IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD THE HON’BLE SRI JUSTICE P.SAM KOSHY AND THE HON’BLE SRI JUSTICE SUDDALA CHALAPATHI RAO ITTA.No.421 of 2013 Dt. 06 .03.2026 Between:

The Commissioner of Income Tax(TDS), Hyderabad …. Appellant and M/s Jaypeem Granites (P) Ltd.

…Respondents JUDGMENT: (Per the Hon’ble Sri Justice Suddala Chalapathi Rao

1. The instant appeal has been filed by the appellant/Revenue challenging the order passed by the Income Tax Appellate Tribunal, Bench ‘A’, Hyderabad (for short ‘the ITAT’) in MA.No.125/HYD/2012 in ITA.No.372/Hyd/2010, dt.03.08.2012.

2. The brief facts of the case are that, the assessee is engaged in the business of manufacturing and exporting granite products consisting of handicrafts, artistic stone products, tiles, slabs, monuments, etc. While so, a survey under Section 133A of the Income Tax Act, 1961 (for short ‘the Act’) was conducted by the Assessing Officer at the assessee’s premises on 19.08.2008 and during the said survey, the Assessing Officer found that the assessee had given advances to its sister concern, M/s Odlings (Memorial) Pvt. Ltd. (OMPL), in which shareholders of the assessee held more than 20% substantial interest. The Assessing Officer further noticed that the advances given by the assessee to OMPL were Rs.1,35,60,236/- for the assessment year 2005-06 and Rs.1,35,99,959/- for the assessment year 2006-07 and that Sri Harvesh Marwaha and Smt Asmita Gunti Marwaha were common shareholders in both companies and that Sri Harvesh Marwaha, who is the share holder of M/s Jaypeem Granites Pvt Ltd., held more than 20% shareholding on OMPL, while his shareholding in the assessee-company is more than 10%.

3. The Assessing Officer therefore concluded that the advances given by the assessee-company to OMPL constitute ‘deemed dividend’ within the meaning of Section 2(22)(e) requiring deduction of tax at source under Section 194. Accordingly, a show-cause notice, dt.10.08.2009, was issued to the assessee, to which assessee submitted its reply, dt.07.09.2009 objecting to the proposal to treat the assessee as assessee-in-default under Sections 201(1)/201(1A) of the Act.

4. After considering the objections placed by the assessee, the Assessing Officer observed that the ledger extracts showed only cheques issued to OMPL and did not clearly indicate that the payments were made towards processing charges and there was no correlation between the advances given and the invoices raised for purchases or processing charges, to treat the payments as trade advances, and held that such regular advances construed ‘deemed dividend’ within the meaning of Section 2(22)(e) of the Act.

5. As regards main issue of deduction of tax at source under Section 194 of the Act, since the assessee had not deducted tax at source @ 22.44% under Section 194, the Assessing Officer treated the assessee as an assessee-in-default and raised demand of tax under section 201(1) for Rs.30,42,920/- for the assessment year 2005-06 and Rs.28.20,079/- for the assessment year 2006-07, along with interest under Section 201(1A) for both the assessment years.

6. The said assessment orders were challenged by the assessee before the Commissioner of Income Tax (Appeals) (for short ‘CIT(A)’) and the CIT(A) partly allowed the appeals. Challeing the said orders, the Revenue filed appeals before the learned ITAT in ITA.No.372/HYD/2010 (AY 2005-06) and ITA.No.373/ HYD/2010(AY 2006-07), and the assessee also filed appeals in ITA.Nos.128 and 129/Hyd/2010.

7. The learned ITAT heard all four appeals together and after appreciation of the facts on record, by a common order has allowed the appeals filed by the assessee in ITA.Nos.128 and 129/Hyd/2010, and the appeals filed by the Revenue in ITA.Nos.372 and 373/ HYD/2010 were also allowed for statistical purposes and they were remanded to the CIT(A) for fresh consideration.

8. After the learned ITAT passed common order in all four appeals, as a mistake occurred inadvertently in the said co