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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Shri Rajpal Yadav & Shri Amarjit Singh
आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
The appeal filed by revenue and cross objection filed by assessee for A.Y. 2008-09, arise from order of the CIT(A)-1, Ahmedabad-1 dated 29-06- 2016, in proceedings under section 143(3) r.w.s. 147 of the Income Tax Act, 1961; in short “the Act”.
The solitary issue in the appeal of the revenue is directed against the decision of ld. CIT(A) in deleting the addition of Rs. 3,30,50,859/- made on account of deemed dividend u/s. 2(22)(e) of the Act.
The fact in brief is that return of income declaring total income of Rs. 1,53,410/- was filed on 29th Sep, 2008. The return of income was processed u/s. 143(1) of the Act and subsequently the case was reopened by issuing of notice u/s. 148 of the Act on 27th March, 2015. During the course of reopening of assessment, the Assessing Officer noticed that JP Escon Ltd. Company had provided loan of Rs. 6,83,52,624/- to the assessee company. There were common shareholders in both the companies namely Shri Pravin Kotak and Shri Amit Gupta with following share holding ratio in both the companies:-
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Sr. No. Name of the Share holder Dhawani Infrastructure Pvt. J. P. Iscon Limited Ltd. (JPIL) 1 Shri Pravin Kotak 90% 28.99% 2 Shri Amit Gupta 10% 15.00%
In view of the above cited common share holding, the Assessing Officer questioned the assessee to explain why an amount of Rs. 6,83,52,624/- provided by the J.P. Escon Ltd. should not be treated as deemed dividend u/s. 2(22)(e) of the Act. The detailed submission of the assessee during the course of assessment has been reproduced by the Assessing Officer at page no. 3 to 8 of the assessment order. In its submission, the assessee has mainly submitted that provisions of section 2(22)(e) of the Act are not applicable as the assessee is not a share holder of J.P. Escon Ltd.. The Assessing Officer has not agreed with the submission of the assessee. He was of the view that the provision of section 2(22)(e) of the act is attracted since both the companies has common share holder holding substantial interest in each company. Consequently, the Assessing Officer has treated the amount of Rs. 3,30,50,859/- received during the year under consideration by the assessee as deemed dividend u/s. 2(22)(e) of the Act and added to the total income of the assessee.
Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee after placing reliance on the decision of Hon’ble Jurisdictional High Court and other judgment as
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elaborated in his order. The relevant part of decision of ld. CIT(A) is reproduced as under:- “2.6. I have carefully perused the assessment order and the written submission made by the learned A.Rs. It is observed that it is fact that Shri Pravin Kotak & Shri Amit Gupta were having substantial share holding in both the companies i.e. Giver Company well as the Recipient company. The express provisions of section 2(22)(e) show that there are three limbs of the said section i.e. (i) the payment by a company by way of advance or loan should have been made to a shareholder who is a beneficial owner of the shares and substantial interest. (ii) or the payment should be made to any concern in which such share holder is a member or partner and in that concern, he should have a substantial interest; & (iii) or the company makes payment, or on its behalf payment is made for individual benefit of any such shareholder to the extent to which the company in either case possesses accumulated profits. 2.7. In the captioned case, the payment has been made by J P Escon Limited, to the appellant company but the appellant company is not a registered share holder of J P Escon Limited. From the facts, it is seen that appellant is not a shareholder in the lender company however, the assessing officer treated the same as deemed dividend in hands of appellant company. It is also submitted that the transaction was not in the nature of advance or loan and it was simply inter corporate deposits (ICD). The appellant had provided for the interest expenses on the said ICD borrowed and have deducted the necessary TDS and have also paid back the said ICD along with interest. Appellant's main objection was that in view of the various decisions including special bench of ITAT Mumbai in the case of Asstt. CIT v/s. Bhaumik Colour (P.) Ltd.[2009] 118 ITD 1 (Mum.) (SB) and jurisdictional High Court decision in the case of CIT v/s Daisy Packers (P.) Ltd [2013] 40 taxmdnn.com 480 (Gujarat), 3. Bombay High Court in the case of CIT vs. impact Containers (P.) Ltd 367ITR 346 [2014] (Bombay) and other decisions (supra), the addition of deemed dividend cannot be made in the hands of the company. The view taken by the I.T.A.T. Mumbai Special Bench in the case of ACIT Mumbai vs. Bhaumik Colour (P) Ltd has been approved by the Hon'ble Bombay High Court in the case of CIT vs. Universal Medicare Private Limited (2010) 324 ITR 263 (Bom.) The Gujarat High Court in the case of CIT v/s Daisy Packers (P) Ltd decided the issue in favour of the assesses, relying on the decision of the Division Bench of the High Court in CIT v. Ankitech (P.) Ltd. (2012) 340 ITR 14 (Del) wherein it was held that if the assessee-company does not hold a share in other company from which it had received deposit then it cannot be treated to be a deemed dividend under Section 2(22)(e) of the Act. From the reading of the provisions of section 2(22)(e), it is seen that the provision is intended to tax the dividend in the hands of a shareholder and the deeming provision as it applies to the case of loan or advance by a company to a concern in which is shareholder and has substantial interest, is based on the presumption that the loan or advance would ultimately be made available to the shareholder of the company giving loan or advance. Various court decisions e.g. ACIT v/s. Bhaumik Colour (P.) Ltd.[2009] 118 ITD 1 (Mum.) (SB) & jurisdictional High Court decision in the case of CIT v/s Daisy Packers (P.) Ltd [2013] 40 taxmann.com 480 (Gujarat), CIT vs. Impact Containers (P.) Ltd 367 ITR 346 [2014] (Bombay) and other various decisions supra support this view that the deemed dividend u/s. 2(22)(e) can only be assessed in the hands of the person who is a shareholder of the lender company and not in the hands of a person other than the shareholder. In view of the above facts and on the basis of the above referred decisions (supra), the addition made by the Assessing Officer u/s.2(22)(e) is held to be not justified and the same is deleted. The additions made by the A,O as deemed dividend u/s 2(22)(e) of IT Act for Rs. 3,30,50,859/- in the hands of the appellant company is directed to be deleted. The ground of the appellant is allowed.”
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During the course of appellate proceedings before us, ld. counsel has furnished paper book comprising copies of document and detail filed before the lower authorities. The ld. counsel has contended that for the applicability of section 2(22)(2) of the Act, it is required that the assessee must be a shareholder in the company from whom the loan or advance has been taken. The ld. counsel has supported the order of ld. CIT(A). On the other hand, the ld. Departmental Representative has supported the order of Assessing Officer.
Heard both the sides and perused the material on the record. During the year under consideration, the J. P. Escon Ltd. has given inter corporate deposit to the assesse company. The case of the assessee was reopened for the reasons that J.P. Escon Ltd. had provided loan of Rs. 68,35,2624/- to the assessee company which attracts the provision of section 2(22)(e) of the Act. At the assessment stage, the assessee has categorically explained after referring various judicial pronouncements that the amount received from J.P. Escon Ltd. cannot be taxed as deemed dividend in its hand as it was not the registered share holder of J.P. Escon Ltd. The Assessing Officer after considering the substantial common share holding of Shri Pravin Kotak and Shri Amit Gupta, treated the amount of Rs. 3,30,50,859/- upto the accumulated profit received by the assessee company from J.P. Escon Ltd. as deemed dividend u/s. 2(22)(e) of the act. The ld. CIT(A) has deleted the addition holding that assessee company was not a registered share holder of J.P. Escon Ltd. after placing reliance on the various judicial pronouncements as elaborated in his findings as cited above in this order. After perusal of the material on record, it is noticed that assessee company was not a registered
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share holder in J.P. Escon Ltd. who has given inter corporate deposit to the assessee company. The similar issue on identical facts has been adjudicated by the Hon’ble Jurisdictional High Court of Gujarat in the case of Pr. CIT vs. Mahavir Inducto Pvt. Ltd. dated 12th Jan, 2017 on the basis of which the Co-ordinate Bench of the ITAT has decided the issue in favour of the assessee in the case of M/s. Precimetal Cast Pvt. LTD. Vs. ITO dated 16.12.2020 wherein it is held that for the applicability of section 2(22)(e) of the Act it is required that assessee company must be a share holder in the company from whom the loan or advance has been taken. The relevant part of the decision of the Co-ordinate Bench is reproduced as under:- “7. Heard both the sides and perused the material on record. The Assessing Officer noticed that assessee company has obtained unsecured loan from Gaurav Securities Pvt. Ltd. wherein one of the main shareholders of the assessee company Shri Umesh Bhatiya was holding substantial shares in Gaurav Securities Pvt. Ltd. Looking to the above facts, the Assessing Officer has made an addition to the extent of Rs. 13,21,198/- being accumulated profit of Gaurav Security Pvt. Ltd. for the reason that section 2(22)(e) prohibits advancing money among entities having common shareholders with substantial interest in the case of closely held company having accumulated profit. After perusal of the judicial pronouncements it is noticed that identical issue on common facts have been adjudicated by the Co-ordinate Bench of the ITAT Ahmedabad in the case of ACIT vs. Leela Ship Recyling Pvt. Ltd. vide ITA No. 1658/Ahd/2012 dated 12th March, 2020 and by the Jurisdictional High Court in the case of Pr. CIT vs. Mahavir Inducto Pvt. Ltd. dated 12-01-2017. With the assistance of ld. representatives, we have gone through the aforesaid two judicial pronouncements, it is noticed that in the case of ACIT vs. Leela Ship Recycling Pvt. Ltd. supra the Co-ordinate Bench of the ITAT has adjudicated the identical issue on same facts as under:- “4. We have heard the rival contentions, perused the material on record and duly considered facts of the case and the applicable legal position. 5. Learned representatives fairly agree that the issue in appeal is now covered by Hon'ble jurisdictional High Court's judgment in the case of CIT Vs Mahavir Inductomelt Pvt Ltd (TA No. 890 of 2011; judgment dated 13th January 2017) wherein Their Lordships have extensively reproduced from Hon'ble Delhi High Court's judgment in the case of Anitech Pvt Ltd (supra), and concurred with the same. Thus, in a case in which an amount is received from a person other than the shareholder, as is the admitted position in this case, the provisions of Section 2(22)(e) cannot indeed be invoked. The CIT(A) was thus justified in granting the impugned relief in respect of the addition under section 2(22)(e). We, therefore, approve the conclusion arrived at by the learned CIT(A) in this regard, and decline to interfere in the matter on that count.” We have also through the decision of Hon’ble Gujarat High Court in the case of Pr. CIT vs. Mahavir Inducto Pvt. Ltd. supra wherein the identical issue on same facts was decided in favour of the assessee after following the decision of Bombay High Court in the case of CIT vs. Impact Containers Pvt. Ltd. and others vide IT Appeal No. 114 of 2012 and the decision of Delhi High
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Court in the case of CIT vs. Ankitech Pvt. Ltd. Ltd. reported in 340 ITR 14 Delhi. The relevant part of the decision is reproduced 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 decisi on of the Bombay High Court in the case of CIT vs. Impact Containers Private Limited & ors rendered in ITA No. 114 of 2012 and the decision of the Delhi High Court in theca se of CIT vs. Ankitech Pvt Ltd 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 HC-NIC Page 4 of 5 Created On Sat Aug 12 04:34:00 IST 2017 O/TAXAP/891/2016 JUDGMENT 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 share holder of Mahavir Rollin g Mills Pvt Ltd to whom loan was given, it cannot be said that the learned Tribunal has c ommitted any error in deleting the addition made by the Assessing Officer on deemed dividend.”
In view of the findings as supra Hon’ble Jurisdictional High Court wherein it is held that for the applicability of section 2(22)(e), it is required that the assessee company must be a shareholder in the company from whom the loan or advance has been taken and 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. Since the facts of the case of the assessee are squarely covered by the aforesaid decisions of Hon’ble High Court and Co-ordinate Bench of the ITAT, the impugned addition is deleted. Accordingly, this ground of the assesse is allowed.”
After taking into consideration, the aforesaid facts and judicial findings as referred above, it is undisputed fact that assessee company was not a registered share holder in J.P. Escon Ltd. from whom it has obtained loan during the year under consideration. Therefore, the addition made by the Assessing Officer as deemed dividend u/s. 2(22)(e) of the Act is not
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justified. In the light of the above facts and findings, we do not find any infirmity in the decision of ld. CIT(A), therefore, this appeal of the revenue is dismissed.
Cross Objection No. 157/Ahd/2016 filed by assessee 7. The cross objection has been filed by the assessee only supporting the order of order of ld. CIT(A) vide which the impugned addition on account of deemed dividend u/s. 2(22)(e) of the Act was deleted. Since vide ITA No. 2232/Ahd/2016 we have dismissed the appeal of the revenue, therefore, this cross objection has become infructuous and the same is dismissed.
In the result, both the appeal filed by revenue and cross objection filed by assessee are dismissed.
Order pronounced in the open court on 11-02-2021
Sd/- Sd/- (RAJPAL YADAV) (AMARJIT SINGH) VICE PRESIDENT ACCOUNTANT MEMBER Ahmedabad : Dated 11/02/2021 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file.
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By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद