ITO, WARD 6(1), LUDHIANA V. M/S JUJHAR CONSTRUCTION & TRAVELS PVT. LTD., LUDHIANA

ITA 536/CHANDI/2022

AI Insights

The case revolves around an appeal by the Income Tax Officer (ITO), Ward 6(1), Ludhiana against M/s Jujhar Construction & Travels Pvt. Ltd. concerning an addition made under Section 2(22)(e) of the Income Tax Act, 1961, which pertains to deemed dividends. The ITO had added a sum of Rs.12,24,72,654/- as deemed dividend in the hands of Shri Gurdeep Singh, a shareholder, which was later contested. The CIT (Appeals) deleted this addition, leading to the Revenue's appeal to the Tribunal. The Tribunal's decision was influenced by the nature of the transaction being a business transaction, supported by the CBDT Circular No. 19/2017 and various judicial precedents.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 778031 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-10-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 01-07-2022
• Other Referred Cases: Smt. Sangita Jain vs ITO, CIT vs. Amrik Singh, CIT, Agra vs Atul Engineering Udyog
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANAV BANSAL
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Sale consideration of property below Jantri Value; Deemed dividend; Commercial expediency; Wholly owned subsidiary
• Section: 143(3); 2(22)(e)

Judgement Text

"आयकर अपीलȣय अͬधकरण,चÖडीगढ़ Ûयायपीठ, चÖडीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, ‘A’ CHANDIGARH BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI KRINWANT SAHAY, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 536/CHD/2022 Ǔनधा[रण वष[ / Assessment Year: 2013-14 The ITO, Ward 6(1), Ludhiana. Vs M/s Jujhar Construction & Travels Pvt. Ltd.,Near Pull Jawaddi, Pakhowal Road, Ludhiana. èथायी लेखा सं./PAN NO: AABCJ1127H अपीलाथȸ/Appellant Ĥ×यथȸ/Respondent Assessee by : Shri Sudhir Sehgal, Advocate Revenue by : Shri Manav Bansal, CIT, DR Date of Hearing : 02.09.2025 Date of Pronouncement : 06.10.2025 PHYSICAL HEARING O R D E R PER RAJ PAL YADAV, VP The Revenue is in appeal before the Tribunal against the order of the ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 25.04.2022 passed for assessment year 2013-14. 2. Though the Revenue has taken three grounds of appeal but Ground No. 2 and 3 are general grounds which do not call for recording of any specific finding. The solitary grievance is Printed from counselvise.com ITA No.536/CHD/2022 A.Y.2013-14 2 that ld.CIT (Appeals) has erred in deleting protective addition of Rs.12,24,72,654/- added by the AO with the aid of Section 2(22)(e) of the Income Tax Act, 1961. 3. The brief facts of the case are that assessee has filed its return of income on 30.09.2013 declaring taxable income at Rs.12,81,770/-. The case of the assessee was selected for scrutiny assessment and notice u/s 143(2) was issued on 05.09.2014. A perusal of the accounts would reveal that assessee is holding 99.99% shares in Creative Cable Network Pvt. Ltd. (hereinafter referred to as ‘CCNPL’ ). Earlier Shri Gurdeep Singh was holding these shares but after transfer of the shares to the assessee, M/s CCNPL has become subsidiary of the assessee company during the year. The AO found that CCNPL transferred an amount of Rs.17,67,23,500/- to assessee namely M/s Jujhar Construction & Travels Pvt. Ltd. (hereinafter referred to as JCTPL). A sum of Rs.12,53,10,104/- has been returned by the assessee to CCNPL. The net amount of loan/advance outstanding in the name of the assessee in the books of CCNPL was of Rs.5,14,13,296/-. The AO has assessed deemed dividend u/s Printed from counselvise.com ITA No.536/CHD/2022 A.Y.2013-14 3 2(22)(e) of Rs.12,24,72,654/- in the name of Shri Gurdeep Singh on substantive basis. The dispute travelled upto ITAT in ITA No. 170/CHD/2018. The ACIT, Circle-6, Ludhiana Vs Shri Gurdeep Singh, Pakhowal Road, Ludhiana. The Tribunal has recorded a finding vide its order dated 26.02.2020 that shares stand transferred and Shri Gurdeep Singh was not the beneficiary owner of the shares in CCNPL, hence no dividend could be deemed in his hands. Thus, substantive addition stands deleted, meaning thereby, this protective addition would become substantive. 3.1 Against the addition, assessee carried the matter in appeal before the CIT (Appeals) and the ld.CIT (Appeals) has deleted the addition by recording an exhaustive finding running into 43 pages of the impugned order. We deem it appropriative to take note of the relevant finding of the CIT (Appeals) which reads as under : “4.14 The appellant argument given at the time of appellate proceedings from time to time have been considered carefully. After careful consideration of the facts in the latest decisions as relied upon by the appellant in support of its contention one thing which has emerged and cannot be denied that the whole exercise has been done in order to support the one of the major group company that the amount has ultimately been received by M/s G.S Majestic Developers Private Limited which was in need of funds to complete its big project of construction of a mall. The amount is given purely in the nature of inter corporate deposits and thus it cannot come under the category of deemed dividend. Irrespective of the status of the Company whether it is subsidiary or not subsidiary the very transfer of amount from the group companies for the Printed from counselvise.com ITA No.536/CHD/2022 A.Y.2013-14 4 business purpose which has not resulted into any violation' of section 2(22)(e) of the Income Tax Act, 1961.In the present case one of the group company has transferred the funds to a Company which has further transferred the same to the other group Company which used the same for the construction of a building used by the group companies. The major factor which has emerged is that no personal/individual benefit to the assessee accrued with the above transaction. M/s G.S Majestic Developers Private Limited was not having any regular income to be eligible for the raising the finance due to non-operations. So one of the group company which is having the regular income and have satisfactory finance track record has helped the other group Company. So the Company which was eligible for credit facilities and has sufficient funds (own and borrowed) has transferred the same to another group company which acted as conduit pipe to transfer the same to the end user company. This fact also cannot be ignored that the company which raised the funds have also transferred the interest to the other company to whom the funds were transferred. Even the amount is not given as interest free to M/s Jujhar Construction and Travels Pvt Ltd. In the case of the Assessee, it is a matter of fact that the amount has not been given as free of cost by M/s Creative Cable Network Pvt Ltd. to M/s Jujhar Construction and Travels Pvt Ltd. The Company has received an amount of Rs. 1,00,11,847/- during the year under consideration as interest income. So in no way the transaction in question can be termed as deemed dividend in the case of the Assessee. Reliance in this regard is being placed upon the following Judgment wherein it has been held that when there is passing of some iteration in the form of interest then it cannot be said that any benefit has been received. Smt. Sangita Jain vs ITO in ITA No. 1817/Kol/2009 vide order dated 11.03.2016. The amount has ultimately been invested in the share application money of the company namely M/s G.S. Majestic Developers P Ltd. The assessee has vehemently argued and which has also substance in considering that the amount has ultimately been received by M/s G.S Majestic Developers Private Limited from M/s Jujhar Construction and Travels Pvt Ltd and the same has been shown as share application money received by the Company. The share application money or share application advance is distinct from 'loan or advance'. Although share application money is one kind of advance given with the intention to obtain the allotment of shares/equity/preference shares etc. such advances are innately different form the normal loan or advances specified both in section 269SS or 2(22)(e) of the Act. While considering all these arguments it is held that the transaction is at nature of commercial expediency and when the transaction is in the nature of commercial expediency and do not fall under the category of Deemed dividend u/sec 2(22)(e) of the Act. It is also to be kept in mind the argument of the appellant that ultimately that No individual benefit of the Assessee is involved in the entire transaction. Therefore Provisions of section 2(22)(e) are not applicable only for the sole reason that the shareholding is common. It is also important fact to consideration that even the amount is not given as interest free to M/s Jujhar Construction and Travels Pvt. Ltd Accordingly it is held that the amount is given purely in the nature of inter corporate deposits and thus it cannot come under the category of deemed dividend. The relationship between the two Companies is that of Holding and Subsidiary and thus provisions of section 2(22)(e) are not applicable. M/s Creative Cable Network Pvt Ltd. is also into the business of money lending as substantial funds of the Company Printed from counselvise.com ITA No.536/CHD/2022 A.Y.2013-14 5 are given to group Companies as interest funds. In all the arguments as reiterated from time to time at the time of appellate proceedings but major factor which is come prominently is that the amount has been invested by the one group Company in the other group Company only on account of commercial expediency. It has already been stated that the a Commercial Building project was undergoing in the name of one of the group concerns namely M/s G.S Majestic Developers Pvt Ltd and it was the need of hour to give financial support to it as otherwise the whole group would have suffered huge financial losses. A detailed chart clearly explaining the above said fact has already been filed by the appellant, wherein it has been made clear that the total investment in M/s G.S Majestic Developers Pvt Ltd. is Rs. 112.25 cr and out of the same Rs. 90.70cr has been funded from the group Companies. From the perusal of the said chart it is also clear that the funds amounting to Rs. 90.70cr have been funded by the following group Companies: Amount funded by M s Jujhar Construction and Transport Pvt Ltd. - 46.64cr. Amount funded by Creative Cable Network - 24.10 cr. Amount funded by Other Group Companies - 19.96 cr. It has also been made clear that out of the total funds as contributed by Ms Construction and Transport Pvt Ltd., an amount of Rs. 18.08cr has been received by M/s JCTPL from M/s Creative Cable Network. The chart as submitted earlier clarifies each and everything. It can also be seen from the said chart that M/s G.S Majestic has been able to get funds from the Banks only to the tune of Rs. 19.93cr. It has also been stated earlier that M/s G.S Majestic was not able to procure any loan from the initial years of its project i.e. in the year ending 31.03.2011 and 31.03.2012 and even in the year 2013 the Company has able to procure only a meager amount of loan keeping in mind the huge investment. I find considerable weightage in the argument of the appellant that had M/s G.S Majestic not got financial help from the other group Companies the following issues must have been emerged: a) M/s G.S Majestic could not have completed the project even on the current date. b) The commitments as made with the various parties for letting the building would not have been fulfilled on time. c) The whole project would have stopped as the Company was not getting any financial help from the Banks. The banks were not giving any sort of loan to the Company as the same was in the business of real estate and moreover it was a new Company. d) The Company also had to get permissions from various departments of the Government in time in order to bring its project in working condition. e) The Company has incurred around 150cr of amount as on date in the said project. Now, the Company has started earning the rental income but even the said rental income is not sufficient to meet the interest on the total amount of Rs. 150cr. So, even if the entire project was financed by the Banking Institutions, the same was not viable and the financial help from the group Companies was required in any case. Thus, I find that it was a commercially expedient transaction, necessitated by business requirements wherein funds were given by CCNPL to JCTPL and on which, Printed from counselvise.com ITA No.536/CHD/2022 A.Y.2013-14 6 the interest has also been paid by JCTPL to CCNPL and this fact has been acknowledged by the Assessing Officer in the assessment order itself at page-38. Therefore, in view of the totality of the facts and circumstances, the transaction being in the nature of commercial expediency and further these are inter group deposits among group companies and interest have been charged and no personal benefit of the assessee is involved in the entire transaction, because ultimately the funds have been invested in the implementation of commercial project in the name of G.S. Majestic Developers Pvt. Ltd. and but because of these funds, the project of the group ompany would not have seen the light of the day. This view is further fortified by recent Circular of the CBDT in Circular No. 19/2017 dated 12.06.2017 ein the CBDT has observed that the trade advances in the nature of commercial actions between group entities would be outside the ambit of Section 2(22)(e). It has been further strengthened by the decision of jurisdictional Hon Punjab & Haryana High Court in case of CIT vs. Amrik Singh that in case of tangible business expediency has been established , Section 2(22)(e) can't be invoked. 4.15 During the course of appellate proceedings the appellant vehemently reiterated that, in the subsequent years the assessing officer Assessing Officer after examining all such facts, passed an order u/s 143(3) of the Income tax Act for the A.Y. 2014-15 has chosen not to make addition of deemed dividend on the basis of evidence furnished. On the same facts and circumstances, the Assessing has chosen not to make addition of deemed dividend on the basis of evidence furnished. This fact substantiates the claim of the appellant given at the time of appellate proceedings that the transactions as carried out during the assessment year are nothing but transaction is in the nature of commercial expediency and no personal benefit is involved in the entire transaction.\" The AR also referred to Circular No. 19/2017 dated 12th June, 2017 issued by the CBDT on this issue which for reference is reproduced below: Sub: Settled View on section 2(22)(e) of the Income Tax Act, trade advances -reg. Section 2(22) clause (e) of the Income Tax Act, 1961 (the Act) provides that \"dividend\" includes any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner 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. 2. The Board has observed that some Courts in the recent past have held that trade advances in the nature of commercial transactions would not fall within the ambit of the provisions of section 2(22) (e) of the Act. Such views have attained finality. 2.1 Some illustrations/examples of trade advances/commercial transactions held to be not covered under section 2(22) (e) of the Act are as follows: i. Advances were made by a company to a sister concern and adjusted against the dues for job work done by the sister concern. It was held that amounts advanced for Printed from counselvise.com ITA No.536/CHD/2022 A.Y.2013-14 7 business transactions do not to fall within the definition of deemed dividend under section 2(22) (e) of the Act. (CIT vs. Creative Dyeing & Printing Pvt. Ltd.', Delhi High Court). ii. Advance was made by a company to its shareholder to install plant and machinery at the shareholder's premises to enable him to do job work for the company so that the company could fulfill an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. (CIT vs Amrik Singh, P&H High Court). iii. A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilized gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister concern was a business transaction arising in the normal course of business between two concerns and the transaction did not attract section 2(22) (e) of the Act. (CIT, Agra vs Atul Engineering Udyog, Allahabad High Court). 3. In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word 'advance' in section 2(22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon. 4. The above may be brought to the notice of all concerned.\" Therefore, in view of the order dated 02.11.2017 passed by the CIT(A)-3, Ludhiana as reproduced above, and the Circular No. 19/2017 issued by the CBDT on the subject of deemed dividend u/s 2(22)(e), the arguments of the AR appear acceptable and the addition of Rs. 12,24,72,654/- made by the AO is deleted. Accordingly, these grounds of appeal are allowed. 4. The ld. CIT DR has relied upon the order of AO and submitted that CCNPL has given a loan to its shareholder who is holding substantial shares of 99.99%, hence the loan given to the assessee deserves to be deemed dividend. On the other hand, ld. counsel for the assessee put reliance upon the CBDT Circular considered by the ld. CIT (Appeals) and reproduced in paragraph No.4.15. He emphasized that it was a simpliciter business transaction and interest of Rs. 1,00,11,847/- was Printed from counselvise.com ITA No.536/CHD/2022 A.Y.2013-14 8 charged by CCNPL on the loans given to the assessee. Thus, the transaction falls within sub-clause (2) of Section 2(22)(e) of the Income Tax Act. He placed reliance upon a large number of decisions. Some of them have already been noticed by the CBDT in its Circular extracted supra. He put emphasis on the judgement of Hon'ble Supreme Court in the case of Pr. CIT Vs Suprabha Industries Ltd. (2023) 154 taxmann.com 536. According to him, in this decision, Hon'ble Supreme Court has observed that if loan is being taken in the ordinary course of business, then that would not be branded as deemed dividend. He also made reliance upon 21 more judgements, whose copies have been filed by him in two Paper Books running into 300 pages. For example, Bright Enterprises Pvt. Ltd. V CIT 381 ITR 107 (P&H HC), Relitrade Stock Broking P Ltd. Vs ITO 176 taxmann.com 509 (Guj HC), CIT Vs Amrik Singh 56 taxmann.com 460 (P&H). 5. We have duly considered the rival contentions and gone through the record carefully. We deem it necessary to take note of relevant part of Section 2(22)(e) of the Income Tax Act, which reads as under : Printed from counselvise.com ITA No.536/CHD/2022 A.Y.2013-14 9 (22) “dividend” includes - (a) x x (b) x x (c) x x (d) x x (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 8 of 801 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; (i) x x x (ia) x x x (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ; x x 5.1 As far as interpretation and construction of clause (e) of Section 2(22) is concerned, there is no dispute. The assessee fulfils all the necessary conditions for application of this clause, however, the dispute before us is whether the amount received by the assessee did fall within the exclusion clause contemplated under sub-clause (ii) of Section 2(22)(e) of the Printed from counselvise.com ITA No.536/CHD/2022 A.Y.2013-14 10 Income Tax Act or not. A perusal of the above provision would indicate that dividend would not include any advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the company. Thus, if money was advanced in the ordinary course of business, then that would not fall under the deeming fiction of dividend contemplated in Section 2(22)(e) of the Income Tax Act. The CBDT has issued a Circular bearing No. 19 of 2017 dated 12.06.2017. We have taken note of this Circular by reproducing the finding of ld. First Appellate Authority, however, at the cost of repetition, we would like to take note of this Circular again, which reads as under : Sub: Settled View on section 2(22)(e) of the Income Tax Act, trade advances -reg. Section 2(22) clause (e) of the Income Tax Act, 1961 (the Act) provides that \"dividend\" includes any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner 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. 2. The Board has observed that some Courts in the recent past have held that trade advances in the nature of commercial transactions would not fall within the ambit of the provisions of section 2(22) (e) of the Act. Such views have attained finality. 2.1 Some illustrations/examples of trade advances/commercial transactions held to be not covered under section 2(22) (e) of the Act are as follows: Printed from counselvise.com ITA No.536/CHD/2022 A.Y.2013-14 11 i. Advances were made by a company to a sister concern and adjusted against the dues for job work done by the sister concern. It was held that amounts advanced for business transactions do not to fall within the definition of deemed dividend under section 2(22) (e) of the Act. (CIT vs. Creative Dyeing & Printing Pvt. Ltd.', Delhi High Court). ii. Advance was made by a company to its shareholder to install plant and machinery at the shareholder's premises to enable him to do job work for the company so that the company could fulfill an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. (CIT vs Amrik Singh, P&H High Court). iii. A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilized gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister concern was a business transaction arising in the normal course of business between two concerns and the transaction did not attract section 2(22) (e) of the Act. (CIT, Agra vs Atul Engineering Udyog, Allahabad High Court).” 5.2 A perusal of this circular would reveal that it was always debatable before the adjudicating authorities whether a particular transaction falls within the ambit of ordinary course of business or not. Thus, it is always a factual situation where advance is to be construed as coming in the ordinary course of business and that would not fall under the deeming fiction of dividend contemplated in this Section. The CBDT has taken note of various judgements wherein factual situation has been considered and thereafter it was propounded as to how transaction is of a business nature and deemed dividend is not to be construed. Bearing this in our mind, let us take note of the facts. A perusal of the record would indicate that CCNPL is wholly owned subsidiary of the Printed from counselvise.com ITA No.536/CHD/2022 A.Y.2013-14 12 assessee company. One of the other group concern M/s G.S. Majestic Developers Pvt. Ltd. was developing a real estate Project which required funds which were not financed by the banks, hence, as per finding of the CIT (Appeals), it was in need of Rs.112.25 Cr, out of that Rs.90.70 Cr has been funded by the group company, namely ; a) JCTPL Rs.46.64 Cr b) CCNPL Rs. 24.10 Cr c) Other group companies Rs. 19.96 Cr 5.3 Out of the total funds contributed by the assessee company, Rs.18.08 Cr has been received by it from CCNPL. Thus, it was construed by the CIT (Appeals) that in order to develop a Project, all the group companies have collectively contributed their resources. It was purely a business transaction. The assessee has paid an interest of more than Rs. One Crore on the alleged loan taken from CCNPL. If we peruse these facts in the light of example provided by the CBDT in its Circular wherein some of the identical transactions have been construed as business nature and benefit of exclusion provided under sub-clause (ii) of Section 2(22)(e) has been given, is being applied on similar principles, Printed from counselvise.com ITA No.536/CHD/2022 A.Y.2013-14 13 then it would demonstrate that assessee's transaction is also entitled to benefit of sub-clause (2). The ld.CIT (Appeals) has rightly considered it as a business transaction where loans taken by the assessee from its subsidiary is not to be deemed as a dividend. Accordingly, we do not find any error in the order of the ld.CIT (Appeals). This appeal of the Revenue is dismissed. 6. In the result, appeal of the Revenue is dismissed. Order pronounced on 06.10.2025. Sd/- Sd/- (KRINWANT SAHAY) (RAJPAL YADAV) ACCOUNTANT MEMBER VICE PRESIDENT “Poonam” आदेश कì ÿितिलिप अúेिषत/ Copy of the order forwarded to : 1. अपीलाथê/ The Appellant 2. ÿÂयथê/ The Respondent 3. आयकर आयुĉ/ CIT 4. िवभागीय ÿितिनिध, आयकर अपीलीय आिधकरण, चÁडीगढ़/ DR, ITAT, CHANDIGARH 5. गाडª फाईल/ Guard File सहायक पंजीकार/ Assistant Registrar Printed from counselvise.com "