JRG Holdings P.Ltd, New Delhi V. ITO, Ward-13(1), New Delhi

ITA 6497/DEL/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5311 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 10-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PERTAINS TO A Y MS; LD CIT A DELHI CITA
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Unexplained investment; Related party transaction; Principle of natural justice; Question of law; Deemed dividend; Set aside
• Section: 2(22)(e); 234B; 14A; 133(6); 192; 73; 72; 13; 22; 68

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C: NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 6497/DEL/2018 ASSTT. YEAR: 2014-15 O R D E R PER SUDHANSHU SRIVASTAVA, JM: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST ORDER DATED 26.7.2018 PASSED BY THE LD. CIT (A) 5, DELHI {CIT(A)} AND PERTAINS TO A.Y 2014-15. M/S. JRG HOLDINGS (P) LTD. NEW DELHI C/O M/S. RRA TAXINDIA, D-28, SOUTH EXTENSION PART-1, NEW DELHI DELHI PIN 110 049 PAN AACCD7521Q VS. ITO WARD-13(1) DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY: DR. RAKESH GUPTA, ADVOCATE SHRI DEEPESH GARG, ADVOCATE DEPARTMENT BY : SHRI RAGHUNATH, SR. DR DATE OF HEARING 23/10/2019 DATE OF PRONOUNCEMENT / /2020 ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 2 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF INVESTING, ACQUIRING AND HOLDING, BUYING AND SELLING OF SECURITIES INCLUDING SHARES, DEBENTURES, STOCK BONDS, ETC. HOWEVER, DURING THE YEAR UNDER CONSIDERATION, NO BUSINESS ACTIVITY WAS CARRIED OUT. THE RETURN OF INCOME WAS FILED DECLARING A LOSS OF RS. 26,22,677/- . THE CASE WAS SELECTED FOR SCRUTINY AND SUBSEQUENTLY, THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS. 3,62,27,890/- AFTER DISALLOWING THE EXPENDITURE CLAIMED IN THE PROFIT/LOSS ACCOUNT AND AFTER FURTHER MAKING THE FOLLOWING ADDITIONS/DISALLOWANCES: I) DISALLOWANCE OF FEES PAID TO ROC RS. 2,26,500/- II) DISALLOWANCE U/S 14A RS. 22,22,893/- III) DEEMED DIVIDEND U/S 2(22)(E) RS. 2,90,27,890/- IV) ADDITION OF CREDITS U/S 68 RS. 72,00,000/- 2.1 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. FIRST APPELLATE AUTHORITY CHALLENGING THE ADDITIONS AND DISALLOWANCES. THE LD. CIT (A) PARTLY ALLOWED THE ASSESSEES APPEAL BY DELETING THE DISALLOWANCE U/S 14A BUT UPHELD THE ADDITION PERTAINING TO PAYMENT OF FEES TO ROC, ADDITION PERTAINING TO DEEMED DIVIDEND AND ADDITION U/S 68. THE LD. CIT (A) ALSO UPHELD THE ACTION OF THE ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 3 AO IN MAKING THE DISALLOWANCE OF RS. 26,22,677/- ON ACCOUNT OF EXPENDITURE CLAIMED IN THE PROFIT AND LOSS ACCOUNT ON THE GROUND THAT NO BUSINESS ACTIVITIES HAVE BEEN CARRIED OUT DURING THE YEAR UNDER CONSIDERATION. 2.2 AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT AND HAS CHALLENGED THE ACTION OF THE LD. CIT (A) IN UPHOLDING THE ADDITIONS DISALLOWANCE BY RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AR IN MAKING DISALLOWANCE OF RS. 2,26,500/- ON ACCOUNT OF ROC FEES. 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN MAKING DISALLOWANCE OF RS. 26,22,677/- ON ACCOUNT OF EXPENDITURE CLAIMED IN PROFIT & LOSS ACCOUNT ON THE GROUND THAT NO BUSINESS ACTIVITY WAS CARRIED OUT AND IMPUGNED DISALLOWANCE HAS BEEN MADE BY RECORDING INCORRECT FACTS AND FINDINGS AND WITHOUT OBSERVING THE PRINCIPLES OF NATURAL JUSTICE AND FURTHER ERRED IN MAKING DOUBLE DISALLOWANCE TO THE EXTENT OF RS. 2,26,500/- RELATING TO ROC FEES. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN MAKING AGGREGATE ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 4 ADDITION OF RS. 2,90,27,890/- ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E), MORE SO WHEN THE SAME WAS IN THE NATURE OF INTER CORPORATE DEPOSITS AND IMPUGNED ADDITION HAS BEEN MADE BY RECORDING INCORRECT FACTS AND FINDINGS AND WITHOUT OBSERVING THE PRINCIPLES OF NATURE JUSTICE AND WITHOUT COMPLYING WITH THE OTHER MANDATORY CONDITIONS FOR APPLICABILITY OF SECTION 2(22)(E) OF INCOME TAX ACT, 1961 AND JUDICIAL DECISIONS RENDERED IN THIS REGARD. 4. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD. AO IN MAKING AGGREGATE ADDITION OF RS. 2,90,27,890/- ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E), IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE,, LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN MAKING ADDITION OF RS. 72,00,000/- ON ACCOUNT OF UNSECURED LOAN RECEIVED FROM M/S. MEGA TRADING U/S 68 AND THAT TOO BY RECODING INCORRECT FACTS AND FINDINGS AND WITHOUT OBSERVING THE PRINCIPLES OF NATURAL JUSTICE. 6. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN EXCEEDING/ASSUMING THE JURISDICTION BY OBSERVING THAT THE SAID AMOUNT OF RS. 72,00,000/- CAN ALSO BE TREATED AS AN ADVANCE RECEIVED FORM M/S. GOYAL ENGINEERS POLYMERS LTD. AND SHALL BE LIABLE TO CHARGED TO TAX U/S 2(22)(E) AND ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 5 THAT TOO BY RECORDING INCORRECT FACTS AND FINDINGS AND WITHOUT OBSERVING THE PRINCIPLES OF NATURAL JUSTICE. 7. THAT IN ANY CASE AND IN MY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD. AO IN MAKING ADDITION OF RS. 72,00,000/- ON ACCOUNT OF UNSECURED LOAN U/S 68, IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCE OF THE CASE. 8. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE EASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REVERSING THE ACTION OF LD. AO IN CHARGING INTEREST U/S 234B AND 234D OF INCOME TAX ACT, 1961. 9. THAT THE APPELLANT CRAVES THE LEAVE TO ADD, MODIFY, AMEND OR DELETE ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING AND ALL THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 3.0 THE LD. AR SUBMITTED THAT AS FAR AS ADDITION OF RS. 2,26,500/- PERTAINING TO FEES PAID TO ROC IS CONCERNED THIS INCLUDES AN AMOUNT OF RS. 5,500/- WHICH WAS PAID AS FEES FOR FILING THE ANNUAL RETURN WITH THE ROC. IT WAS SUBMITTED THAT THIS COULD NOT HAVE BEEN DISALLOWED UNDER ANY CIRCUMSTANCES. WITH RESPECT TO THE REMAINING AMOUNT, THE LD. AR SUBMITTED THAT THE SAME WAS NOT BEING PRESSED. ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 6 3.1 WITH RESPECT TO GROUND NO. 2 PERTAINING TO DISALLOWANCE OF RS. 26,22,677/- CONFIRMED BY THE LD. CIT (A) ON THE GROUND THAT SINCE THERE WAS NO BUSINESS ACTIVITY, EXPENSES COULD NOT BE ALLOWED, IT WAS SUBMITTED THAT ONCE THE BUSINESS IS SET UP, EXPENDITURE IS ALLOWED AND MERELY BECAUSE NO REVENUE MIGHT HAVE BEEN EARNED IN A PARTICULAR YEAR, EXPENSES CANNOT BE DISALLOWED ESPECIALLY WHEN SUCH EXPENSES ARE ADMINISTRATIVE IN NATURE. HE DREW OUR ATTENTION TO THE BREAK-UP OF EXPENSES AND POINTED OUT THAT EXPENSES LIKE AUDIT FEES, PROFESSIONAL FEES ETC. HAVE TO BE INCURRED IRRESPECTIVE OF THE BUSINESS OPERATIONS. SIMILARLY, EVEN IF THE COMPANY IS NOT FUNCTIONING, EXPENSES INCURRED TO MAINTAIN THE STATUS OF THE COMPANY ARE ALLOWABLE. IT WAS FURTHER ARGUED BY THE LD. AR THAT OUT OF THIS AMOUNT, AMOUNT OF RS. 2,26,500/- IS A DOUBLE DISALLOWANCE WHICH IS ALSO COVERED BY GROUND NO. 1. 3.2 WITH RESPECT TO GROUND NO. 3 AND 4 PERTAINING TO ADDITION OF RS. 2,90,27,890/- ON ACCOUNT OF DEEMED DIVIDEND ON THE GROUND THAT ASSESSEE HAS RECEIVED LOANS FROM THREE COMPANIES AND THAT THERE WERE ACCUMULATED PROFITS AVAILABLE WITH THESE LENDER COMPANIES NAMELY GOYAL ENGINEERING POLYMERS PVT. LTD. (ADDITION OF RS. 13,00,000/-), GURGAON POLYPLASTICS PVT. ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 7 LTD. (ADDITION OF RS. 43,15,216/-) AND POLYPLASTIC AUTOMOTIVE INDIA PVT. LTD. (ADDITION OF RS. 2,34,12,674/-), IT WAS SUBMITTED BY THE LD. AR THAT THESE IMPUGNED AMOUNTS DID NOT CONSTITUTE DEEMED DIVIDEND. THE FOLLOWING PROPOSITIONS WERE RAISED IN THIS REGARD. FIRSTLY, IT WAS SUBMITTED THAT THERE CANNOT BE ANY DEEMED DIVIDEND IN RESPECT OF ANY LOAN RAISED BY THE HOLDING COMPANY FROM ITS SUBSIDIARY COMPANY. IT WAS SUBMITTED THAT THE ASSESSEE COMPANY IS THE HOLDING COMPANY OF M/S. GOYAL ENGINEERING POLYMERS PVT. LTD. AND M/S. GURGAON POLYPLASTICS PVT. LTD. AS IT IS HAVING 51% SHARE HOLDING OF THESE COMPANIES. RELIANCE WAS PLACED ON THE ORDER OF THE ITAT CHENNAI BENCH IN THE CASE OF FARIDA HOLDING (P.) LTD VS. DCIT REPORTED IN (2012) 51 SOT 452 (CHENNAI) IN THIS REGARD. THE SECOND PROPOSITION RAISED BY THE LD. AR WAS THAT THE ASSESSEE COMPANY WAS NOT EVEN THE SHAREHOLDER IN THE THIRD COMPANY I.E. M/S. GURGAON POLYPLASTICS PVT. LTD. AS ON 31.3.2014. OUR ATTENTION WAS DRAWN TO THE AUDITED FINANCIAL STATEMENTS OF THAT COMPANY PLACED AT 51 OF THE PAPER BOOK WHERE FROM IT WAS DEMONSTRATED THAT THE ASSESSEE COMPANY WAS NOT THE SHAREHOLDER IN THE LENDING COMPANY. IT WAS FURTHER SUBMITTED THAT THE AO HAS ALSO ADMITTED TO THIS FACT ON PAGE 6 PARA 7.1 OF THE ASSESSMENT ORDER. IT WAS SUBMITTED THAT IT IS SETTLED LAW THAT ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 8 UNLESS THE ASSESSEE IS A SHAREHOLDER IN THE LENDER COMPANY NO DEEMED DIVIDEND CAN BE BROUGHT TO TAX. THE THIRD PROPOSITION IN THIS REGARD, AS RAISED BY THE LD. AR, WAS THAT THE ENTIRE TRANSACTIONS RELATED TO THE BUSINESS OF THE COMPANY AND WERE ENTERED INTO THE NORMAL COURSE OF BUSINESS. IT WAS SUBMITTED THAT AS THE ASSESSEE COMPANY IS AN INVESTMENT COMPANY, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WERE NOT ATTRACTED. IN THIS REGARD ALSO RELIANCE WAS PLACED ON NUMEROUS JUDICIAL PRECEDENTS WHICH HAVE BEEN INCORPORATED IN THE WRITTEN SUBMISSIONS AND ARE PRODUCED ELSEWHERE IN THIS ORDER. THE LD. AR EMPHASISED THAT ALTHOUGH THESE FACTS WERE PLEADED BEFORE THE LOWER AUTHORITIES, THEY WERE NOT EVEN CONSIDERED WHILE MAKING THE IMPUGNED ADDITION. 3.3 ARGUING ON GROUND NOS. 5, 6 AND 7 RELATING TO THE ADDITION OF RS. 72,00,000/-BEING AMOUNT OF LOAN FROM M/S. MEGA TRADING CORPORATION ADDED BACK U/S 68 OF THE ACT, THE LD. AR SUBMITTED THAT M/S. MEGA TRADING CORPORATION IS ASSESSED TO TAX AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, CONFIRMATION FROM THIS COMPANY WAS FILED ALONG WITH THE COPY OF THE BANK STATEMENT. IT WAS SUBMITTED THAT EVEN THE COMPANY HAD RESPONDED TO THE NOTICE ISSUED U/S 133(6) OF THE ACT AND HAD ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 9 REPLIED DIRECTLY TO THE AO CONFIRMING THE TRANSACTION. THE LD. AR ALSO SUBMITTED THAT THE IMPUGNED AMOUNT OF RS. 72,00,000/- WAS SUBSEQUENTLY REPAID TO M/S. MEGA TRADING CORPORATION FURTHER EVIDENCING THE GENUINENESS OF THE TRANSACTION. 3.4 THE LD. AR ALSO FILED A BRIEF SYNOPSIS RELATING TO THE GROUNDS RAISED BY THE ASSESSEE AND THE SAME IS REPRODUCED HEREUNDER FOR READY REFERENCE:- GROUND NO.1 IS REGARDING THE DISALLOWANCE OF RS. 2,26,500/- ON ACCOUNT OF ROC FEE, WHICH HAS BEEN CONFIRMED BY LD. CIT(A). LD. A.O. HAS DISCUSSED THIS ISSUE AT PAGE----2 OF THE ASSESSMENT ORDER, WHEREAS LD. CIT (A) HAS DISCUSSED THIS ISSUE AT PAGE 43-44 OF THE APPEAL ORDER. IT WAS SUBMITTED BEFORE BOTH LD. A.O. AND LD. CIT(A) THAT AMOUNT OF RS. 2,26,500 INCLUDES AN AMOUNT OF RS. 5,5001- PAID AS FEES FOR FILING OF ANNUAL RETURN WITH ROC, WHICH UNDER NO CIRCUMSTANCES CAN BE DISALLOWED. PB 67-73 IS ASSESSEE'S REPLY DATED 08-11-2016 FILED TO LD. AO WHEREIN AT PAGE 73 DETAILS OF RS.2,26,500 HAS BEEN GIVEN WHICH INCLUDES RS.5,500 TOWARDS ROC FILING FEES. PB 67-73 IS THE COPY OF ASSESEE'S LETTER TO LD. A.O. SUBMITTING INTER ALIA THE DETAILS OF ROC FEE CONSISTING OF RS. 5,5001- AT PB 73. PB 86-89 IS WRITTEN SUBMISSIONS FILED BEFORE LD. CIT(A) IN THIS REGARD HIGHLIGHTING THE ABOVE FACTS. ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 10 HOWEVER, IN ANY CASE THE ENTIRE EXPENSES OF RS. 26,22,6771- CLAIMED BY THE ASSESSEE HAS BEEN DISALLOWED BY LD. A.O. AND CONFIRMED BY LD. CIT(A) AND ROC EXPENSES OF RS. 2,26,500/- BEING PART OF THIS TOTAL EXPENDITURE HAS RESULTED IN DOUBLE DISALLOWANCE. PB 21 IS THE COPY OF PROFIT AND LOSS ACCOUNT, WHICH WOULD SHOW THAT OTHER EXPENSES WERE TO THE TUNE OF RS. 15,39,889/- AND PB 25 IS THE DETAILS OF OTHER EXPENSES, WHICH WOULD SHOW THAT ROC EXPENSES OF RS. 2,26,500/- IS PART OF SUCH OTHER EXPENSES AND HENCE DISALLOWED TWICE. IN LIGHT OF THE ABOVE STATED FACTS, ADDITIONS SUSTAINED MAY PLEASE BE KINDLY DELETED. GROUND NO.2 LD. A.O. MADE DISALLOWANCE OF RS 26,22,6771- CONFIRMED BY LD. CIT(A) ON THE GROUND THAT SINCE THERE WAS NO BUSINESS ACTIVITIES, EXPENSE CANNOT BE ALLOWED. THIS ISSUE HAS BEEN DISCUSSED BY LD. A.O. AT PAGE 4-5 OF THE ASSESSMENT ORDER, WHEREAS LD. CIT(A) HAS DISCUSSED THIS ISSUE AT PAGE 46-47 OF THE APPEAL ORDER. IN FACT, BOTH THE AUTHORITIES WERE IMPRESSED UPON WITH THE HELP OF SUBMISSIONS AND PROFIT AND LOSS ACCOUNT AND BALANCE SHEET, THAT THE BUSINESS OF THE ASSESSEE HAS BEEN DULY SET UP AND MERELY BECAUSE NO REVENUE HAS BEEN EARNED BY THE ASSESSEE DURING THE YEAR, EXPENSES CANNOT BE DISALLOWED, MORE SO, WHEN SUCH EXPENSES ARE OF ADMINISTRATIVE CHARACTER. PB 18-25 IS THE COPY OF ACKNOWLEDGMENT OF RETURN, COMPUTATION OF INCOME, BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE COMPANY FOR THE A.Y. 2014-15 TO SHOW THAT THE BUSINESS WAS SET UP, INVESTMENTS WERE MADE AND EXPENSES INCURRED IN RUNNING THE BUSINESS. ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 11 PB 29-32 IS THE ASSESSEE'S LETTER TO LD. A.O. SUBMITTING INTER ALIA ABOUT THE NATURE OF BUSINESS OF THE ASSESSEE COMPANY. PB 67-73 IS THE COPY OF ASSESSEE'S LETTER TO LD. A.O. SUBMITTING AT PB 68-69 A DETAILED NOTE AS TO WHY CLAIMED EXPENSES CANNOT BE DISALLOWED. IT HAS BEEN HELD IN THE FOLLOWING JUDICIAL DECISIONS THAT ONCE BUSINESS IS SET UP EXPENSES ARE ALLOWABLE: - - WESTERN INDIA VEGETABLE PRODUCTS LTD. VS. CIT, 26 ITR 151 (BORN.) - CIT VS. SARABHAI MANAGEMENT CORPORATION LTD, 192 ITR 151 (SC) - CIT VS. WESTERN INDIA SEAFOOD PVT. LTD, 199 ITR 777 (GUJ.) - CIT VS. E-FUNDS INTERNATIONAL INDIA, 162 TAXMAN I(DET.) - STYLER INDIA PVT. LTD. VS. JCIT, 116 TTJ 333 (TM)(ITAT-PUNE). WITHOUT PREJUDICE TO ABOVE, IT HAS BEEN HELD IN THE FOLLOWING JUDICIAL DECISIONS THAT EVEN IF THERE IS NO BUSINESS, EXPENSES INCURRED FOR RETAINING THE STATUS OF THE ASSESSEE AS COMPANY ARE ALLOWABLE:- -ITO VS. MOKUL FINANCE (P) LTD. (2007) 110 TTJ 0445 THE ASSESSEE BEING AN ARTIFICIAL JURIDICAL PERSON, IT NEEDS TO INCUR CERTAIN EXPENDITURE TO KEEP ITSELF AFLOAT AND HAVE ITS CONTINUED EXISTENCE. UNLIKE A NATURAL PERSON, A COMPANY CAN ONLY OPERATE THROUGH OTHER NATURAL PERSONS WHETHER EMPLOYEES OR OTHERS. IT IS NOT THE CASE OF THE AO THAT THE EXPENDITURE OF THE ASSESSEE COMPANY ARE EXCESSIVE OR UNREASONABLE VIS-A-VIS ITS ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 12 LEGITIMATE BUSINESS REQUIREMENTS. IN THE CASE OF THE CORPORATE ASSESSEES SUCH EXPENSES HAVE TO BE ALLOWED AS DEDUCTION IRRESPECTIVE OF WHETHER OR NOT THE ASSESSEE IS ENGAGED IN ACTIVE BUSINESS AND EVEN IF ASSESSEE HAS ONLY PASSIVE INCOMES. THE CIT(A) WAS, THEREFORE, JUSTIFIED IN HIS CONCLUSIONS. THAT IS, HOWEVER, NOT THE ONLY REASON WHY THE DISALLOWANCE MADE BY THE A0 WAS UNSUSTAINABLE IN LAW. THE WHOLE CAUSE OF ACTION OF DISALLOWANCE OF EXPENSES IS IN THE BACKGROUND OF AO'S OBSERVATION THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS TRANSACTIONS WHICH AT BEST WAS A0'SFINDING ABOUT AN ACTIVITY OF BUSINESS NOT BEING FUNCTIONAL IN THE RELEVANT PREVIOUS YEAR. NOT CARRYING ON BUSINESS ACTIVITY IN A PARTICULAR PERIOD CANNOT BE EQUATE WITH CLOSURE OF BUSINESS AS IT TAKES AN UNSUSTAINABLY NARROW VIEW OF THE SCOPE OF CESSATION OF A BUSINESS. UNLESS THE BUSINESS IS ABANDONED OR CLOSED AND EVEN IF BUSINESS IS AT A DORMANT STAGE WAITING FOR PROPER MARKET CONDITIONS TO DEVELOP, THE EXPENDITURE INCURRED IN THE COURSE OF SUCH A BUSINESS IS TO BE ALLOWED AS DEDUCTION. FOR THIS REASON ALSO, THE DISALLOWANCE MADE BY THE AO WAS NOT JUSTIFIED, AND THE CIT(A) RIGHTLY DELETED THE SAME. - CIT VS. GANGA PROPERTIES LTD., (1993) 199 ITR 94 (CAL), - NAKODAR BUS SERVICE (P) LTD. VS. CIT, (1989) 179 ITR 506 (P&H), - CIT VS. RAMPUR TIMBERY & TURNERY CO. LTD., (1981) 129 ITR 58 (ALL) - L.VE. VAIRAVAN CHETTIAR VS. CIT, (1969) 72 ITR 114 (MAD) THUS, APPLYING THE NITTY-GRITTY OF THE ABOVE QUOTED JUDGEMENTS TO THE PRESENT CASE, THE ADDITIONS MADE BY ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 13 THE LD. AO ARE UNWARRANTED AND MAY PLEASE BE DELETED. GROUND NO. 3-4 LD. A.O. HAS MADE AN AGGREGATE ADDITION OF RS. 2,90,27,890/- ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) ON THE GROUND THAT ASSESSEE HAS RECEIVED LOANS FROM THREE COMPANIES AND THERE WERE ACCUMULATED PROFITS AVAILABLE WITH THESE LENDER COMPANIES AND ACCORDINGLY TREATED THE AMOUNT OF LOANS RECEIVED TO THE EXTENT OF ACCUMULATED PROFIT OF THESE COMPANIES AS DEEMED DIVIDEND NAMELY M/S GOYAL ENGINEERING POLYMERS P. LTD. (GEPPL) OF RS. 13,00,000/- , M/S GURGAON POLY PLASTIC LTD. (GPPL) OF RS. 43,15,216/-, M/S POLY PLASTIC AUTOMOTIVE INDIA P. LTD. (PAIPL) OF RS. 2,34,12,674/-, WHICH COMES TO RS. 2,90,27,890/-. LD. A.O. HAS DISUSED THIS ISSUE AT PAGE 5-10 OF THE ASSESSMENT ORDER, WHEREAS LD. CIT (A) HAS DISCUSSED THIS ISSUE AT PAGE 47-48 OF THE APPEAL ORDER. ASSESSEE RAISED SEVERAL ISSUES DURING ASSESSMENT PROCEEDING AND APPEAL PROCEEDING & SUBMITTED THAT IMPUGNED AMOUNTS DO NOT CONSTITUTE DEEMED DIVIDEND BUT THOSE ISSUES WERE NOT ADVERTED TO BY ANY OF THE AUTHORITIES. ISSUES RAISED BY ASSESSEE WERE AS FOLLOWS: - 1. THERE CANNOT BE ANY DEEMED DIVIDEND IN RESPECT OF ANY LOAN RAISED BY A HOLDING COMPANY FROM ITS SUBSIDIARY COMPANY BY RELYING UPON THE FOLLOWING JUDICIAL PRECEDENT. FARIDA HOLDINGS (P.) LTD. V. DCIT, [2012] 51 SOT 452 (CHENNAI) ADDITION-TRANSACTIONS CARRIED OUT IN ORDINARY COURSE OF BUSINESS-DEEMED DIVIDENDS U/S. 2(22)(E)- TAXABILITY-ASSESSEE IS THE HOLDING COMPANY EXERCISING ADMINISTRATIVE CONTROL OVER 11 HUNDRED ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 14 PERCENT OWNED SUBSIDIARIES-ASSESSEE COMPANY FILED ITS RETURNS OF INCOME-A0 FOUND THAT ASSESSEE COMPANY HAD RECEIVED LOAN AMOUNTS FROM DIFFERENT SUBSIDIARIES AND THOSE BORROWED FUNDS WERE IN TURN ADVANCED TO OTHER SUBSIDIARIES- THEREFORE, HE HELD THAT LOANS OBTAINED BY ASSESSEE FROM ITS SUBSIDIARIES WERE IN THE NATURE OF DEEMED DIVIDENDS AS PER S. 2(22)(E) AND LIABLE TO BE TAXED-CIT(A) CONFIRMED THE ORDER OF AD-HELD, AS A HOLDING COMPANY, THE ASSESSEE IS BOUND TO MONITOR THE FINANCIAL DISCIPLINE OF ITS SUBSIDIARIES, ESPECIALLY WHEN ALL THE SUBSIDIARIES ARE FULLY OWNED BY THE HOLDING COMPANY- THESE RESPONSIBILITIES ARE DISCHARGED BY THE HOLDING COMPANY WHILE EXERCISING ITS MANAGEMENT CONTROL, IN THE COURSE OF CARRYING ON OF ITS BUSINESS-ASSESSEE COMPANY HAS NOT AVAILED ANY BENEFIT OUT OF THOSE LOANS AVAILED FROM ITS SUBSIDIARIES-ALL THE INFLOWS AND OUTFLOWS OF FUNDS MONITORED AND MANAGED BY THE ASSESSEE COMPANY AS A HOLDING COMPANY WERE MEANT ONLY FOR THE BENEFIT OF THE SUBSIDIARY COMPANIES TO CARRY ON THEIR BUSINESS-WHERE REGULAR BUSINESS TRANSACTIONS ARE CARRIED ON BY AN ASSESSEE IN ITS ORDINARY COURSE OF BUSINESS IN THE ABOVE MANNER, THEY CANNOT BE TREATED AS DEEMED DIVIDEND FOR THE PURPOSE OF SECTION 2(22)(E) OF THE ACT-THEREFORE, ADDITIONS MADE BY THE ASSESSING AUTHORITY UNDER SECTION 2(22) (E)ARE DELETED-APPEALS FILED BY ASSESSEE ARE ALLOWED IT IS EVIDENT FROM THE CHART GIVEN IN PARA 7.1 PAGE 6 OF THE ORDER THAT ASSESSEE COMPANY IS HOLDING COMPANY OF M/S GEPPL AND M/S PAIPL AS IT IS HAVING MORE THAN 51% SHARE OF BOTH THE ABOVE COMPANIES PB 74-78 IS THE COPY OF REPLY FILED BY THE ASSESSEE ON THE ABOVE LINES. ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 15 2. THAT THE ASSESSEE COMPANY WAS NOT EVEN SHAREHOLDER IN GPPL AS IS EVIDENT FROM THE AUDITED FINANCIAL STATEMENT OF M/S GURGAON POLYPLASTIC (P) LTD. AS AT 31-03-2014 (PB 49-55) WHEREIN AT PB 51 SHOWS THAT ASSESSEE COMPANY IS NOT THE SHAREHOLDER IN THE LENDER COMPANY. THIS FACT IS EVEN ADMITTED BY LD. AO AT PAGE 6 (PARA 7.1) OF THE ASSESSMENT ORDER. IT IS A SETTLED LAW THAT UNLESS ASSESSEE IS SHAREHOLDER IN THE LENDER COMPANY NO DIVIDEND CAN BE BROUGHT TO TAX AS HELD BY DELHI HIGH COURT IN THE CASE OF CIT VS. ANKITECH (P) LTD. & ORS. 340 ITR 14, WHICH HAS BEEN AFFIRMED BY HON'BLE SUPREME COURT IN THE CASE OF CIT VS MADHUR HOUSING AND DEVELOPMENT COMPANY, 401 ITR 152 (SC) 3. THAT THE ENTIRE TRANSACTIONS WERE OF THE BUSINESS NATURE AND ENTERED ON REGULAR COURSE OF BUSINESS. IN THIS REGARD IT IS RESPECTFULLY SUBMITTED THAT THE IMPUGNED AMOUNT RECEIVED BY THE ASSESSEE WERE IN BUSINESS NATURE AND WERE UNDERTAKEN IN REGULAR COURSE OF BUSINESS AS THE ASSESSEE COMPANY IS IN NATURE OF INVESTMENT COMPANY. IN THE FOLLOWING JUDICIAL PRECEDENTS, IT HAS BEEN HELD THAT ADVANCES/ LOANS RECEIVED IN ORDINARY COURSE OF BUSINESS CANNOT ATTRACT THE PROVISIONS OF SECTION 2(22)( E) - DCIT V. LAKRA BROTHERS-L06-TTJ-250(CHD' A') DEBT/ADVANCES IN THE REGULAR COURSE OF BUSINESS- ADVANCES MADE DURING THE ORDINARY COURSE OF BUSINESS FOR BUSINESS EXPEDIENCIES DO NOT CONSTITUTE 'LOAN' FOR PURPOSES OFS.2(22)(E) AND CANNOT BE TAXED AS DEEMED DIVIDEND - CIT VS. CREATIVE DYEING & PRINTING (P) LTD. 30 DTR 143(DELHI) ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 16 ADVANCE FOR COMMERCIAL PURPOSE-AMOUNT ADVANCED TO THE ASSESSEE COMPANY BY ANOTHER COMPANY HAVING COMMON DIRECTORS NOT BEING A LOAN BUT AN ADVANCE FOR BUSINESS TRANSACTION WHICH IS TO BE ADJUSTED AGAINST THE MONEYS PAYABLE BY THE LATTER TO THE ASSESSEE COMPANY IN THE SUBSEQUENT YEARS, SAME DID NOT FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND UNDER S. 2(22)(E) - CIT VS MALAYALA MANORAMA COMPANY LTD., 301 CTR 552 (KERALA HIGH COURT) DEEMED DIVIDEND-TRADE DISCOUNT-AGENTS' DEPOSIT- ADDITION- VALIDITY-ASSESSEE WAS ENGAGED IN PRINTING AND PUBLISHING OF MALAYALA MANORAMA DAILY, MANORAMA WEEKLY-ASSESSEE COMPANY HAD 100% SHARES IN A SUBSIDIARY COMPANY, CBL-AO TREATED TRADE DISCOUNT AND AGENTS' DEPOSIT AS 'DEEMED DIVIDEND' U/S. 2(22)(E)-CIT(A) SET ASIDE ORDER OF AO HOLDING THAT WHAT WAS RECEIVED BY ASSESSEE WAS NOT COMING WITHIN PURVIEW OF 'LOANS AND ADVANCES' AND HENCE AO WAS NOT CORRECT IN TREATING SAID AMOUNT AS 'DEEMED DIVIDEND- TRIBUNAL UPHELD ORDER OF CIT(A)-HELD, DELHI HIGH COURT IN COMMISSIONER OF INCOME - TAX VS. RAJ KUMAR [(2009) 318 ITR 462 DELHI], HELD THAT WORD 'ADVANCE' WHICH APPEARED IN COMPANY OF WORD 'LOAN' COULD ONLY MEAN SUCH ADVANCE WHICH CARRIED WITH IT OBLIGATION OF REPAYMENT AND THAT TRADE ADVANCES WHICH WERE IN NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO COMMERCIAL TRANSACTION WOULD NOT FALL WITHIN AMBIT OF PROVISION U/S. 2(22) (E)--AMOUNTS UNDER DISPUTED HEADS WERE BEING RECEIVED BY ASSESSEE FROM ITS SUBSIDIARY COMPANY ONLY AS PART OF REGULAR BUSINESS TRANSACTIONS, WHICH WAS BEING ACCOUNTED PROPERLY-ADVANCE DEPOSITS WERE ALSO EFFECTED BY SUBSIDIARY COMPANY AND PAYMENTS WERE BEING EFFECTED DIRECTLY BY ASSESSEE TO CLEARING AND FORWARDING AGENT OF SUBSIDIARY COMPANY AT ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 17 TRIVANDRUM, AS PER THEIR INSTRUCTIONS, WHICH WERE BEING PROPERLY ACCOUNTED-PAYMENTS EFFECTED BY SUBSIDIARY COMPANY AND RECEIVED BY ASSESSEE, WERE A PART OF REGULAR BUSINESS TRANSACTIONS-IT COULD NOT HAVE BEEN TREATED AS 'LOAN' OR 'ADVANCES', SO AS TO MAKE DISPUTED AMOUNTS AS 'DEEMED DIVIDEND', AS DEFINED ULS.2(22)( E)-- AO WRONGLY PASSED ORDER FOR ASSESSMENT OF 'DEEMED DIVIDEND ASSESSMENT OF 'DEEMED DIVIDEND'-REVENUE'S APPEALS DISMISSED. - CIT VS AMBASSADOR TRAVELS (P) LTD., 318 ITR 376 (DHC) DIVIDEND-DEEMED DIVIDEND UNDER S. 2(22)( E)- TRANSACTIONS IN THE ORDINARY COURSE OF BUSINESS- ASSESSEE, A TRAVEL AGENCY, BOOKING RESORTS FOR THE CUSTOMERS OF THE COMPANIES, THEY WERE NORMAL BUSINESS TRANSACTIONS AND COULD NOT BE TREATED AS DEEMED DIVIDEND UNDER S. (22)( E) BECAUSE OF SHAREHOLDING PATTERN-NO SUBSTANTIAL QUESTION OF LAW ARISES - CIT VS CREATIVE DYEING & PRINTING (P) LTD., 318 ITR 476 (DHC) DIVIDEND-DEEMED DIVIDEND UNDER S. 2(22)( E)-ADVANCE FOR COMMERCIAL PURPOSE-ASSESSEE COMPANY RECEIVED FUNDS FOR EXPANSION OF PRODUCTION CAPACITY FROM PE LTD. WHICH HAS 50 PER CENT SHAREHOLDING IN THE ASSESSEE AND HAS COMMON DIRECTORS WITH THE ASSESSEE-TRANSACTION IN QUESTION WAS A BUSINESS TRANSACTION WHICH WOULD BENEFIT BOTH ASSESSEE COMPANY AND PE LTD.-ADMITTEDLY, THE AMOUNT IS TO BE ADJUSTED AGAINST THE MONEYS PAYABLE BY PE LTD. TO THE ASSESSEE COMPANY IN THE SUBSEQUENT YEARS-CONTENTION OF THE REVENUE THAT SINCE PE LTD. IS NOT INTO THE BUSINESS OF MONEY LENDING, THE PAYMENTS MADE BY IT TO THE ASSESSEE COMPANY WOULD BE COVERED BY S.2(22)(E)(II) AND CONSEQUENTLY PAYMENTS EVEN FOR BUSINESS TRANSACTIONS WOULD BE DEEMED ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 18 DIVIDEND IS NOT ACCEPTABLE-ONCE IT IS HELD THAT BUSINESS TRANSACTIONS DO NOT FALL WITHIN S. 2(22)( E), THERE IS NO NEED TO GO FURTHER TO S. 2(22)(E)(II)--THEREFORE, AMOUNT ADVANCED FOR THE BUSINESS TRANSACTION BY PE LTD. TO THE ASSESSEE COMPANY DID NOT FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND UNDER S. 2(22)( E) PB 84 IS THE COPY OF RESOLUTION PASSED BY PAIPL RESOLVING TO GIVE INTERCORPORATE DEPOSITS TO THE ASSESSEE COMPANY. PB 79- 83 IS THE COPY OF REPLY FILED BY THE ASSESSEE TO LD. AO EXPLAIN THAT AMOUNT WAS RECEIVED BY THE ASSESSEE WERE IN THE NATURE OF INTER CORPORATE DEPOSITS. THUS, BASED ON THE ABOVE STATED DECISIONS IT CAN BE CONCLUDED THAT THE LAW IS QUITE CLEAR ON THE FACT ADVANCES MADE IN REGULAR COURSE OF BUSINESS DOES NOT CONSTITUTE LOAN FOR THE PURPOSE OF SECTION 2(22)( E) AND THE ADDITIONS MAY KINDLY BE DELETED. WITHOUT PREJUDICE TO THE ABOVE, NONE OF THE AUTHORITIES HAS DEALT THE LAW CORRECTLY AS SHOWN HEREUNDER :- LOANS GIVEN ON A PARTICULAR DATE CAN BE TREATED AS DEEMED DIVIDEND ONLY, IF THE ASSESSEE WAS SHAREHOLDER ON THE DATE OF GRANT OF LOAN AND THERE WERE ACCUMULATED PROFITS OF THAT MUCH AMOUNT ON DAY OF GRANTING OF LOAN. IT MAY PLEASE BE SEEN THAT IT HAS BEEN ASSUMED BY BOTH THE LOWER AUTHORITIES THAT ASSESSEE WAS THE SHAREHOLDER HOLDING MORE THAN 10% STAKES IN THE LENDER COMPANIES ON THE DATE OF GRANT OF LOANS, WHEREAS THE FACT OF THE MATTER IS THAT THE ASSESSEE BECAME SHAREHOLDER IN THE MIS PAIPL ON 28.10.2013 (AS IS EVIDENT FROM COPY OF FINANCIAL STATEMENTS OF THE ASSESSEE AT PB 22) AS PER THE NOTE GIVEN IN THE BALANCE SHEET ITSELF, WHEREAS SUBSTANTIAL AMOUNTS OF LOANS WERE ALREADY GRANTED ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 19 PRIOR TO THAT DATE TO DIFFERENT THREE COMPANIES WHICH GOT MERGED IN THE ASSESSEE COMPANY ON 28.10.2013. PB 22 IS THE NOTES ON FINANCIAL STATEMENTS OF THE ASSESSEE COMPANY, WHICH SHOW THAT THREE SHAREHOLDERS COMPANIES OF M/S PAIPL I.E. M/S RAKSHAT PORTFOLIO PVT. LTD., M/S GUNJAN AUTOMOTIVE PVT. LTD. & M/S JAHANVI POLYPRODUCTS PVT. LTD. WERE MERGED I AMALGAMATED IN THE ASSESSEE COMPANY ON 28.10.2013 AND ASSESSEE COMPANY BECAME SHAREHOLDER IN M/S PAIPL ON 28.10.2013 ONLY, AND THUS LOANS TO THE ASSESSEE COMPANY BY M/S PAIPL PRIOR TO 28.10.2013 CANNOT BE TREATED AS DEEMED DIVIDEND UNDER ANY CIRCUMSTANCES, AND POSITION OF ACCUMULATED PROFITS WILL HAVE TO BE SEEN IN THE HANDS OF M/S PAIPL AFTER THIS DATE ON THE DATE OF EACH LOAN GRANTED BY M/S PAIPL TO THE ASSESSEE COMPANY. PB 56-64 IS THE COPY OF RETURN AND BALANCE SHEET OF M/S PAIPL, WHEREIN AT PB 59 IT IS COMING OUT CLEARLY THE ASSESSEE BECAME SHAREHOLDER DURING THE YEAR. PB 125-127 IS THE COPY OF LEDGER A/C OF PAIPL IN THE BOOKS OF ASSESSEE. PERUSAL OF SAME UNAMBIGUOUSLY ASCERTAINS THAT OUT OF TOTAL ALLEGED LOAN OF RS. 3,84,60,867/- AMOUNT OF RS. 2,56,00,000/- WERE RECEIVED BEFORE THE SHARES OF PAIPL WERE ACQUIRED BY THE COMPANY AND ONLY RS. 1,28,60,867/- WERE RECEIVED AFTER THE TRANSFER. PB 128 IS THE COPY OF LEDGER A/C OF THE ASSESSEE IN BOOKS OF PAIPL. PB 130 IS THE COPY OF LEDGER A/C OF M/S GOYAL ENGINEERING POLYMERS PVT. LTD. IN THE BOOKS OF ASSESSEE PB 132 IS THE COPY OF LEDGER A/C OF ASSESSEE III THE BOOKS OF M/S GOYAL ENGINEERING POLYMERS PVT. LTD. ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 20 PB 131 IS THE COPY OF LEDGER A/C OF M/S GOYAL POLYPASTICS PVT. LTD. IN THE BOOKS OF ASSESSEE FURTHER, AS PER EXPLANATION 2 TO SECTION 2(22) 'ACCUMULATED PROFITS' FOR THE PURPOSE OF SUB-CLAUSE (E) SHALL INCLUDE ALL PROFITS OF THE COMPANY UPTO DATE OF DISTRIBUTION OR PAYMENT. THUS, IT IS A MATTER OF LAW THAT IN THE ABSENCE OF ANY CONTRARY EVIDENCE ON RECORD, ACCUMULATED PROFITS SHALL BE DEEMED TO ACCRUE ON DAY TO DAY BASIS. THEREFORE, LD. AO ARE ERRORED IN LAW IN CONSIDERING ACCUMULATED PROFITS COMPUTED AS ON 31.03.2014 FOR JUDGING THE QUANTUM OF DEEMED DIVIDEND U/S 2(22)( E). PB 74-78 IS THE COPY OF ASSESSEE'S LETTER TO LD. A.O. SUBMITTING INTER ALIA ABOUT THE AMALGAMATION OF M/S RAKSHAT, M/S GUNJAN & M/S JAHANVI WITH THE ASSESSEE COMPANY AND FILING COPY OF AMALGAMATION ORDER, A DETAILED NOTE ON DEEMED DIVIDEND SUBMITTING THAT NO DEEMED DIVIDEND CAN BE THERE IN THE HANDS OF HOLDING COMPANY ADVANCE OF SUBSIDIARY COMPANY AND RELY UPON CHENNAI BENCH OF TRIBUNAL DECISIONS IN THE CASE FARIDA HOLDING P. LTD. VS. DCIT. THUS, ON THE BASIS OF ABOVE PLEADINGS AND DOCUMENTARY EVIDENCES IT CAN BE REASONABLY CONCLUDED THAT ADDITIONS MADE BY THE LD. AO ARE UNWORTHY AND MAY KINDLY BE DELETED. GROUND NO.5, 6 & 7 THESE GROUNDS RELATE TO THE ADDITION OF RS. 72,00,000/- BEING THE AMOUNT OF LOAN FROM M/S MEGA TRADING CORPORATION U/S 68 OF THE ACT. LD. A.O HAS DISCUSSED THIS ISSUE FROM PAGE 10-16 OF THE ASSESSMENT ORDER, WHEREAS LD. CIT(A) HAS DISCUSSED THIS ISSUE AT PAGE 49-53 OF THE APPEAL ORDER. ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 21 TRAILING SUBMISSIONS AND EVIDENCES WERE DULY PLACED BEFORE THE LD. AO SHOWING THAT THE IMPUGNED LOAN WAS RECEIVED FROM M/S MEGA TRADING CORPORATION THROUGH BANKING CHANNEL. M/S MEGA TRADING CORPORATION IS ASSESSED TO TAX AS PER PROVISIONS OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, CONFIRMATION FROM M/S MEGA TRADING CORPORATION WAS FILED ALONG WITH COPY OF ITS BANK STATEMENT. EVEN, THE LD. AO RECEIVED A REPLY DIRECTLY IN RESPONSE TO NOTICE U/S 133(6) WHEREIN M/S MEGA TRADING CORPORATION HAS CONFIRMED UNDERTAKING TRANSACTION WITH ASSESSEE COMPANY. PB 33-36 IS THE COPY OF ASSESSEE'S LETTER TO LD. A.O. SUBMITTING INTER ALIA THE DETAILS OF LOAN FROM M/S MEGA TRADING CORPORATION AND QUOTING ITS PAN. PB 65-66 IS THE COPY OF CONFIRMATION FROM M/S MEGA TRADING CORPORATION AND THE COPY OF BANK STATEMENT OF THE ASSESSEE COMPANY. PB 133 IS THE COPY OF REPLY SENT BY M/S MEGA TRADING CORPORATION IN RESPONSE TO NOTICE U/S 133(6). PB 134 IS THE COPY OF BANK STATEMENT OF M/S MEGA TRADING CORPORATION EVIDENCING THAT IMPUGNED AMOUNT WAS DISBURSED BY M/S MEGA TRADING CORPORATION. PB 85-124 IS THE COPY OF SUBMISSIONS MADE BEFORE LD. CIT (A) ON VARIOUS ISSUES. IT IS FURTHER HIGHLIGHTED THAT THE IMPUGNED AMOUNT OF RS. 72,00,000/- WERE SUBSEQUENTLY REPAID TO M/S MEGA TRADING CORPORATION FURTHER EVIDENCING THE GENUINITY OF TRANSACTION AND THUS, THE ADDITIONS MADE BY THE LD. AO BEING WITHOUT ANY MERIT MAY KINDLY BE DELETED. ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 22 4.0 IN RESPONSE, THE LD. SR. DR PLACED EXTENSIVE RELIANCE ON THE FINDINGS RECORDED BY THE AO AND AS CONFIRMED BY THE LD. CIT (A). THE LD. SR. DR ALSO FILED WRITTEN SUBMISSIONS WHICH WERE TAKEN ON RECORD AND ARE BEING REPRODUCED HEREUNDER FOR A READY REFERENCE:- IN THE ABOVE CASE, IT IS HUMBLY SUBMITTED THAT THE FOLLOWING POINTS MAY KINDLY BE CONSIDERED WITH REGARD TO DEEMED DIVIDEND U/S 2(22)(E) OF I.T. ACT IN THE PRESENT CASE: 1. THE ASSESSEE HAS CLAIMED THAT THE LOAN AVAILED BY IT FROM RELATED PARTIES IS IN THE NATURE OF INTER- CORPORATE DEPOSITS (ICDS). ICDS ARE SHORT TERM BORROWINGS WHICH ARE AVAILED BY CORPORATES IN NEED OF FUNDS FROM OTHER CORPORATES WHICH HAVE SURPLUS FUNDS. THE PERIOD OF SUCH LOANS RANGES FROM A WEEK TO GENERALLY SIX MONTHS. THE RATE OF INTEREST FOR SUCH LOANS ARE MORE THAN THE PREVAILING MARKET RATES SINCE SUCH LOANS ARE UNSECURED LOANS WITHOUT A COLLATERAL AND HENCE THE RISK INVOLVED FOR THE LENDER IS HIGHER THAN THE NORMAL LOANS WITH SOME KIND OF SECURITY LINKED TO THEM. FURTHER, IN CASE OF FIXED RATE ICDS WITH CALL/PUT OPTION, THE OPTION IS EXERCISABLE AFTER A PRE-SPECIFIED LOCK-IN PERIOD. THE ICDS ARE TO BE SANCTIONED BY WAY OF A BOARD RESOLUTION AND THE TERMS OF SUCH SANCTION HAVE TO BE VERY CLEAR AND PRECISE SINCE THE LOAN IS BEING GRANTED WITHOUT A COLLATERAL OR SECURITY. THE TERMS OF GRANTING OF THE LOAN HAVE TO BE CLEARLY SPELLED OUT INCLUDING THE AMOUNT OF LOAN, THE PERIOD FOR WHICH SUCH LOAN IS BEING GRANTED, THE RATE OF INTEREST PAYABLE AND THE PERIOD AFTER WHICH THE CALL/PUT OPTION CAN BE EXERCISED BY THE LENDER. NOT ONLY THIS, THE AMOUNT PAYABLE WITHIN ONE YEAR HAS ALSO TO BE CLEARLY ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 23 SPELLED OUT. THE ENTIRE TRANSACTION HAS TO BE MUTUALLY BENEFICIAL FOR BOTH THE PARTIES AND OUGHT NOT BE A COLOURABLE DEVICE TO TRANSFER FUNDS FOR THE BENEFIT OF THE RECEIVING ENTITY IN ORDER TO AVOID THE APPLICATION OF PROVISIONS SUCH AS DEEMED DIVIDEND UNDER THE INCOME-TAX ACT. IT IS, THEREFORE, PERTINENT TO NOTE HERE THE MANNER IN WHICH THE ASSESSEE HAS GONE ABOUT THE RELEVANT TRANSACTIONS. BOARD RESOLUTION FOR GIVE ICDS HAS BEEN SUBMITTED IN THE CASE OF ONLY ONE LENDING COMPANY VIZ. M/S POLYPLASTICS AUTOMOTIVE (INDIA) PVT LTD. [PAGE 84 OF PB] AND NOT IN ANY OTHER CASE OF BORROWING. ON PERUSAL OF THE SAME, IT CAN BE SEEN THAT THE SAME IS ONLY A SELF-SERVING DOCUMENT IN WHICH NONE OF THE SPECIFICS OF THE LOAN OTHER THAN THE AMOUNT HAVE BEEN MENTIONED AT ALL. ITS AN OPEN DOCUMENT LEAVING EVERYTHING TO BE DECIDED AT SOME FUTURE DATE OF THE CHOOSING OF DIRECTORS. NO RATE OF INTEREST HAS BEEN DECIDED, NO TERM OF LOAN HAS BEEN FIXED. THE DOCUMENT BEARS THE HALL MARKS OF A GRATUITOUS LOAN AND NOT THAT OF AN ICD AS CLAIMED BY THE ASSESSEE THROUGHOUT THE PROCEEDINGS. FURTHER, IN RESPECT OF THE OTHER ENTITIES INVOLVED IN LENDING, EVEN THIS KIND OF SELF SERVING DOCUMENT HAS NOT BEEN PROVIDED. BESIDES, THERE IS NO AGREEMENT SUBMITTED BY THE ASSESSEE IN REGARD TO ANY OF THE SO CLAIMED ICDS. THE ENTIRE TRANSACTIONS BEAR THE UNMISTAKABLE CHARACTERISTIC OF GRATUITOUS LOANS. IT MAY ALSO BE MENTIONED THAT INTEREST AMOUNT HAS BEEN SHOWN ONLY IN RESPECT OF ONE BORROWING VIZ. FROM M/S GURGAON POLYPLASTICS PVT LTD. [PAGE 72 OF PB] WHEREIN THE ASSESSEE ITSELF HAS MENTIONED THE TRANSACTION BEING IN THE NATURE OF UNSECURED LOAN. IT ESSENTIALLY MEANS THAT ASSESSEE HAS AVAILED INTEREST FREE LOANS CLAIMING THEM TO BE ICDS WHICH IS AGAINST THE VERY CHARACTER AND PURPOSE OF ICDS AS DISCUSSED ABOVE. ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 24 IT MAY ALSO BE STATED HERE THAT ICDS ARE ESSENTIALLY LOAN TRANSACTIONS. HENCE, WITH RESPECT TO CERTAIN INSTANCES CITED BY THE APPELLANT WHERE CONCESSION HAS BEEN GRANTED TO ICD TRANSACTIONS, IT IS EMPHASIZED THAT THE PRESENT MATTER PERTAINS TO TRANSACTIONS BETWEEN COMPANIES CONTROLLED BY THE SAME SET OF INDIVIDUALS. IT MAKES IT CONVENIENT FOR THEM, AS HAS BEEN EXECUTED IN THE MATTER AT HAND, TO CREATE SELF- SERVING DOCUMENTS AND AWARD WHATEVER NOMENCLATURE THEY DEEM FIT AND SUITABLE TO THE TRANSACTIONS UNDERTAKEN BY THEM. RESOLUTIONS, PARALLEL ENTRIES IN THE BOOKS OF ACCOUNTS AND AUDIT REPORTS ARE NOTHING MORE THAN SELF-SERVING NOMENCLATURES. UNDER THESE CIRCUMSTANCES, IF THE CONCESSION ON THE PLEA OF ICDS CITING EXAMPLES OF TRANSACTIONS BETWEEN UNRELATED PARTIES IS ALLOWED, IT WOULD SPELL DEATH KNELL FOR PROVISIONS SUCH AS SECTION 2(22)(E) WHICH HAVE BEEN SPECIFICALLY BROUGHT INTO THE ACT IN ORDER TO CURB THE VERY MENACE WHICH THE APPELLANT HAS RESORTED TO. THIS IS NOT THE INTENT OF THE LEGISLATURE AND CAN ALSO NEVER BE THE INTENT OF ANY INTERPRETATION TO WHICH THESE PROVISIONS MAY BE SUBJECTED TO. RELATED PARTY TRANSACTIONS SUCH AS THESE CANNOT BE GIVEN THE SAME BENEFIT WHICH MAY BE CONSIDERED FOR UNRELATED PARTIES DEALING AT ARM'S LENGTH ON PURELY COMMERCIAL TERMS . 2. THE ASSESSEE HAS SUBMITTED CERTAIN CASE LAWS FOR THE PERUSAL OF THE LD. CIT (A) AND ALSO NOW BEFORE THE HON'BLE ITAT. IT IS SUBMITTED THAT AS RIGHTLY POINTED OUT BY THE LD. CIT (A) IN HIS ORDER, THE JUDGMENTS QUOTED BY THE ASSESSEE ARE DISCUSS THE REQUIREMENT OF TAXABILITY IN THE HANDS OF THE SHAREHOLDERS WHICH FACT IS UNDISPUTED IN THE PRESENT CASE. FOR EXAMPLE- I) CIT VS. VISISTH CHAY VYAPAR LIMITED (PAGE 26 OF CIT ORDER) - THE FACTS AND THE CONTEXT WAS TOTALLY DIFFERENT AS THE MATTER PERTAINED TO INTEREST TAX AND HAD NO ELEMENT OF DEEMED DIVIDEND WAS INVOLVED. ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 25 II) BAIDYA NATH PLASTIC INDUSTRIES PVT LTD.(PAGE 27 OF CIT ORDER) - THE FACTS WERE DIFFERENT AS THESE RELATED TO DEPOSITS ATTRACTING PROVISIONS OF SEC 269T. SEC 2 (22) () IS A DEEMING PROVISION AND HAS TO BE STRICTLY APPLIED TO THE FACTS OF THE CASE UNDER CONSIDERATION. III) NAVNIT LAL JAVERI (PAGE 27 OF CIT ORDER) - WHILE MENTIONING THIS CASE, THE ASSESSEE HAS STATED THAT THE IMPUGNED TRANSACTIONS UNDERTAKEN BY IT ARE UNDERTAKEN FOR MUTUAL BENEFIT. IT IS CLEAR FROM THE NATURE OF TRANSACTIONS THAT THERE IS NO MUTUAL BENEFIT INVOLVED IN THE RELEVANT TRANSACTIONS. IV) CIT VS. CREATIVE DYEING (PAGE 27 OF CIT ORDER) - IT REFERS TO AMOUNT ADVANCED FOR BUSINESS TRANSACTIONS BETWEEN THE LENDER AND THE BORROWER. NO SUCH BUSINESS TRANSACTION EXISTS IN THE PRESENT MATTER AND HENCE THE SAID CASE IS NOT APPLICABLE. V) FARIDA HOLDINGS (P) LTD. VS CIT - [51 SOT 452] - LATER UPHELD BY THE HON'BLE SUPREME COURT OF INDIA- IN THIS CASE THE ASSESSEE WAS TRANSACTING LOANS AS A TREASURY MANAGER FOR ITS FULLY OWNED SUBSIDIARIES AND IT HAD NOT AVAILED ANY BENEFIT OUT OF THOSE LOANS. THESE FACTS ARE ENTIRELY DIFFERENT FROM THE CASE PRESENTLY UNDER CONSIDERATION WHEREIN THE ASSESSEE COMPANY HAS AVAILED THE LOAN FOR ITS OWN BENEFIT AND NOT FOR THE BENEFIT OF OTHER SUBSIDIARIES IN THE ORDINARY COURSE OF BUSINESS. IT MAY ALSO BE MENTIONED THAT THE JUDGMENT IN THE CASE OF CIT VS. ANKITECH REFERRED AT PAGE 28 OF THE ORDER OF LD. CIT(A) HAS BEEN STAYED BY THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF NATIONAL TRAVEL SERVICES FINDING THE SAME AS ERRONEOUS. IN LIGHT OF THE SAME, CASES CITED BY THE ASSESSEE WHICH ARE BASED ON THE SAID JUDGMENT DO NOT REPRESENT THE APPLICABLE LAW AS IT STANDS. CIT VS. NAVYUG PROMOTERS PVT. LTD [203 TAXMAN 618] AND CIT-I VS. BIKANER CUISINE (PVT.) LTD ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 26 [233 TAXMAN 106] , THEREFORE, DO NOT STATE THE SETTLED POSITION OF LAW. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIAL ON RECORD. WE NOW TAKE UP THE ISSUES ONE BY ONE FOR ADJUDICATION. 5.1 GROUND NO. 1 PERTAINS TO DISALLOWANCE OF RS. 2,26,500/- ON ACCOUNT OF FEES PAID TO ROC WHICH WAS DISALLOWED BY THE AO BY HOLDING THAT THE SAME WAS OF CAPITAL IN NATURE. THE LIMITED POINT ALLEGED BY THE LD. AR ON THIS ISSUE IS THAT OUT OF THE TOTAL AMOUNT OF RS. 2,26,500/- AN AMOUNT OF RS. 5,500/- PERTAINS TO FEE FOR FILING OF ANNUAL RETURN WITH THE ROC. WE AGREE WITH THE CONTENTION OF THE LD. AR THAT THIS AMOUNT CANNOT BE DISALLOWED. THEREFORE, WE DELETE THE AMOUNT OF RS. 5,500/- AND SINCE THE REMAINING AMOUNT IS NOT PRESSED, WE CONFIRM THE REMAINING AMOUNT OF RS. 2,21,000/-. THUS, THIS GROUND STANDS PARTLY ALLOWED. 5.2 GROUND NO. 2 PERTAINS TO DISALLOWANCE OF RS. 26,22,677/- ON ACCOUNT OF EXPENDITURE CLAIMED IN THE PROFIT AND LOSS ACCOUNT ON THE GROUND THAT THERE WAS NO BUSINESS ACTIVITY. IT HAS BEEN ARGUED BY THE LD. AR THAT OUT OF THIS AMOUNT, AMOUNT ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 27 OF RS. 2,26,500/- IS A DOUBLE DISALLOWANCE WHICH IS COVERED BY GROUND NO. 1. IT HAS BEEN FURTHER ARGUED THAT THE BUSINESS OF THE ASSESSEE WAS DULY SET UP AND MERELY BECAUSE THERE WAS NO EXPENDITURE EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, THE EXPENDITURE COULD NOT BE DISALLOWED AS THE EXPENSES WERE IN THE NATURE OF ADMINISTRATIVE EXPENSES. OUR ATTENTION HAS BEEN DRAWN TO VARIOUS PAGES IN THE PAPER BOOK WHEREIN THE DETAILS OF THESE EXPENSES HAVE BEEN GIVEN. THE LD. AR HAS ALSO RELIED ON NUMEROUS JUDICIAL PRECEDENTS IN SUPPORT OF HIS CONTENTION. HAVING GONE THROUGH THE RECORDS, WE ARE IN AGREEMENT WITH THE CONTENTION OF THE LD. AR THAT THE AMOUNT OF RS. 2,26,500/-, WHICH WAS PERTAINING TO EXPENSES OF ROC, WAS ALSO A PART OF TOTAL EXPENDITURE AT RS. 26,22,677/- AND, THUS, DOUBLE DISALLOWANCE HAS BEEN MADE ON THIS ACCOUNT. WE ACCORDINGLY DIRECT DELETION OF THIS DOUBLE DISALLOWANCE. FURTHER, WE HAVE ALSO PERUSED THE PROFIT AND LOSS ACCOUNT AND HAVE ALSO CONSIDERED THE SUBMISSIONS MADE IN THIS REGARD. IT IS APPARENT FROM A PERUSAL OF THE AUDITED FINANCIAL STATEMENTS THAT INVESTMENTS WERE MADE BY THE COMPANY DURING THE YEAR UNDER CONSIDERATION ALSO AS THE ASSESSEE COMPANY IS AN INVESTMENT COMPANY. MERELY BECAUSE NO INCOME/REVENUE RESULTED FROM SUCH ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 28 ACTIVITY, IT DOES NOT MEAN THAT THE BUSINESS WAS NOT SET UP OR WAS NOT IN A RUNNING CONDITION. IT HAS BEEN HELD IN THE FOLLOWING JUDICIAL PRECEDENTS THAT ONCE THE BUSINESS IS SET UP, THE EXPENDITURE IS ALLOWABLE: - WESTERN INDIA VEGETABLE PRODUCTS LTD. VS. CIT, 26 ITR 151 (BOM.) - CIT VS. SARABHAI MANAGEMENT CORPORATION LTD, 192 ITR 151 (SC) - CIT VS. WESTERN INDIA SEAFOOD PVT. LTD, 199 ITR 777 (GUJ.) - CIT VS. E-FUNDS INTERNATIONAL INDIA, 162 TAXMAN I(DET.) - STYLER INDIA PVT. LTD. VS. JCIT, 116 TTJ 333 (TM) (ITAT-PUNE). 5.3 SIMILARLY, THERE ARE JUDICIAL PRECEDENTS TO THE EFFECT THAT EVEN IF THERE IS NO BUSINESS, EXPENSES INCURRED FOR RETAINING THE STATUS OF THE COMPANY ARE ALLOWABLE. TO QUOTE A FEW: - CIT VS. GANGA PROPERTIES LTD., (1993) 199 ITR 94 (CAL), - NAKODAR BUS SERVICE (P) LTD. VS. CIT, (1989) 179 ITR 506 (P&H), - CIT VS. RAMPUR TIMBERY & TURNERY CO. LTD., (1981) 129 ITR 58 (ALL) - L.VE. VAIRAVAN CHETTIAR VS. CIT, (1969) 72 ITR 114 (MAD) ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 29 5.4 RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS ENUMERATED ABOVE WE DELETE THE DISALLOWANCE OF RS. 26,22,677/-. 5.5 GROUND NOS. 3 AND 4 ARE IN RESPECT OF ADDITION OF RS. 2,90,27,890/- AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. WE HAVE CONSIDERED THE SUBMISSION OF THE ASSESSEE AS WELL AS THE ARGUMENTS OF THE LD. SR. DR ON THE ISSUE. AFTER TAKING INTO CONSIDERATION THE DOCUMENTS TO WHICH OUR ATTENTION HAS BEEN DRAWN BY THE LD. AR AND WHICH ARE PLACED IN THE PAPER BOOK FILED BY THE ASSESSEE, IT IS APPARENT THAT THERE ARE PLEADINGS WHICH WERE NOT MADE BEFORE THE AUTHORITIES BELOW. IT WILL BE IN FITNESS OF THINGS IF THIS ISSUE IS RESTORED TO THE FILE OF THE AO TO EXAMINE AND ADJUDICATE THIS ISSUE AFRESH AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE. THE ASSESSEE SHALL BE AT LIBERTY TO PRODUCE THE DOCUMENTS AND RELY ON PLEADINGS AS HAVE BEEN MADE BEFORE US IN THIS RESPECT. ACCORDINGLY, GROUND NOS. 3 & 4 STAND ALLOWED FOR STATISTICAL PURPOSES. 5.6 GROUND NOS. 5, 6 AND 7 RELATE TO ADDITION OF RS. 72,00,000/- BEING AMOUNT OF LOAN TAKEN FROM M/S. MEGA TRADING CORPORATION TREATED AS UNEXPLAINED INVESTMENT U/S 68. IT IS ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 30 UNDISPUTED THAT THE LOAN WAS GIVEN BY M/S. MEGA TRADING CORPORATION THROUGH BANKING CHANNEL. IT IS ALSO UNDISPUTED THAT M/S. MEGA TRADING CORPORATION IS DULY ASSESSED TO TAX. THE LOAN AMOUNT IS DULY REFLECTED IN THE BANK STATEMENT OF M/S. MEGA TRADING CORPORATION WHICH WAS FILED BEFORE THE AO. IT IS ALSO UNDISPUTED FACT THAT THE AO HAD ISSUED NOTICE U/S 133(6) OF THE ACT TO M/S. MEGA TRADING CORPORATION WHICH WAS DULY RESPONDED TO BY THE SAID COMPANY AND THE ADVANCING OF THE LOAN WAS CONFIRMED DIRECTLY BY THE LENDER COMPANY. IT IS ALSO EVIDENCED FROM RECORD THAT THIS AMOUNT WAS SUBSEQUENTLY REFUNDED BY THE ASSESSEE COMPANY TO THE LENDER COMPANY. THUS, THESE FACTUAL EVIDENCES PROVE THE BONA FIDE OF THE ASSESSEE COMPANY IN THIS REGARD AND WE ARE UNABLE TO SUBSCRIBE TO THE VIEW OF THE LOWER AUTHORITIES THAT THIS AMOUNT REMAINS UNEXPLAINED. WE SET ASIDE THE ORDER OF THE LD. CIT (A) AND DIRECT THE DELETION OF THIS ADDITION. THUS GROUND NOS. 5, 6 AND 7 STAND ALLOWED. 6.0 IN THE FINAL RESULT THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. ITA NO.6497/DEL/2018 M/S. JRG HOLDINGS (P) LTD. VS ITO 31 ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY, 2020. SD/- SD/- (R.K. PANDA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 19/ 01/2020 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI