PRIME INFOINVEST LIMITED ,HYDERABAD vs. INCOME TAX OFFICER, WARD-16(2), HYDERABAD

Brief facts of the case are that the assessee company filed its e-return of income for the A.Y 2013-14 on 29.3.2013 admitting ‘nil’ income under the normal provisions of the I.T. Act and an income of Rs.2,62,063/- under the MAT provisions. During the assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee has received loans to the tune of Rs.49,50,000/- during the financial year 2012-13 from M/s. Tejdeep Engg. Enterprises (P) Ltd wherein the assessee has shareholding of 15.13%. He also observed that M/s.Tejdeep Engg Enterprises (P) Ltd has accumulated profits of Rs.1,50,30,047/- as on 31.3.2013 which included profit of Rs.47,60,877/- during the year. Therefore, the assessee was asked to explain as to why the provisions of section 2(22)(e) should not be applied to the loan received from M/s. Tejdeep Engg. Enterprises (P) Ltd. The assessee filed a reply stating that the provisions of section 2(22)(e) do not apply to this transaction as the assessee has received a sum of Rs.49,50,000/- from Tejdeep Engg. Enterprises (P) Ltd not as a loan but towards sale consideration on sale of 66,000 Equity Shares of M/s. Victoria Steel Enterprises Ltd at a face value of Rs.10/- each. In support of the same, a copy of the share purchase agreement entered into by both the parties was also submitted. The AO, however, was not satisfied with the said explanation of the assessee. He observed that the ledger a/c of M/s Tejdeep Engg. Showed an opening balance of Rs.73,02,470/- and during the year, the assessee had paid an amount of Rs.20.00 lakhs and received Rs.49,50,000/- and subsequently, the assessee had repaid an amount of Rs.15,00,000/-. Therefore, the AO was of the opinion that it is a running a/c and it is not for sale of shares. Further, in the books of account of the assessee, the ledger a/c of Tejdeep Engg is grouped under “unsecured loans”. Therefore, he held that the amounts were received by the assessee as loans and therefore, it is deemed dividend in the hands of the assessee as per the provisions of section 2(22)(e). He accordingly, brought the sum of Rs.49,50,000/- to tax u/s 2(22)(e) of the Act. Aggrieved, the assessee preferred an appeal before the CIT (A), who confirmed the order of the AO and the assessee is in second appeal before the Tribunal by raising the following grounds of appeal: “1. The learned CIT (A) erred in sustaining the addition of Rs.49,50,000/- made under section 2(22)(e) of the Act.

The learned CIT (A) erred disbelieving the documents produced such as share purchase agreement etc., merely because no shares were transferred by the appellant as on the date of his order.

The learned DR, on the other hand, supported the orders of the authorities below and submitted that the assessee, in its books of account, had shown a sum of Rs.49,50,000/- as unsecured loans from M/s. Tejdeep Engg Enterprises (P) Ltd and therefore, the AO and the CIT (A) have rightly treated it as ‘deemed dividend’ since the company had accumulated profits as on 31.3.2013 and the assessee is a substantial shareholder i.e. 15.13% of M/s. Tejdeep Engg Enterprises (P) Ltd.

Having regard to the rival contentions and the material on record, we find that the assessee has entered into a ‘share purchase agreement’ with M/s. Tejdeep Engg. Enterprises (P) Ltd, and has received consideration as on the date of agreement, and the transactions are also duly reflected in the Bank Statement of the assessee. Except for the reason that the assessee has shown the same as an unsecured loan in its books of account, there is no evidence brought on record by the AO that this is not a genuine sale transaction. The assessee has stated that subsequently, the transaction was completed and the shares were also transferred to Tejdeep Engg. Enterprises Ltd. Therefore, we deem it fit and proper to direct the AO to verify this contention of the assessee and if the contention of the assessee is found to be correct, then the addition u/s 2(22)(e) cannot be made. Therefore, the appeal of the assessee is treated as allowed for statistical purposes.

In the result, appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the Open Court on 22nd February, 2021.