   hands of the company. The amounts had been advanced from day-to-day   either by way of bank transfer or by way of cheques or other adjustments   in the account.
27. The   assessee, during the course of hearing was confronted with the   aforesaid position of the debit balances arising in the case of the   different concerns and it was vehemently pointed out by the ld. AR for   the assessee that the said advance having been made during the course of   carrying on of the business, cannot be termed as deemed dividend under   the provisions of section 2(22)(e) of the Act. However, we find no merit   in the plea of the assessee. The position as projected by the ld. AR   for the assessee that there were frequent debits and credits of the   amounts due by the said concern to its partnership firms or vice-versa,   as per the demands of the business, does not stand proved from the   perusal of the abovesaid ledger accounts. At the start of the financial   year 2003-04, there was an opening credit balance of Rs. 1,90,775/-   which got converted into a debit balance by way of transfer of Rs.   2,50,000/- on 20.05.2003 itself and thereafter the debit balance has   continuously gone up and as on 31.03.2008, the same stands at Rs.   7,62,110/-. Similar is the position in respect of the another   partnership concern M/s Hiramoti Agro Products in relation to the   company M/s Hiramoti Healthcare Products Ltd. The opening balance as on   01.04.2003 was a debit balance of Rs. 2,08,478/- which has eventually   increased to debit balance of Rs. 6,19,008/- as on 31.03.2008 with   continuous outflow of money from the company to the partnership concern   does not establish the case of the assessee that there were frequent   transfers i.e. inflow and outflow of the amounts as and when there were   business exigencies. The modus-operandi adopted by the assessee could   not by any different stretch of imagination to be termed as a measure of   commercial exigency.
28. The   ld. AR for the assessee, during the course of hearing placed reliance   on various case laws which are distinguishable. In the case of Lakra Bros. (supra),   it is a finding of fact by the Tribunal that there was a single advance   made for meeting the business exigency and there was no intention of   the company to give a loan and hence, it was held that the provisions of   section 2(22)(e) of the Act are not attracted. The facts of the case   before us are at variance as pointed out by us in the paras herein above   and hence, the said ratio laid down by the Chandigarh Bench of Tribunal   in the case of Lakra Bros. (supra) shall not apply.
29. Further, ld. AR for the assessee relied upon Bombay Oil Industries Ltd.'s case (supra)   wherein there were inter-corporate deposits between the two concerns   and it was held that the provisions of section 2(22)(e) of the Act were   not attracted. The facts of the said case being at variance to the facts   before us and hence the said ratio is not applicable to the present   case.
30. Further reliance was placed by the ld. AR for the assessee on Smt. Savithiri Sam's case (supra)   wherein there was a transfer entry in the accounts of the concern   because of operation of law on which the concerned assessee had no   control and the ratio laid down in the said decision is not applicable   to the facts of the present case.
31. Next reliance placed by the ld. AR for the assessee was on Raj Kumar's case (supra) which is a case of trade advances and hence, the said ratio is not applicable to the facts of the present case.
32. The ld. AR for the assessee further placed reliance on the ratio laid down in Madhusudan Investment & Trading Co. (P.) Ltd.'s case (supra)   which deals with the basis of amendment to introduce section 2(22)(e)   of the Act, by Finance Act, 1987 and the said ratio is an accepted   position of law and does not help the case of the assessee.
33. Another reliance was placed by the ld. AR for the assessee on Ankitech (P.) Ltd.'s case (supra)   wherein it has been laid down that where the loans or advances are made   for business purposes, these are outside the scope of section 2(22)(e)   of the Act. We are in conformity with the said ratio laid down by the   Hon'ble Delhi High Court. However, as referred to by us in the paras   herein above, the amounts advanced by the company to the registered   firms in the facts of the present case, are loans and advances and not   for the purpose of business and consequently, the provisions of section   2(22)(e) of the Act are attracted in the facts of the present case.
34. In   the totality of the abovesaid facts and circumstances , the amounts   advanced by the company to the partnership concern are in the nature of   loan and advances and the assessee having shareholding shift above 10%   in the said company and also being a partner with substantial interest   in the partnership concern, to which the said loan or advances have been   made by the company, which in-turn are loans or advances made by the   company to the partnership concerns, would attract the provisions of   section 2(22)(e) of the Act. Admittedly, M/s Hiramoti Healthcare   Products Ltd. had accumulated profits and they have, in turn given loans   to other concerns in which the assessee had substantial interest and   in-turn assessee holding more than 10% voting powers in the company.   Consequently, the income arising to the extent of the share of the   assessee in the said partnership firm, being deemed dividend in the   hands of the assessee is to be included as income of the assessee under   section 2(22)(e) of the Act. Upholding the order of Commissioner of   Income Tax (Appeals), we dismiss the ground of appeal raised by the   assessee.
35. The   facts in ITA No. 1145/Chd/2013 and ITA 1146/Chd/2013 are identical to   the facts in ITA No. 1144/Chd/2013 and our decision in ITA 1144/Chd/2013   shall apply mutatis mutandis to appeals in ITA Nos. 1145 & 1146/Chd/2013 also.
36. Now   coming to the appeals filed by the second individual Smt. Gargi Jindal,   we find that the facts are identical to the facts as raised in the case   of Smt. Sarita Jindal and our decision in ITA No. 1144/Chd/2013 shall   apply mutatis mutandis to ITA Nos. 1147 to 1152/Chd/2013.
37. In the result, all the appeals filed by different assessees are dismissed.

-- 
Regards,
Pawan Singla , LLB
M. No. 9825829075
  IT : Where assessee has not sought any income exemption, there cannot be any expense thereagainst to be disallowed
  ■■■
[2014] 45 taxmann.com 116 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax - I
  v.
Corrtech Energy (P.) Ltd.*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 239 OF 2014†
MARCH  24, 2014 
  Section 14A of the Income-tax Act, 1961, read with rule 8D of the   Income-tax Rules, 1962 - Expenditure incurred in relation to income not   includible in total income (Conditions precedent) - Whether where   assessee did not make any claim for exemption of any income from payment   of tax, disallowance under section 14A could not be made - Held, yes   [Para 4] [In favour of assessee]
  FACTS
 
  ■   The   assessee invested some money in shares out of the funds available to   him. He borrowed funds for his business. The interest expenses claimed   by the assessee was disallowed proportionately by the Assessing Officer   under section 14A by applying rule 8D.  
■   On   appeal, the Commissioner (Appeals) confirmed such disallowance by   observing that the assessee made investment in shares which would result   only in dividends which would be exempt from tax and that not receiving   any exempt income during current year would not entitle assessee to   claim expenses related to investments.  
■   On   second appeal, the Tribunal held that the assessee had not claimed any   exempt income in this year, in such a situation section 14A could have   no application. The Tribunal, deleted the addition made under section   14A.  
■   On appeal:
  HELD
 
  ■   Section   14A(1) provides that for the purpose of computing total income under   chapter IV, no deduction shall be allowed in respect of expenditure   incurred by the assessee in relation to income which does not form part   of the total income under the Act. In the instant case, the Tribunal has   recorded the finding of fact that the assessee did not make any claim   for exemption of any income from payment of tax. It was on this basis   that the Tribunal held that disallowance under section 14A could not be   made. In the process tribunal relied on the decision of Division Bench   of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in   which also the Court had observed that where the assessee did not make   any claim for exemption, section 14A could have no application.  
■   Thus, no question of law arose. [Para 5]
CASES REFERRED TO
   
CIT v Winsome Textile Industries Ltd. [2009] 319 ITR 204 (Punj. & Har.) (para 4).
Mrs. Mauna M. Bhatt for the Appellant.
ORDER
   
Akil Kureshi, J. -   Revenue has challenged the judgment of the Income Tax Appellate   Tribunal dated 21.10.2013 raising following questions for our   consideration :
  "(A)   Whether the Appellate Tribunal has substantially erred in deleting the   addition of Rs. 12.33 lacs made u/s 14A despite the fact that the   assessee had made investment of Rs.2.75 crores and had also claimed   interest expenses of Rs.72.08 lacs. The AO had only disallowed   proportionate expenses under Rule 8D(2)(ii)(iii)?  
(B)   Whether   the Appellate Tribunal has substantially erred in deleting the   disallowance of interest of Rs.3.94 lacs despite the fact that the   assessee had claimed interest expenses of Rs.72.08 lacs and had given   interest free advances of Rs. 32.91 lacs to related parties. Interest   expenses to that extent were therefore not deductible u/s 36(1)(iii)?"  
2. Counsel   for the Revenue submitted that question no.2 is not pressed in this   appeal since it does not arise out of the impugned judgement of the   tribunal.
3. That   leaves us only with one question which pertain to disallowance of   expenditure of Rs. 12.33 lacs made by the Assessing Officer under   section 14A of the Income Tax Act, 1961 ("the Act" for short). Such   disallowance was confirmed by CIT(Appeals). The tribunal in further   appeal by the assessee however, reversed the same making the following   observations :
"13.   We have heard the rival contentions, perused the material on record and   gone through the orders of the authorities below. We find that the ld.   CIT(A) has decided this issue as under :
3.2   As regards interest, appellant had borrowed funds on which interest was   paid. While making investments, both borrowed funds as well as own   funds were used hence one cannot say that borrowed funds were used only   for business purpose and owned capital was only used for investment.   Admittedly no separate accounts are maintained for business and   investment activities therefore appellant's claim is not justified that   borrowed funds were not used in making investment. In view of this, I do   not agree with my predecessor that since appellant had sufficient   interest free funds, no part of borrowed funds can be attributed to   investments. Further, appellant's argument that it did not earn any   exempt income during the year and therefore no disallowance of section   14A can be made is without any basis. Since appellant made investment in   shares which will result only in dividends which are exempt from tax,   not receiving any exempt income during the year will not entitle   appellant to claim expenses relating to investments which will result   only in exempt income. Therefore in the absence of clear cut details of   utilisation of funds, the formula given in rule 8D which is mandatory   this year is to be applied. Since assessing officer worked out interest   disallowance as per rule 8D, the interest disallowance is confirmed.
The   ld. AR submitted that this finding of ld. CIT(A) is containing to the   law settled by various judicial pronouncements. We have given our   thoughtful consideration to the facts and the decision relied upon by   the ld. AR. The Hon'ble Punjab & Haryana High Court in the case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 has   held that in the present case, admittedly, the assessee did not make   any claim for exemption. In such a situation, section 14A could have no   application. In this case also, the assessee has not claimed any exempt   income in this year. Therefore, respectfully following the judgement of   Hon'ble High Court of Punjab & Haryana in the case of Winsome Textile Industries Ltd. (supra),   we hereby allow this ground and direct the AO to delete the addition.   Therefore, ground Nos. 1 to 1.2 raised by the assessee in its   cross-objection are allowed."
4. Counsel   for the Revenue submitted that the Assessing Officer as well as   CIT(Appeals) had applied formula of rule 8D of the Income Tax Rules,   since this case arose after the assessment year 2009-2010. Since in the   present case, we are concerned with the assessment year 2009-2010, such   formula was correctly applied by the Revenue. We however, notice that   sub-section(1) of section 14A provides that for the purpose of computing   total income under chapter IV of the Act, no deduction shall be allowed   in respect of expenditure incurred by the assessee in relation to   income which does not form part of the total income under the Act. In   the present case, the tribunal has recorded the finding of fact that the   assessee did not make any claim for exemption of any income from   payment of tax. It was on this basis that the tribunal held that   disallowance under section 14A of the Act could not be made. In the   process tribunal relied on the decision of Division Bench of Punjab and   Haryana High Court in case of CIT v Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed as under :
"7. We do not find any merit in this submission. The judgement of this court in Abhishek Industries Ltd(2006) 286 ITR 1 was   on the issue of allowability of interest paid on loans given to sister   concerns, without interest. It was held that deduction for interest was   permissible when loan was taken for business purpose and not for   diverting the same to sister concern without having nexus with the   business. The observations made therein have to be read in that context.   In the present case, admittedly the assessee did not make any claim for   exemption. In such a situation section 14A could have no application."
5. We do not find any question of law arising, Tax Appeal is therefore dismissed.
PAMPA
*In favour of assessee.
  †Arising out of order of Tribunal dated 21-10-2013.

Removal of Director by Shareholders Under Companies Act 2013 Posted In Company Law | Articles | No Comments »
       
Power to remove directors have always   been bestowed on shareholders, as we all know, that at the end of the   day, directors are answerable to shareholders. Nothing has changed in   the procedural aspect under Companies Act, 2013 as well. Shareholders   can remove any director before the expiry of his tenure, except any   director appointed by Tribunal for prevention of oppression and   mismanagement u/s 242 and a director appointed under principle of   proportional representation u/s 163.
Section 115, 169 and Chapter 7 details the procedure of removal of director by shareholders as follows:
Special notice to Company-There is a criteria on who can send the notice to the Company. Only shareholder/s holding not less than 1% of total voting power or holding shares on which an aggregate sum of not less than Rs. 5,00,000 has been paid up as on the date   of notice, can send special notice to the Company for removal of   director. The same should be signed by the concerned shareholder/s.
Date of meeting- Aforementioned shareholders have the right to decide the date of meeting. However, the special notice shall be sent not earlier than three months but at least 14 clear days before the date of the meeting, at which the resolution is to be moved.
Intimation to Director- The Company shall forthwith send a copy of the notice to the concerned director.
Reasonable Opportunity of being heard-   The Director may request to send his representations along with the   notice to the members and to be heard at the meeting. However, the   rights may not be available, if on the application   either of the Company or of any other person who claims to be   aggrieved, the Tribunal is satisfied that the rights conferred by this   sub-section are being abused to secure needless publicity.
Intimation by Company to all shareholders-   Company shall take immediate steps to send the notice to its members,   at least 7 clear days before the meeting. The notice has to be sent in   the same manner as in case of any other general meeting of the Company.
Publication in Newspapers-   If it is not practicable to give the notice as aforementioned, then   notice shall be published in English language in English newspaper and   in vernacular language in a vernacular newspaper, both having wide   circulation in the State where the registered office of the Company is   situated. At the same time, the notice shall also be posted on the   website, (if any). However, it shall be published at least 7 clear days   before the meeting.
Convening of General Meeting – Members may pass remove the director by passing ordinary resolution.
Appointment of director in place of removed director-   The shareholder/s may recommend appointment of any other director in   place of removed director through special notice. Such a director can   only hold office till the tenure of removed director.
Casual Vacancy- If a   new director is not appointed as aforementioned, then Board may fill the   position through casual vacancy, however the removed director shall not   be re-appointed as a director by Board.
Vacation of Office- When a director is removed as aforementioned, his office vacates automatically u/s 167.
Author:  NovoJuris.
Smt. Supriya Kanwar vs. ITO (ITAT Jodhpur  – Third Member)Law laid down on when an isolated transaction can be  regarded  as an "adventure in the nature of  trade" and the taxability of  agricultural land  situate beyond municipal limits
In view of difference of opinion between the Judicial  Member and the  Accountant Member, the Third Member had to  consider two questions: (i)  whether transactions of  purchase and sale of five pieces of agricultural  land with  standing crop, by way of separate conveyance deeds, amounts   to transactions on capital account or adventure in the  nature of trade?  & (ii) whether the surplus arising on  sale of the agricultural land  was "agricultural  income" within the meaning of s. 2(1A) read with   Explanation (1)/Section 2(14)(iii)(a) and (b) &  consequently exempt  u/s 10(1)? HELD by the Third  Member:
(i) As regards Q. 1, the tests to distinguish between a  transaction  on the capital account and an adventure in the  nature of trade have been  set out in Venkataswami Naidu  & Co. 35 ITR 594  (SC). On facts, the assessee  purchased the land with standing crops  thereon and it was  shown in the records as land cultivated throughout  the  period of holding by the assessee. No efforts have been  taken by the  assessee to change the nature of land. Income  from standing crops was  offered for rate purpose as  agricultural income. The transaction of  purchase and sale  of agricultural land is not part of a regular business   activity of the assessee. It was an isolated transaction of  purchase of  agricultural land and sale thereof within a  period of 13 months. Though  the land is situated in the  National Capital Region and there was a  plan to develop the  area of Alwer district as a global city, the fact  remains  that the master plan was finalised in the year 2010 and as  per  the master plan the area will be developed by the year  2013. If the  assessee's intention was to carry on an  adventure in the nature of trade  she has to wait at least  till the master plan is finalised as otherwise  she cannot  expect substantial profit. On the contrary, the land was   sold within a short span, seizing the opportunity of offer  of better  price which shows that the assessee intended to  purchase the land as an  investment only. Merely because a  property was sold for a profit it  cannot be assumed that it  is an adventure in the nature of trade. Also,  whether the  land was sold out of free will or compulsion will not alter   the character of the transaction. Every assessee would like  to make  profit on a transaction, given an opportunity.  Taking a holistic view of  the matter, the transaction was  not an adventure in the nature of  trade;
(ii) As regards Q. 2 (which would apply even if the  transaction was  an adventure in the nature of trade), the  land cannot be treated as  capital asset since it is  situated beyond eight kilometers from the  municipal limits  and it was purchased as agricultural land and sold   accordingly without making any changes such as conversion in  the land  records, plotting of land, etc. The assessee  earned agricultural income  in the immediately preceding  year on sale of standing crop and the same  was offered as  agricultural income and accepted by the AO for rate   purposes. It is thus clear that it is a case of sale of  agricultural  land and the land being situated beyond eight  kilometres from the  municipal limit, it cannot be subjected  to tax under the Income Tax Act  either as business income  or capital gains. Though the Kerala High Court  in T.K.  Sarala Devi 167 ITR 136 and the of P&H High Court in  Tula Ram 199 ITR 450 dissented from the decision of  the Bombay High Court in Manubhai A. Sheth 128 ITR  87, in the light of the latest decision of the Apex Court in  Singhai Rakesh Kumar vs. Union of India  247 ITR 150,  the only interpretation permissible is that the land   situated outside the municipal limits stands excluded from  the  expression 'capital asset' from the  inception and the sale proceeds have  to be treated as  revenue received from agricultural land. At any rate,  the  view taken by the Bombay High Court can be said to be an  appropriate  view, on an analysis of provisions of s.  2(1A)/2(14)(iii) (a)  &(b)/10(1). When two views are  possible a view which is in favour of  the assessee has to  be taken in the light of the decision of the Apex  Court in  Vegetable Products Ltd. 88 ITR 192.  Consequently,  the surplus arising on sale of the impugned agricultural   land gives rise to agricultural income and not assessable to  tax. 
 
Sadbhav  Engineering Ltd vs. DCIT (Gujarat High Court)S. 147: Reopening, even within 4 years, solely on the  basis of a clarificatory retrospective amendment is not  permissible
In Katira Construction  352 ITR 513  (Guj) it was held that the Explanation to s. 80IA(4) was   purely explanatory in nature and did not mend the existing  statutory  provisions. If an Explanation is added to a  statute for the removal of  doubts, the implication is that  the law was same from the beginning and  the same is further  explained by way of addition of the Explanation.  Therefore,  it is not a case of introduction of new provision of law by   retrospective operation, but when all the materials  regarding activities  of the assessee are available on  record and the benefit of the  provision is already made  available to such assessee, reassessment  proceedings cannot  be initiated only on account of addition of such   Explanation. On facts, as the AO had conducted a detailed  scrutiny  before allowing the s. 80-IA(4) deduction, the  reopening based only on  the retrospective insertion of the  Explanation is on mere "change of  opinion" (Parikshit Industries 352 ITR 349  (Guj) & Agrawal J.V. 83 DTR 101 (Guj)  followed)
 
Sahkari Khand Udyog Mandal Ltd vs. ACIT  (Gujarat High Court)S. 147: Strict guidelines laid down to streamline  procedure for reopening of assessments
(ii) It can thus be seen that there are four important  stages once  the AO issues notice for reopening of the  assessment. Such stages are:  (i) the assessee if he so  wishes, may demand the reasons recorded by the  AO after  filing return in response to notice u/s 148 of the Act, (ii)   the AO supplying such reasons to the assessee, (iii) the  assessee  raising objections to the notice for reopening and  (iv) the AO disposing  of the objections raised by the  assessee. With a view to streamlining  this procedure, and  to ensure, as far as possible, the AO is not faced  with the  unenviable task of completing the assessment proceedings in  a  few days left before the same became time barred, we  would like to give  certain directions of general  implication which, we would expect, are  followed by all  concerned. While doing so, we are conscious that these   stages are provided by the Supreme Court in GKN  Driveshafts (India) Ltd  259 ITR 19 and we would be  giving directions only to the extent the  said judgment  already does not provide for. We have noticed that   considerably long time is consumed sometimes by the assessee  demanding  the reasons recorded by the Assessing Officer and  sometimes the AO  complying with such a request of the  assessee. It is an accepted  proposition that the reasons  recorded by the AO are not confidential and  the assessee  whose assessment is being reopened has a right to know  such  reasons. We therefore thought that these two stages can be   substantially eliminated by giving suitable directions. The  further  stage is of the assessee raising objections which  often times is done  after much delay and the last stage  comes where the AO deals with such  objections. This is yet  another problem area where unduly long time is  consumed by  the AO. Under the circumstances, following directions are   issued:
 
Regards,
 
Editor,
 
Delegation of powers u-s 153 and 154 of Companies Act 2013 to RD Noida Posted In Company Law | Notifications | No Comments »
       
Notification No. F.NO.1/6/2014-CL.V, DATED 21-5-2014
In exercise of the powers conferred by section 458 of the Companies Act, 2013 (18 of 2013), and in supersession of the notification   of the Government of India, Ministry of Corporate Affairs. published in   the Gazette of India, Extraordinary, Part-II, section 3, sub-section   (i), vide number GSR 650(E), dated the 19th October, 2006 except as   respects things done or omitted to be done before such supersession, the   Central Government hereby delegates the powers and functions of the   Central Government in respect of allotment of Director Identification   Number under sections 153 and 154 of the said Act to the Regional   Director, Joint Director, Deputy Director or Assistant Director posted   in the office of Regional Director at Noida.
2. This notification shall come into force with effect from the date of its publication in the Official Gazette.
F.NO.1/6/2014-CL.V
Amardeep Singh Bhatia
Delegation of powers under section 458 of Companies Act 2013 to ROCs Posted In Company Law | Notifications | No Comments »
       
Notification No. F.NO.1/6/2014-CL.V, DATED 21-5-2014
  
In exercise of the powers conferred by section 458 of the Companies Act, 2013 (18 of 2013), and in supersession of the notification of the Government of India, Ministry of Corporate Affairs, dated the 10th July, 2012, published in the Gazette of India, Extraordinary, Part-II, section 3, sub-section (ii) vide number S.O. 1538 (E), dated the 10th July, 2012, in so far as it relates to items (a) to (b) and items (d) to (e),   except as respects things done or omitted to be done before such   supersession, the Central Government hereby delegates to the Registrar of Companies, the power and functions vested in it under the following sections of the said Act, subject to the condition that the Central Government may revoke such delegation of powers or may itself exercise   the powers and functions under the said sections, if in its opinion,   such a course of action is necessary in the public interest, namely: – 
(a)        sub-section (2) of section 4;
(b)        sub-section (1) of section 8;
(c)          clause (i) of sub-section (4) of section 8, except for alteration of   memorandum in case of conversion into another kind of company;
(d)        sub-section (5) of section 8; and
(e)        sub-section (2) of section 13.
2. This notification shall come into force from the date of its publication in the Official Gazette
F.NO.1/6/2014-CL.V
Amardeep Singh Bhatia
Joint Secretary to the Government of India
The prolonged controversy on Swiss Bank Accounts Posted In Income Tax | Articles | No Comments »
       
CA Neha Bhuwania
May   6' 2014 was a day which should create fear of the worst by the Indian   Nationals who have shrouded their black money at the Swiss. It was at this day when Switzerland has signed for mutual cooperation in tax matters at the convention.
Our finance   minister Mr P Chidambaram has been continuously pressing the Swiss   authorities at Switzerland for assistant in tax probe matters. This   request is followed by the adoption of the global declaration for automatic exchange of tax information under the aegis of OECD [Organisation for Economic Cooperation and Development].
It has been a well noted fact that most   of the Indian big shots have concealed their "undeclared" income in the   Swiss accounts as there was no mutual cooperation agreement between the   two countries for mutual exchange of tax related information.
As of now, in spite of repeated   reminders and requests, no ratification has been done by the Swiss   Authorities. The controversy remains the same. Can a top shot Indian   National be pardoned from paying genuine taxes and declaring his "other"   sources of income, just because he holds an account at the Swiss? The   bank has been well known for its top secrecy rules about the clients who   hold accounts with them along with the holding details. The big   question is- Does signing this declaration by them actually brings the   nationals holding accounts there under the lime light or the trend of   export of money from India shall continue on account no such   ratification till date?
With the power of RTI as well, the   common Indian still does not have sufficient measures to know where does   the public money paid as taxes (Both direct and indirect taxes) goes.   How much of it is behind the veil of these foreign bank accounts with no   traces?
As per The Hindu, a leading newspaper, the details released by the Swiss National Bank (which is the central bank of Switzerland) says that the funds   held by the Indians in the Swiss Banks have risen by 370 million Swiss   Francs which is close to Rs. 11,800 crores in the year 2011. Due to the   high secrecy levels maintained by the bank, not much information about   the holders of such large chunk has been made public. However, the   increase in holdings is growing exponentially year on year.
The value of Rupee has been diminishing at the International level on one hand and on the other, crores of Rupees have been swiped off from the country by so called Indian nationals. This has no direct link with patriotism, it is just about paying what you are due to pay.
Just by opening a bank account abroad,   any Indian doesn't get a right to escape the tax liabilities in the home   country. With the Modi government in force, hope this prolonged   controversy shall end and there shall be a more transparent structure   with tax liabilities for the nationals with the common public having a   right to know where the public money has been utilized and does   proprietary audit actually help.
(Author is Co-founder & Managing Director of FxMantra and can be reached at nehabhuwania18 @ gmail.com )

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(i)		Dy. CIT v. Lakra Bros. [2007] 162 Taxman 170 (Chd.) (Mag.)
(ii)		Bombay Oil Industries Ltd. v. Dy. CIT [2009] 28 SOT 383 (Mum.)
(iii)		CIT v. Smt. Savithiri Sam [1999] 236 ITR 1003 (Mad.)
(iv)		CIT v. Raj Kumar [2009] 318 ITR 462/181 Taxman 155 (Delhi).
(v)		Dy. CIT v. Madhusudan Investment & Trading Co. (P.) Ltd. [2011] 48 SOT 360/15 taxmann.com 252 (Kol.)
(vi)		CIT v. Ankitech (P.) Ltd. [2012] 340 ITR 14/[2011] 199 Taxman 341/11 taxmann.com 100 (Delhi)

Chartered Accountant Finance

Friday, May 23, 2014

[aaykarbhavan] Judgments and Information [1 Attachment]

Removal of Director by Shareholders Under Companies Act 2013

Smt. Supriya Kanwar vs. ITO (ITAT Jodhpur – Third Member)

Sadbhav Engineering Ltd vs. DCIT (Gujarat High Court)

Sahkari Khand Udyog Mandal Ltd vs. ACIT (Gujarat High Court)

Delegation of powers u-s 153 and 154 of Companies Act 2013 to RD Noida

Delegation of powers under section 458 of Companies Act 2013 to ROCs

The prolonged controversy on Swiss Bank Accounts

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■		During the course of assessment proceedings, the Assessing Officer noted certain complexities in assessee's books of account and, thus, case was referred to the Special Auditor under section 142(2A).
■		The Special Auditor, thereafter furnished its report under which it was noted by him that the assessee was holding more than 10 per cent shares /voting rights in certain companies and the said companies had given loans to the partnership firms in which the assessee had substantial interest.
■		The Assessing Officer thus invoked provisions of section 2(22)(e) and added amount of loan to assessee's taxable income as deemed dividend.
■		The Commissioner (Appeals) confirmed the order of Assessing Officer.
■		On second appeal:

■		Under the provisions of section 2(22)(e) where any payment is made by a company which should not be a public limited company, of any sum of money by way of advance or loans to a shareholder, who is beneficial owner of shares holding not less than 10 per cent of the voting power, or to any concern in which the shareholder is a member or partner and where he has substantial interest, and to the extent where the company possesses accumulated profits, then, such advances or loans are to be treated as deemed dividend in the hands of the shareholder. Section 2(22)(e) creates a fiction under which the amounts which are advanced by way of loan or advances are to be treated as dividend and included as receipt in the hands of the beneficial owner. [Para 17]
■		Where the company advancing the loan or advance is a company in which public are substantially interested, then the provisions of section 2(22)(e) are not attracted, where such company makes any advance or loan to its shareholder. Further in cases where the loan or advance has been made by the company in the ordinary course of carrying on the business then also the provisions of section 2(22)(e) are not attracted. However, where the amount is given by way of loan or advance to a shareholder or to a concern in which such shareholder is a member or partner, having substantial interest in the said concern, then any such payment made by the company to the extent of accumulated profits in the hands of the company, is to be treated as dividend in the hands of such shareholder. [Para 22]
■		Coming to the facts of the present case, the assessee is admittedly holding shares more than 10 per cent of the voting power and is an eligible person, as defined under section 2(22)(e). The assessee is a Director in 'M' Ltd. and is holding more than 10 per cent shares/voting power, which is an admitted position. The said company had advanced certain loans to partnership firms, in which the assessee has substantial interest. The assessee fairly pointed out that she satisfies both the preliminary conditions laid down under section 2(22)(e).
■		However, it was pointed out by the assessee that the provisions of the said section were not applicable as the said loan and advances were made in the ordinary course of business. The plea of the assessee was that in order to better manage the business affairs of the different concerns in which the assessee was either a shareholder or partner, the bank accounts were opened only in two banks and whenever there was shortage of funds, the amounts were transferred from one concern to the other or vice versa. The said advance having been made in order to meet the business exigencies, were thus advanced during the course of carrying on of the business and hence the provisions of section 2(22)(e) were not attracted. [Para 23]
■		The perusal of the ledger statements filed by the assessee reflect that continuously, there is an increase in the debit balance in the ledger accounts of the said concerns i.e. the company advanced various amounts to the registered firms through cheques or bank transfers and there were no corresponding receipt of money from the said partnership firms in the hands of the company. The amounts had been advanced from day-to-day either by way of bank transfer or by way of cheques or other adjustments in the account. [Para 26]
■		The assessee during the course of hearing was confronted with the aforesaid position of the debit balances arising in the case of the different concerns and it was vehemently pointed out by the assessee that the said advance having been made during the course of carrying on of the business, cannot be termed as deemed dividend under the provisions of section 2(22)(e). However, there is no merit in the plea of the assessee. The position as projected by the assessee that there were frequent debits and credits of the amounts due by the said concern to its partnership firms or vice versa, as per the demands of the assessee, does not stand proved from the perusal of the abovesaid ledger accounts.
■		The continuous outflow of money from the company to the partnership concern did not establish the case of the assessee that there were frequent transfers i.e. inflow and outflow of the amounts as and when there were business exigencies. The modus operandi adopted by the assessee could not by any different stretch of imagination to be termed as a measure of commercial exigency. [Para 27]
■		In the totality of the abovesaid facts and circumstances, the amounts advanced by the company to the partnership concern are in the nature of loan and advances and the assessee having shareholding limit of above 10 per cent in the said company and also being a partner with substantial interest in the partnership concern, to which the said loan or advances have been made by the company, which in-turn are loans or advances made by the company to the partnership concerns, would attract the provisions of section 2(22)(e).
■		Consequently, the income arising to the extent of the share of the assessee in the said partnership firm, being deemed dividend in the hands of the assessee is to be included as income of the assessee under section 2(22)(e). [Para 34]
■		In the result, all the appeals filed by assessees are dismissed. [Para 37]

"1.		That the Worthy Commissioner of Income Tax (Appeals)(Central), Gurgaon has erred in confirming the order of the Assessing Officer in assessing the income at Rs.1,25,310/- against the returned income of Rs. 43,200/-.
2.		That the Worthy CIT (A) has also erred in dismissing the grounds of appeal pertaining to objection of assessee with regard to reference to the Special Auditor in terms of section 142 (2A).
3.		That the Worthy CIT(A) has erred in not considering that the conditions for reference to the special audit have not been fulfilled and since the assessee had not been maintaining any personal books of account, no complexity was there for the purpose of referring the case to the special audit and, as such, the assessment having been completed beyond the limitation time deserves to be quashed.
4.		(a) Notwithstanding the above grounds of appeal, the CIT (A) has erred in confirming the addition of Rs. 82,1097- made by the Assessing Officer u/s 2(22)(e) as deemed dividend.
		4. (b) That the CIT (A) has not considered that transactions so made were neither loan nor advance but same were in the nature of commercial expediency for which no addition as deemed dividend u/s 2(22)(e) can be made.
5.		That addition has been confirmed against the facts and circumstances of the case and detailed submissions filed during the course of hearing along with various case laws has not been considered properly."

-		The funds were transferred from the company to the firm to keep the cash credit A/c within limit and to clear the cheques drafts issued by the firm in which the assessee has substantial interest.
-		The funds were transferred by the way of transfer entries transfer because of common parties in books of account of both the parties.
-		The funds were transferred to the bank account of the concern by the way of bank transfer or through cheques.

Smt. Sunita Jindal
Assessment year	Addition u/s 2(22)(e)
(i) 2004-05	Rs. 82,109/-
(ii) 2007-08	Rs. 2,44,394/-
(iii) 2008-09	Rs. 1,48,000/-
Smt. Gargi Jindal
Assessment year	Addition u/s 2(22)(e)
(i) 2003-04	Rs. 8,34,225/-
(ii) 2004-05	Rs. 13,84,971/-
(iii) 2006-07	Rs. 1,39,685/-
(iv) 2007-08	Rs. 14,37,163/-
(v) 2008-09	Rs. 27,11,696/-
(vi) 2009-10	Rs. 7,00,000/-

"(i)		The first condition is that the company in question must be one in which the public are not substantially interested.
(ii)		The second condition is that the loan was advanced to a shareholder at the date when the loan was advanced;
(iii)		The third condition is that the loan advanced to a shareholder by such a company can be deemed to be dividend only to the extent to which it is shown that the company possessed accumulated profit on the date of the loan;
(iv)		The fourth condition is that the loan must not have been advanced by the company in the ordinary course of its business."

■		The assessee invested some money in shares out of the funds available to him. He borrowed funds for his business. The interest expenses claimed by the assessee was disallowed proportionately by the Assessing Officer under section 14A by applying rule 8D.
■		On appeal, the Commissioner (Appeals) confirmed such disallowance by observing that the assessee made investment in shares which would result only in dividends which would be exempt from tax and that not receiving any exempt income during current year would not entitle assessee to claim expenses related to investments.
■		On second appeal, the Tribunal held that the assessee had not claimed any exempt income in this year, in such a situation section 14A could have no application. The Tribunal, deleted the addition made under section 14A.
■		On appeal:

■		Section 14A(1) provides that for the purpose of computing total income under chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application.
■		Thus, no question of law arose. [Para 5]

"(A)		Whether the Appellate Tribunal has substantially erred in deleting the addition of Rs. 12.33 lacs made u/s 14A despite the fact that the assessee had made investment of Rs.2.75 crores and had also claimed interest expenses of Rs.72.08 lacs. The AO had only disallowed proportionate expenses under Rule 8D(2)(ii)(iii)?
(B)		Whether the Appellate Tribunal has substantially erred in deleting the disallowance of interest of Rs.3.94 lacs despite the fact that the assessee had claimed interest expenses of Rs.72.08 lacs and had given interest free advances of Rs. 32.91 lacs to related parties. Interest expenses to that extent were therefore not deductible u/s 36(1)(iii)?"