Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘’ C’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax(Appeals)-9, Ahmedabad, dated 24/12/2014 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2011-2012.
The Revenue has raised the following grounds of appeal:
1. The CIT(A) has erred in law and on facts in deleting the addition of Rs.2,28,02,530/- made u/s.2(22)e of the Act not considering the findings of the Assessing Officer especially in view of the amendment made by the Finance Act, 1987.
2. On the facts and in the circumstances of the case, the Ld. Commissioner of Income tax(A) ought to have upheld the order of the Assessing Officer. 3. It is therefore, prayed that the order of the Ld. Commissioner of the Income tax(A) may be set aside and that of the Assessing Officer be restored.
3. The only issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO amounting to ₹ 2,28,02,530/- on account of deemed dividend under section 2(22)(e) of the Act.
Briefly stated facts are that the assessee in the present case is a private company and having authorized dealership of Nishan and Suzuki Motor Vehicle. The assessee during the year under consideration has shown liability under the head other liabilities and provision from M/s Planet Automotive Pvt. Ltd a sister concern having common shareholder & director detailed as under: Sub-head Amount in Rs. Planet Automotive Pvt Ltd- Accessories 3,50,000/- Planet Automotive Pvt Ltd- Used Car 6,00,000/- Planet Automotive Pvt Ltd- Hyundai Showroom 3,53,93,949/- Planet Automotive Pvt Ltd- Patal Suzuki 53,10,477/- 4.1 The assessee claimed that these are the advances taken in the ordinary course of business in order to meet financial requirements as both the entities are engaged in similar line of business. Hence, the provisions of section 2(22)(e) of the Act are not applicable in its case.
4.2 However the AO treated the above liability as deemed dividend under the provisions of section 2(22)(e) of the Act by observing that there were no any transaction between the assessee and Planet Automotive Pvt. ltd. either in the nature of trading or any other business. As such the impugned transactions represent in the nature of financial transactions. Therefore the impugned transactions fall under the preview of section 2(22)(e) of the Act as both, the assessee and Planet Automotive Pvt. ltd., are having common shareholder holding more than 20% shares in each company. Accordingly the AO made the addition of Rs. 2,28,02,530/-, equivalent to available accumulated reserve and surplus in the books of M/s Planet Automotive Pvt Ltd., to the total income of the assessee.
4.3 The assessee carried the matter before the learned CIT (A) and claimed that the appellant is not holding shares in M/s Planet Automotive Pvt Ltd. Thus in such a case, the provisions of section 2(22)(e) of the Act do not apply to it.
4.4 The assessee further claimed that transactions with above mentioned party is in the nature of Current Accommodation Adjustment Entry which was carried out in the ordinary course of business. As such both the parties (the assessee & Planet Automotive Pvt. ltd.) used to provide fund to each other in the course of business whenever needed and this fact can be established from the ledger copy. The assessee accordingly contended that the provisions of section 2(22)(e) of the Act are not applicable in its case on this count also. The assessee in support of above contention relied on various judgment.
The learned CIT (A) after considering the assessee’s submission and the finding of the AO deleted the addition by the AO by observing as under: 2.2 I have carefully considered the rival contentions. I am inclined to agree with the contention of appellant partially. There is force in the argument of appellant that the appellant company was not the shareholder of Planet Automotive Pvt. Ltd. in the facts and circumstances of the case, the provisions of sec.2(22)(e) does not apply. A close perusal of facts of case rightly suggests that the shareholders of appellant company are shareholders in Planet Automotive Pvt. Ltd. I have gone through the copy of account of Planet Automotive
Pvt. Ltd. which has advance loan to appellant in the hands of appellant for quite a long time but the appellant company has not paid any interest on it.
Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
The learned DR before us submitted that there were common shareholders the both the companies and therefore the advances received by the assessee falls within the definition of deemed dividend as provided under section 2(22)(e) of the Act. The learned DR vehemently supported the order of the AO.
On the other hand the learned AR before us contended as under: Since the “assessee ” herein is not at all a “registered share-holder” of the “payer company”, no addition can be made as deemed dividend: Since the assessee-company is not at all a “registered share-holder” in PAPL (an undisputed fact), no addition can be made as deemed dividend in the hands of the assessee merely because there are common shareholders in the payer and payee company. Reliance is placed on followings: � M/s. Precimetal Cast. Pvt. Ltd. vs. ITO-ITA 3499/Ahd/2015 (Annecure-“A”) � ACIT Vs. Leela Ship Reculcing Pvt. Ltd. – 1658/Ahd/2012 (Annexure “B”) � CIT Vs. Mahavir Inducto Pvt. Ltd.- Tax Appeal 892of 2016 (Annexure “C”) � ACIT Vs. Bhaumik Colors Pvt. Ltd.- 118 ITD 1 (Mum) (SB); � CIT Vs. Ankitech (P.) Ltd., 340ITR 14 (Del); In any case, transaction in question took place for “business purpose”. • In any case, the transaction in question took place for the business purposes and hence, the same not fall within the ambit of “loan or advance” as envisaged u/s.2(22)(e) of the Act. • Assessee had taken money from PAPL (a group company) in the ordinary course of business for making orders to vehicles etc. The said fact was categorically brought to the notice of AO(pags. 4 & 8 of Asst. Order). • Thus, it becomes amply clear that the transactions in question were carried out for the business purposes only and hence, by no stretch of imagination, such transaction can be brought within the ambit of “loan/advance” as envisaged u/s.2(22)(e) of the Act. • In fact, even as per the CBDT’s circular No.19/2017 dated 12.06.2017 (Annexure ”D” “trade advances in the nature of commercial transactions” would not fall within the ambit of “advance” as contemplated u/s.2(22)(e). In any case, transactions between the “assessee” and the “payer-company” were in the nature of “current accommodation adjustment entries” showing movement of funds both ways on need basis:
• Ledger of the “prayer-company” is placed at page 26 of P/B from which it is apparent that there are large numbers of transactions (both, debit and credit) showing movement of funds both ways on need basis. • Transactions in the nature of loans and advances are usually very few in number whereas in the present case, transactions between assessee and payer- company are large in numbers indicating that such transactions are in the form of “current accommodation adjustment entries”. • It is a settled law that when there are large number of adjustment entries in accounts between two entities, amounts reflected therein are not in the nature of loans/advances but merely adjustments and hence, provisions of S.2(22)(e) would not apply. Reliance is placed on followigs: � CIT vs. Schutz dishman Bio-tech Pvt. Ltd. Tax Appeal Nos.958 & 959 of 2015 (Guj.) (Annexure “E”) � ITO Vs. Mehulbhai D. Zaveri – ITA 102/A/2012” (Annexure “F”); In view of the above, disallowance has been rightly deleted by Ld.CIT(A).
The ld. AR before us vehemently supported the order of the ld. CIT-A.
We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the shareholders namely Shri Ishwar Singh R Vagga and Shri Sukhbir I Bagga are holding 50% shares each in assessee company as well as in M/S Planet Automotive Pvt Ltd. Undoubtedly, the assessee has shown short term liabilities from impugned party in its balance sheet for the year under consideration. Accordingly the AO in the case on hand has treated the amount of Rs. ₹2,28,02,530/- as deemed dividend in the hands of the assessee on the reasoning that the transactions of advancing loan to the assessee as discussed above falls within the purview of the provisions of section (2)(22)(e) of the Act. The facts of the case have already been elaborated and discussed in the preceding paragraph. However, the learned CIT (A) was pleased to delete the addition made by the AO for the reasons as discussed in the aforesaid paragraphs.
10.1 The 1st question before us arises whether the assessee company, which is not a registered shareholder of the company providing loan to it, may be brought under the scanner of deemed dividend. In this regard we find pertinent to refer the provisions of section 2(22)(e) of the Act which reads as under: (22) "dividend" includes— (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 ; 10.2 On perusal of above provision what is inferred is that the provisions of section 2(22)(e) of the Act can only be invoked in case of a shareholder who is holding substantial interest. The provision of section 2(22)(e) of the Act nowhere talks about taxing an entity/company which is not a shareholder holder in lender company but to shareholder of such company holding substantial share in lender company. In this regard we find support and guidance from the judgment of Hon’ble Jurisdictional High Court in Tax appeal no- 891 of 2016 in case of PCIT vs. Mahavir Inductomelt Pvt Ltd where in similar facts, the Hon’ble court held as under:
"50. Identical question came to be considered by the Division Bench of this Court in Tax Appeal No. 253 of 2015. After considering the decision of the Bombay High Court in the case of CIT vs. Impact Containers Private Limited & ors rendered in I TA No. 114 of 2012 and the decision of the Delhi High Court in thecase of CIT vs. Ankitech Pvt Lt d reported in 340 ITR 14 (Del) and on interpreting Section 2(22)(e), in para 4 has observed and held as under: "4.Shri Bhatt, learned Counsel appearing on behalf of the revenue has as such tried to justify the decision of the Delhi Court in the case of Ankitech Pvt. Ltd. (Supra) and has vehemently submitted that the Delhi High Court has not considered the third category i.e. shareholder in the assessee Company holding not less than 10% of the voting power in the Company from whom the loan or advance is taken. However, on considering Section 2(22)(e) of the Act, we are not at all impressed with the aforesaid. If the contention on behalf of the revenue is accepted, in that case, it will be creating the third category / class, which is not permissible. What is provided under Section 2(22)(e) of the Act seems to be that the assessee company must be a shareholder in the Company from whom the loan or advance has been taken and should be holding not less than 10% of the voting power. It does not provide that any shareholder in the assessee- Company who had taken any loan or advance from another Company in which such shareholder is also a shareholder having substantial interest, Section 2(22)(e) of the act may be applicable. 5.1. Considering the aforesaid decision of the Division Bench of this Court and the facts narrated herein above, more particularly, considering the fact that the assessee was not shareholder of Mahavir Rolling Mills Pvt Ltd to whom loan was given, it cannot be said that the learned Tribunal has committed any err or in deleting the addition made by the Assessing Officer on deemed dividend."
10.3 Coming to the case on hand, admittedly, the assessee company in not holding any shares or rights of M/s. Planet Automotive Pvt Ltd. Thus considering the above discussion and judgment of Hon’ble court in case of Mahavir Inductomelt (Supra) the AO was not justified in invoking the provisions of section 2(22)(e) of the Act in given facts and circumstances. Thus we hold that the learned CIT(A) rightly deleted the addition made by the AO. Hence, the ground of appeal of the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 02/03/2021 at Ahmedabad.