SHRI ANAND M GUPTA,LUCKNOW vs. ITO - 15(1)(4), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D”, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta v. Income Tax Officer – 15(1)(4) Aayakar Bhavan, M.K. Road {Through Legal heir Mumbai - 400020 Mrs. Madhu Anand Gupta} B-723, Sector – C Mahanagar, Lucknow – 226006 Uttar Pradesh PAN: AABAE8078Q (Appellant) (Respondent) Assessee Represented by : Shri Malav Sheth Shri Ashish Kumar Department Represented by :

Date of Hearing : 29.12.2022 Date of Pronouncement : 20.03.2023

O R D E R PER S. RIFAUR RAHMAN (AM)

2 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta 2. Brief facts of the case are, assessee filed its return of income on 31.07.2014 declaring total income of ₹.15,50,220/-. The return of income was processed u/s. 143(1) of Income-tax Act, 1961 (in short “Act”). The case was selected for scrutiny under CASS and notice u/s. 143(2) and 142(1) of the Act were issued and served on the assessee. In response AR of the assessee attended and submitted the relevant information as called for.

Sale of Shares Sr.No Number of Shares Total Sale Price Date Rs.27,99,270/- 1 25000 shares purchased, 07.03.2014 1,500 shares for Omnitech Petroleum Ltd. & Rs.14,74,650/ - /Sharp Trading Co, now 19.03.2014 & known as Trinity Tradelink 1350 shares for Ltd., Rs.13,24,620/-

3 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta and detailed investigation was undertaken by the Kolkata Investigation wing into 84 Penny Stocks (Trinity Tradelink Ltd., {in short “TTL”}) and has given detailed findings indicating bogus LTCG/STCG entries claimed by large number of beneficiaries. He has discussed the modus operandi involving operators, intermediaries and the beneficiaries has been detailed in the above said investigation report. He has discussed in detail the various aspects of claim of benefit under penny stock in Page Nos. 3 to 5 of the Assessment Order and further, he has specifically discussed the financials of the TTL the scrip under consideration in his order at Page No.5. He observed from the chart that net worth of the above company is negligible and even though the net-worth of the company and business activity of the company is negligible the shares prices have been artificially rigged by the group of operators to accommodate beneficiaries seeking long term capital gain and losses. Further, he observed that the assessee has sold the shares to the exit providers namely Rinam Dealmark Pvt. Ltd., and Diganta Properties Pvt. Ltd., and all these entities are based in Kolkata, with the above observations assessee was asked to show cause as to why these transactions of assessee should not be treated as bogus.

4 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta 5. In response assessee by relying on various case laws submitted that assessee had purchased 25000 equity shares of TTL (old name: Omnitech Petroleum Ltd.) for ₹.2,50,000/- through a broker Skunk Tradelink Limited on 24.02.2012. This is off-market transaction and these shares were later dematerialized. Owing to share split, the number of shares with assessee swelled to 60,000. The assessee sold part of these shares i.e., 2850 shares on Bombay Stock Exchange (in short “BSE”) through his broker IDBI Bank Ltd. The Assessing Officer observed that assessee sold these shares for ₹.27,99,270/- compared to cost of the shares and assessee has gained 9822%. By relying on various case laws the Assessing Officer treated the above sale of proceeds of the Shares ₹.27,99,270/- as suspicious and added the same u/s. 69 of the Act to the total income of the assessee.

5 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta therefore they are regarded as related party for the purpose of disclosure in the financial statements as mandated by AS-18 and accordingly, the Inter-Corporate Deposit (ICD) of ₹.1.5 Crores has been declared as related Party Transaction in the financial statement. In view of the above, assesse was show caused as to why the amount of ₹.1.5 Crores should not be added to the total income attracting section 2(22)(e) of the Act.

“……..B. Taxability of ICD received from Group Company as Deemed Dividend in the hands of the assessee. Your honor has requested us to show cause as to why the Inter Corporate Deposit of Rs.1,50,00,000/- given by Madhu Mattor Private Limited (MMPL) [Lender] to Madhu India DeccLimited (MIDL) [Borrower) should not be treated as Deemed Dividend in the hands of thebeneficiary shareholders of MIDL within the meaning of Sec. 2(22)(e) of the Income Tax Act, 1961 based on the assessment order for A.Y 2014- 15 made in the case of MIDL by ACIT 15(2X2)dated November 02, 2016. The assessee and his wife are common shareholders in MMPL & MIDL. The ICD has been advanced by MMPL to MIDL MIDL does not hold any shares in MMPL. We would like to submit that provision of Section 2(22)(e) of the Act cannot be invoked merely on the premise that the common shareholders having more than 10% of shareholding in the assessee company and having substantial interest exceeding 20% shareholding in the associate concern. It is an admitted fact that the common shareholders are registered and beneficial shareholder both the companies having significant interest. For invoking Sec. 2(22) (e) it is necessary to establish that in respect of any of the transaction in the nature of advance or loan that the benefit has directly or indirectly accrued to the eventual shareholder, who is entitled to receive the dividend. Share Holding Pattern of Common Shareholders:

6 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta Madhu Madhu SI. Name of the Percentage Percentage India Deco Matter No shareholder holding holding Ltd. Pvt Ltd., 1. Mr. Anand M Gupta 115920 50.84% 5098 19.61% 2. Mrs. Madhu A. Gupta 84005 36.84% 24544 79.03% 3. Madhu Finestock Pvt. Ltd. 20 0.01% 350 1.36%% 4. Mattor Pvt. Ltd. 28020 12.28% -- --- 5. Others 35 0.035% -- --- Total 228000 100 25992 100 From the perusal of the above shareholding pattern it is seen that the common shareholders being Promoters/Directors hold more than 20% in both the companies but Madhu India Deco Limited (MIDL) does not hold any single share in Madhu Mattor Private Limited (MMPL) a lending Company. Thus the ICD placed by MMPL in MIDL is not in the nature of Loan or Deposit given to its registered Shareholder. MIDL is not a shareholder in MMPL. During the previous year relevant to the assessment year under consideration MMPL has utilized its surplus funds to deploy in ICD with MIDL as a part of its financing activity during the normal course of business. This is evident from the attached Cash Flow Statement of MMPL for the relevant period in Annexure 10A. Furthermore, from the perusal of the details of utilization of the ICD placed by MMPL in MIDL as provided in Annexure 108 it can be seen that the entire ICD amount has been utilized by MIDL for retirement of the trade dues of the MMPL. No part of the ICD has been diverted, utilized or accrued to the ultimate common shareholders being the Promoters/Directors of MIDL & MMPL. Thus it is clearly established that no part of the ICD has directly or indirectly accrued to the eventual shareholder, who is entitled to receive the dividend. In this regard we would like to draw your attention to the following Judicial Decisions confirming that the Loans given to Non-Shareholder cannot be treated as Deemed Dividend within the meaning of Section 2(22)(e)..... Assessee also relied on various case laws in his reply. AR of the assessee also submitted as under:- We would like to respectfully submit that this alleged deemed dividend of Rs.1,50,00,000/- has already been added to the income of the recipient of ICD, MIDL in the assessment order and set off against the loss for the year. We attach herewith in Annexure 10 a copy of the assessment order highlighting the addition to the income. Under these circumstances taxing the same income in the hands of the assessee will amount to double taxation of

7 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta same income once in the hands of MIDL & second time in hands of the assessee. This double taxation of same income is not tenable and justified…..”.

8 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta 10. After considering the detailed submissions of the assessee Ld.CIT(A) dismissed the ground raised by the assessee with the following observations: -

“5.2.6 The Ld.AO has placed a detailed observation of how the entire sham transaction is recorded right from the purchase of the shares till the sale of shares and how the unaccounted money is channelized in the whole process. The appellant, neither at the time of the assessment proceedings nor at the time of the appellant proceedings, has been able to controvert the observations of the Ld. AO and why the steep rise in the prices which is not in consonance with the financial statements be considered. The appellant has only harped on the fact that it was not given an opportunity of cross verification. In Pankaj Agarwal & Sons (HUF) v. ITO (ITAT Chen) ITANO.413/CHNY/2018 it has been held that Plea that opportunity to cross-examine the witness was not given & investigation report was not furnished is not relevant if assessee unable to successfully controvert findings of the AO. Thus, applying this ruling, the appellant's contention is not tenable to the facts of the present case. 5.2.7 In Ratnakar M. Pujari v. ITO (ITA No.995/Mum/2012), the jurisdictional Mumbai ITAT has held that since assessee was indulged in non-genuine and bogus capital gains from transaction of sale and purchase of shares of S Investment and Consultancy Limited which was penny stock company and pre-dated contract notes were issued by the brokers to manipulate and introduce long-term capital gains in favour of the assessee, therefore, the said capital gains were added under section 68 as unexplained cash credits. 5.2.8 Having discussed the facts of the case and the judicial precedents relied upon, I am of the considerate view that the addition made by the Ld. AO of Rs.27,99,270 is justified and does not call for any interference. Accordingly, these grounds of appeal are dismissed.”

9 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta 3) Addition of Deemed Dividend u/s. 2(22)(e) of the Income Tax Act, 1961 "The learned AO has erred in addition of Rs. 1,50,00,000/- as Deemed Dividend u/s. 2(22)(e) of the Income Tax Act, 1961 under the head Income from Other Sources on the ground that the assessee holds more than 10% in both the Companies and more than 20% of the share holding pattern in the company in which the loan is received. The learned A.O also erred in adding 100% of the deemed dividend in the hands of the assessee even though his shareholding in the beneficiary company was 50.84%" 3.1) Facts The Inter Corporate Deposit of Rs.1,50,00,000/- was given by Madhu Mattor Private Limited (MMPL) [Lender) to Madhu India Décor Limited (MIOL). The appellant is a director of M/s Madhu India Deco Ltd and M/s Madhu Mattor Pvt. Ltd. holding substantial interest @50.84% and 19.86% respectively. It is a company in which public are not substantially interested. M/s Madhu India Deco Ltd and M/s Madhu Mattor Pvt. Ltd are Group Companies having common shareholders and directors and are therefore regarded as related party for the purpose of disclosure in the financial statements as mandated by AS-18 and therefore, the Inter-Corporate Deposit(ICD) of Rs.1,50,00,000/-/ has been declared as related party Transaction in the financial statement. 3.2) Share Holding Pattern Of Common Shareholders: Madhu SI. Madhu India Percentage Percentage Name of the shareholder Matter Pvt No Deco Ltd. holding holding Ltd., 1. Mr. Anand M Gupta 115920 50.84% 5098 19.61% 2. Mrs. Madhu A. Gupta 84005 36.84% 24544 79.03% 3. Madhu Finestock Pvt. Ltd. 20 0.01% 350 1.36%% 4. Mattor Pvt. Ltd. 28020 12.28% -- --- 5. Others 35 0.035% -- --- Total 228000 100 25992 100 3.3) The appellant was show caused vide notice u/s 142(1) dated 16.12.2016 as to why the amount of Rs.1,50,00,000/- should not be added to the total income attracting section 2(22)(e) of the IT Act. 3.4) AR of the assesee filed reply dated 19.12.2016 before the LD AO. Summary of the said letter is as under- i) The assessee and his wife are common shareholders in MMFL & MIDL. The ICD has been advanced by MMPL to MIDL and MIDL does not hold any share in MMPL ii) Provision of Section 2(22)(e) of the Act cannot be invoked merely on the premise that the common shareholders having more than 10 % of shareholding in the assessee company and having substantial interest exceeding 20% shareholding in the associate concern. For invoking Sec. 2(22) (e) it is necessary to establish that in respect of any of the transaction in the nature of advance or loan that the benefit has directly or indirectly accrued to the eventual shareholder, who is entitled to receive the dividend. iii) From the perusal of the shareholding pattern it is seen that the common shareholders being Promoters/Directors hold more than 20% in both the

10 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta companies but Madhu India Deco Limited (MIDL) does not hold any single share in Madhu Mattor Private Limited (MMPL) a lending Company. Thus the ICD placed by MMPL in MIDL is not in the nature of Loan or Deposit given to its registered Shareholder. MIDL is not a shareholder in MMPL. iv) During the previous year relevant to the assessment year under consideration MMPL has utilized its surplus funds to deploy in ICD with MIDL as a part of its financing activity during the normal course of business. This is evident from the attached Cash Flow Statement of MMPL for the relevant period v) Furthermore, from the perusal of the details of utilization of the ICD placed by MMPL in MIDL,it can be seen that the entire ICD amount has been utilized by MIDL for retirement of the trade dues. No part of the ICD has been diverted, utilized or accrued to the ultimate common shareholders being the Promoters/Directors of MIDL & MMPL. Thus it is clearly established that no part of the ICD has directly or indirectly accrued to the eventual shareholder who is entitled to receive the dividend, 3.5) LD. AO made the addition u/s 2(22)(e) holding that the appellant is holding more than 10 % in both the companies. Further, the assessee holds more than 20% of shares holding pattern, in the company wherein the loan is received. As per LD. AO conditions as stipulated in section 2(22) (e) are satisfied. Hence, amount of Rs.1,50,00,000/- is income of the assessee under the head income from other sources under section 2(22)(e). 3.6) Appellant's submission:- 3.6.1) The assessee and his wife are common shareholders in MMPL & MIDL The ICD has been advanced by MMPL to MIDL MIDL does not hold any shares in MMPL 3.6.2) Provision of Section 2(22)(e) of the Act cannot be invoked merely on the premise that the common shareholders having more than 10% of shareholding in the assessee company and having substantial interest exceeding 20% shareholding in the associate concern. It is an admitted fact, that the common shareholders are registered and beneficial shareholder in both the companies having significant interest. For invoking Sec. 2(22) (e) it is necessary to establish that in respect of any of the transaction in the nature of advance or loan that the benefit has directly or indirectly accrued to the eventual shareholder, who is entitled to receive the dividend. 3.6.3) Share Holding Pattern Of Common Shareholders: Madhu SI. Madhu India Percentage Percentage Name of the shareholder Matter Pvt No Deco Ltd. holding holding Ltd., 1. Mr. Anand M Gupta 115920 50.84% 5098 19.61% 2. Mrs. Madhu A. Gupta 84005 36.84% 24544 79.03% 3. Madhu Finestock Pvt. Ltd. 20 0.01% 350 1.36%% 4. Mattor Pvt. Ltd. 28020 12.28% -- --- 5. Others 35 0.035% -- --- Total 228000 100 25992 100 3.6.4) On perusal of the above chart, your Honour would appreciate that even though the MMPL and MIDL have common shareholders. MIDL does not hold any beneficial shareholding in MMPL.

11 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta 3.6.5) As per section 2(22)(e), "dividend includes 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; but "dividend" does not include- i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; (ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965; (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; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off 3.6.6) On perusal of section 2(22)(e), payment made by way of loan or advance shall be treated as dividend in the hands of the Shareholder. 3.6.7) From the perusal of the above shareholding pattern it is seen that the common shareholders being Promoters/Directors hold more than 20% in both the companies but Madhu India Deco Limited (MIDL) does not hold any single share in Madhu Mattor Private Limited (MMPL) a lending Company. Thus the ICD placed by MMPL in MIDL is not in the nature of Loan or Deposit given to its registered Shareholder. MIDL is not a shareholder in MMPL. 3.6.8) During the previous year relevant to the assessment year under consideration MMPL has utilized its surplus funds to deploy in ICD with MIDL as a part of its financing activity during the normal course of business. This is evident from the Cash Flow Statement of MMPL for the relevant period filed before the LD. AO. Furthermore, from the perusal of the details of utilization of the ICD placed by MMPL in MIDL as provided in Annexure 10B before the LD. AO it can be seen that the entire ICD amount has been utilized by MIDL for retirement of the trade dues. No part of the ICD has been diverted, utilized or accrued to the ultimate common shareholders being the Promoters/Directors of MIDL & MMPL. Thus it is clearly established that no part of the ICD has directly or indirectly accrued to the eventual shareholder, who is entitled to receive the dividend. If the definition of "Dividend" is extended to a loan or advance to a non shareholder the ordinary and natural meaning of the word dividend is taken away. In the light of the intention behind the provisions of Sec. 2 (22) (e) and in the absence of indication in section 2(22)(e) to extend the legal fiction to a case of loan or advance to a non-shareholder also,

12 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta it is submitted that loan or advance to a non-shareholder cannot be taxed as deemed dividend in the hands of a non-shareholder. 3.6.9) In this regard reliance is placed on the following Judicial Decisions confirming that the Loans given to Non - Shareholder cannot be treated as Deemed Dividend within the meaning of Section 2(22)(e).  Bombay High Court in case of CIT vs. Jignesh P. Shah ITA No.197/2013 [2015-ITRVHC-MUM-108] has held that the provision of section 2(22)(e) cannot be invoked unless the assessee itself is the shareholder of the company, who was lending money to him.  Delhi High Court in CIT vs. Ankitech P. Ltd. [2011-ITRV-HC-DEL- 109] has held that S. 2(22)(e) "deemed dividend" not assessable if recipient is not shareholder. This is confirmed by the honourable Supreme Court.  Delhi High Court in case of CIT vs. Mcc Marketing Pvt. Ltd, ITA No. 599/2011 has held that provision of section cannot be invoked in case of amount advance by one company to another, who is not a shareholder of the company; shareholding of common director cannot be taken into consideration for that purpose.  Bombay High Court in CIT vs. Impact Containers Pvt. Ltd [2014- ITRV-HC- MUM-112] has held that the law laid down in Universal Medicare 324 ITR 263 (Bom) (approving Bhaumik Color 313 ITR 146 (SB)), that s 2(22)(e) does not apply to a non-shareholder, is a good law.  Bombay High Court in CIT vs. Universal Medicare 324 ITR 263 (Bom) has held that the provisions of Section 2(22)(e) of the Income Tax Act, 1961 (for short "I.T. Act) cannot be invoked as the assessee company was not a shareholder in the lending company. The argument in all these Appeals on behalf of the Revenue is that, though the assessee is a common shareholder with controlling stake in the lending company, the Tribunal found that Section 2(22)(e) of the I.T. Act, is not attracted  In Bhaumik Colour (P) Ltd. (supra), the Special Bench, Mumbai took note of the historical background of Section 2(22)(e) of the Act. It was held that such loan or advance cannot be treated as deemed dividend at the hands of such a concern which is not a shareholder.  Delhi High Court in case CIT vs. Gopal Clothing Co. Ltd. ITA No.333/2006 has held that provision of section 2(22)(e) cannot be invoked in respect of the unsecured loan taken by the assessee from the other company if the assessee does not possess the prescribed voting rights in that company, shareholding of the common shareholder or director cannot be taken into consideration for that purpose.  CIT vs. AR Magnetics (P.) Limited [2013] 40/[2014] 220 has held that Deemed Dividend Provisions cannot be invoked merely because shareholders are common in both companies. 3.6.10) Without prejudice to the above, it is humbly submitted that during the previous year relevant to assessment year under consideration the Group Company had invested its surplus fund in the assessee in the form of ICDs and therefore, the same cannot be regarded as advance payment or Loan or advance within the meaning of Sec.2(22)(e) of the Act.

13 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta The term "loan" has not been defined under the provisions of the Act. Hence, meaning of the term "loan" as provided in various judicial precedents would have to be referred to for determining whether a deposit can be considered akin to "loan". The term "loan" is distinct from the term "deposit" as analyzed in following judicial precedents. Seamist Properties P. Ltd vs. ITO (95 TTJ 201) (Mumbai ITAT) wherein the assessee had accepted a security deposit under Memorandum of Understanding with the lending company for carrying on a new business. Both companies had common shareholders, holding shares exceeding the limits specified in Section 2(22)(e) of the Act. The. ITAT held that the amount of deposit could not be taxed as deemed dividend in the hands of the assessee company since it was not a loan. Madhya Pradesh High Court in the case of Sharda Talkies (Firm) vs. Smt.Madhulata Vyas (AIR 1966 MP 68) observed as under: "There is a subtle distinction between a deposit and a loan. In the case of a loan, the amount is given by the creditor to the debtor at the request of and for the requirements and dues of the debtor under certain terms and conditions, In the case of a deposit, the depositee receives money at the instance of the depositor. In the case of a deposit, the requirement of the depositee is neither relevant nor material. The depositor has to go to the depositee for depositing the amount or the depositee may go and collect the amount. But in case of a loan, the debtor has to request the creditor to advance certain amount for meeting his requirement for using the amount. However, the question in a given case whether the debit is deposit or a loan will be one of fact which will have to be decided on the facts and circumstances of each case. The use of the term 'loan' or 'deposit' may not itself be conclusive, though, of course, it is a circumstance which would be taken into account. What should be regarded is the cumulative effect of the evidence which bears on the character of the debt as a loan or a deposit. Where certain amount are paid or given by a particular person to other without there being a requirement of the person receiving the same, without applying the above test, it would certainly be a deposit. This is the only distinction." • Madras High Court in the case of Abdul Hamid Sahib vs Rahmat Bi (AIR 1965 Mad 427) observed as under: "The terms "loans" and "deposits" are not mutually exclusive terms. There are a number of common features between the two. In a sense a deposit is also a loan with this difference that it is a loan with something more. Both are debts repayable. But, the question as to when the repayment is to be made furnishes the real point of distinction between the two concepts. A loan is repayable the minute it is incurred. But this is not so with a deposit. Either the repayment will depend upon the maturity date fixed therefore or the terms of the agreement relating to the demand, on making of which the deposit will become repayable. In other words, unlike a loan there is no immediate obligation to repay in the case of a deposit. That is the essence of the distinction between a loan and a deposit." Further, the Mumbai ITAT in the case of Bombay Oil Industries Limited vs DCIT (2009-TIOL-297-ITAT-MUM) has held that ICDS should not be considered as deemed dividend. The relevant extract has been reproduced below as under "There is distinction between deposits vis-a-vis loans/advances. Section 2(22) (e) enacts a deeming fiction whereby the scope and ambit of the word dividend has been enlarged to bring within its sweep certain payments made by a company as per the situations enumerated in the section. Such a deeming fiction would not be given a wider meaning than what it purports to do. The provisions would

14 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits. The requisite condition for invoking section 2(22)(e) of the Act is that payment must be by way of loan or advances. Since there is a clear distinction between the inter- corporate deposits vis-a-vis loans/advances, according to us the authorities below were not right in treating the same as deemed dividend under section 2(22)(e) of the Act." Further more in the case of M/s IFB Agroind Ltd. Vs JCIT-ITA no. 114/Kol/2013 Kolkata ITAT the following was held: • The provisions of section 2(22)(e) of the Act refers to only 'loans' and 'advances' it does not talk of a 'deposit'. The fact that the term 'deposit' cannot mean a 'loan' and that the two terms 'loan' and the term 'deposit' are two different distinct terms is evident from the explanation to section 269T as also section 269SS of the Act where both the terms are used. In section 269T of the Act, the term 'deposit' has been explained vide various circular issued by CBDT. Thus, the view taken by the Ld. CIT (A) that the Inter- corporate deposit is similar to the loan would no longer have legs to stand. In Housing & Urban Development Corporation Ltd. 102 TTJ (Del.) (SB) 936, it was held that that loans and deposits are to be taken different and distinct. Following the decision of the coordinate bench of this Tribunal in the case of Bombay Oil Industries Ltd. referred supra, to the addition representing inter- corporate deposits treated as loan by the AO and as confirmed by the Ld. CIT (A) stands deleted. In the case of ACIT v. Source Hub India (P) Ltd. (2014) 61 SOT 111 (Bang)(Trib) it was held that: "the assessee company was engaged in the business of providing computer services. Its shares were held by a company 'V and Three individuals by name 'K' 'R' and 'S' to the extent of 64% 32% 2% and 2% respectively. Further the entire shares of company V were held by 'R' & 'S' During the previous year, the assessee had received a loan from company 'V'. The A.O. treated the amount of loan as deemed dividend under section 2(22) (e) of the Act. On appeal C.I.T.(A) held that to invoke the provisions of section 2(22) (e), the assessee must be shareholder in the company which gave loan. Since the assessee was not a shareholder the loan in question could not be treated as deemed dividend in the hands of the assesee under section 2(22) (e) of the Act. The Tribunal upheld the order of the C.I.T. (A) and dismissed the Departments appeal on the ground that since the intention of legislature behind the provisions of section 2(22) (e) is to tax dividend in hands of shareholder and assesee company was not a shareholder in company 'V' deeming provisions of section 2(22) (e) of the Act were not applicable to the instant case. (AY. 2006-2007)". Reliance is also placed on M/s Utkarsh Fincap (P) Ltd., v ITO 1288 ITR 38 On. (Tri. Ahmedabad) Further the provisions of deemed dividend do not apply to trade advances / advances granted for the purpose of business of the Appellant: . CIT.v. Amrik Singh (2015) 231 Taxman 731 (P&H)(HC) Assessee was a substantial shareholder in a company. Company received certain export orders but was not in a position to execute these orders as its manufacturing facility was situated in a remote area and was beset with labour problems and erratic supply of electricity. Company, therefore, entered into an

15 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta agreement with assessee to install plant and machinery at premises of assessee to enable assessee to do job work for company. Assessee also received certain sum as advance from said company to do job work at interest rate below prevailing market rate. Tribunal found that advances were received by assessee in normal course of business as a matter of business expediency and, hence, said advance was not covered by section 2(22) (e). On appeal by revenue the Court held that finding of facts recorded by Tribunal could not be interfered with. Dy. CIT .v. Chariot International P. Ltd. (2014) 29 ITR 36 (Chennai)(Trib.) The assessee was 100% EOU engaged in the business of conversion of rough granite blocks into polished granite slabs, granite tiles and monuments. During the assessment proceedings, the AO found that 2 individuals S and V held shares in the assessee with voting power of 75% and 25% respectively. S also held 66.8% of the voting rights of a sister concern which had accumulated profits and also had credit balance in the name of the assessee. Therefore, the AO held that there was a loan or advance within the meaning of section 2(22) (e) of the Act and treated the amount of accumulated profit as deemed dividend and disallowed the benefits of deduction u/s. 10B. The CIT(A) deleting the addition made by the AO held that the transactions of the assessee with its sister concern were commercial in nature and that the provisions of section 2(22) (e) of the Act were not applicable. On appeal by the Department, the Tribunal observed that the assessee had filed additional details before the CIT(A) establishing that the transactions were regular business transactions. These evidences were also sent to the AO in the Remand Proceedings who had in his Remand Report conceded that the transactions were regular business transactions. Accordingly, the Tribunal dismissed the departmental appeal. (AY.2006-07). Ishwar Chand Jindal vs. Assistant Commissioner of Income-tax [2015] 61 taxmann.com 428 (Delhi- Trib.) Assessee contended that said transactions between two companies were current account transactions between group companies and therefore, it could not be treated as deemed dividend - A perusal of ledger account of BR Ltd. in books of DA Ltd. showed that all credits in accounts of BR Ltd. were either on account of supplies made by BR Ltd. to DA Ltd, or amount paid by BR Ltd. to another concern in respect of payment of DA Ltd. thus, all such transactions were business transactions - Whether nomenclature cannot be a basis to conclude that business transactions between two entities constitute deemed dividend under section 2(22) (e) Held, yes - Whether, therefore, current account transactions between two group companies which were business/commercial transactions could not be regarded as deemed dividend under section 2(22)(e). We would like to respectfully submit that this alleged deemed dividend of Rs. 1,50,00,000/- has already been added to the income of the recipient of ICD MIDL, in the assessment order and set off against the loss for the year. Under these circumstances taxing the same income in the hands of the appellant will amount to double taxation of same income once in the hands of MIDL & second time in hands of the appellant. This double taxation of same income is not tenable and justified. It is also observed that Ld. AO erroneously mentioned the percentage holding of the appellant in MMPL at 79.04% as against 19.61% held by the appellant. Without prejudice to our above contention, in any event entire deemed dividend couldn't be taxed in the hands of the appellant.”

16 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta 12. After considering the detailed submissions of the assessee Ld.CIT(A) dismissed the ground raised by the assessee with the following observations: -

“5.3.4 The appellant has argued that the advances made was in the nature of inter corporate deposit and hence, not subject to provisions of Section 2(22)(e). The appellant has relied on plethora of decisions that have held that inter corporate deposits are not covered within Section 2(22)(e), however appellant has failed to furnish how the same in the nature of inter corporate deposit. It is the preliminary obligation of the appellant to discharge the onus of proving its contention. In the absence of the appellant complying with the basic requirement, the argument of the appellant is not tenable. 5.3.5 The appellant's argument that the amount is already taxed as deemed dividend in the hands of MIDL and hence, should not be taxed again also does not hold water as the provisions of Section 2(22)(e) are applicable to the appellant being the shareholder of the concern which has received the loan. 5.3.6 In light of the above facts, I find no infirmity in the addition made by the Ld. AO of Rs.1,50,00,000 u/s 2(22)(e) of the Act and uphold the same. This ground of appeal is dismissed.”

“1. Addition of Rs. 27,99,270 u/s. 69 being sales proceeds of shares a) On the facts and circumstances of the case and in law, Ld.CIT(A) erred in upholding the action of Ld AO in making the addition of Rs. 27,99,270/- being the sale proceeds of shares by treating the transaction as a bogus and accommodation entry. Addition made, merely on suspicion and human probabilities and without any reliable and trustworthy material, is bad in law and needs to be deleted. b) On the facts and circumstances of the case and in law, Ld.CIT(A) erred in upholding the action of Ld AO in making addition of Rs. 27,99,270/- by holding that the shares were sold to Rinam

17 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta Dealmark Pvt Ltd and Diganta Properties Pvt Ltd known to be exit entry providers. Addition made, without providing the opportunity to cross-examine the so called exit providers, is against the principle of natural justice and therefore being bad in law needs to be deleted. 2. Addition of Deemed Dividend u/s, 2(22)(e) of Rs. 1,50,00,000/- a. On the facts and circumstances of the case and in law, inspite of the fact that the advance made by MadhuMattor Private Limited (MMPL) to Madhu India Deco Limited (MIDL) wherein appellant is common shareholder, is in nature of Inter Corporate Deposits (ICD) and not in nature of loans and advances, Ld CIT(A) erred in confirming the addition of Rs. 1,50,00,000/- u/s. 2(22)(e) in the hands of appellant. Addition made by holding that the appellant had not discharged the onus of proving its contention, is bad in law and needs to be deleted. b. Without prejudice to the above and without admitting, on the facts and circumstances of the case and in law, Ld CIT(A) erred in not appreciating the fact that the provision of s. 2(22)(e) does not apply to a non-shareholder and ignoring various decisions including jurisdictional Bombay High Court relied by the appellant in this regard. Addition confirmed of Rs. 1,50,00,000/- u/s. 2(22)(e), is bad in law and needs to be deleted. c. Without prejudice to the above and without admitting, on the facts and circumstances of the case and in law, Ld CIT(A) erred in confirming the addition of Rs. 1,50,00,000/- by holding that the transaction of loan or advance made by MMPL to MIDL is covered within the ambit of section 2(22)(e) of the Act. Addition made, ignoring the fact that no part of ICD has directly or indirectly accrued to the shareholders, is bad in law and needs to be deleted. d. Without prejudice to the above and without admitting, on the facts and circumstances of the case and in law, Ld CIT(A) erred in confirming the addition of Rs. 1,50,00,000/- in the hands of appellant inspite of fact that the same addition is already made in the hands of recipient of ICD i.e. MIDL. e. Without prejudice to the above and without admitting, on the facts and circumstances of the case and in law, 100% addition of deemed dividend made in the hands of appellant even though his shareholding in the beneficiary company was 50.84 percent, is bad in law and needs to be deleted.”

18 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta 14. At the time of hearing, Ld. AR brought to our notice relevant facts

of the case and filed written submissions. For the sake of clarity, it is

reproduced below: -

“2. With regard to Ground of appeal no.1 Addition of sale proceeds of shares u/s. 69 of Rs.27,99,270/- assessee submitted as under: - 3. This issue is dealt with by the learned AO at para 5 to 10, pages 2 to 12 of the assessment order. 4. It is adjudicated by the learned CIT(A) at para 5.2 to 5.2.8, pages 35 to 39 of the order of the learned CIT(A). 5. The issue relate to long term capital gains on sale of shares of M/s. Trinity Tradelink Ltd (TTL) of Rs 27,64,103/- claimed as exempt u/s 10(38) being STT paid in the return of income. Working of the LTCG is given on page 63 of the paper book. 6. The Appellant had originally purchased 25,000 shares of Rs 10 each of Omnitech Petroleum Limited physically, earlier known as Sharp Trading Co. Ltd, on 24 February, 2012 under a private placement arrangement. Pursuant to a scheme of merger of M/s. Trinity Tradelink Ltd (TTL) with M/s. Omnitech Petroleum Limited as per Order dated 10.01.2014, the appellant held 60,000 shares of TTL; out of which 2850 shares were sold on March 07, 2014 (1500 shares) & March 19, 2014 (1350 shares) respectively. Sale took place in market through SEBI & BSE registered share broker SKUNG Tradelink Limited. [Para 6.1 of the assessment order] 7. In support of the said exemption, the appellant filed the following details during the assessment and first appellate proceeding. [Pages 3 to 35 of the paper book]:  Copy of the share certificate issued towards acquisition of shares  Copy of Demat statements  Details of broker Skung Tradelink Limited Corporate Identification Number is (CIN) U67190UP2010PLC040356 and its SEBI registration number is INB011428837 and BSE Trading Member Code No. 6372.  Copy of broker ledger, broker notes and global report of share transactions.  Copies of bank pass book / bank statements towards payment of purchase consideration and receipt of sale consideration.

19 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta  8. Further the appellant had also made the following assertions before the learned AO and the learned CIT(A). [Pages 38 to 52 of the paper book]  No reported SEBI investigation in respect of dealing in this scrip.  No reported investigation against the share broker by BSE or SEBI.  The scheme of arrangement of merger of TTL with Omnitech was sanctioned by the Honorable Bombay High Court.  The Company had allotted the shares in TTL to the appellant pursuant to merger on January 15, 2014 after getting the requisite approval from BSE & Registrar of Companies.  Company had filed the requisite forms / documents with BSE & Registrar of Companies and got the approval of Name Change on dated March 28, 2014, thus the company OMNITECH PETROLEUM LIMITED is now known as TRINITY TRADELINK LIMITED [TTL).  As a result of implementation of merger Scheme Company's share price shot up abruptly and peaked due to better future prospects.  The Company is still traded on Mumbai Stock Exchange and there was never any reported suspension in trading due to SEBI or BSE investigation.  Appellant had no control over the abnormal rise in price and had capitalized on the substantial appreciation opportunity, that too only in respect of 2850 shares out of total shareholding of 60,000 shares.  If the transaction were of bogus nature for some extraneous consideration, the appellant would have sold the entire holding. 9. The appellant gave a detailed legal submission vide letter dated 19.12.2016 enclosed at pages 40 to 45 of the paper book. 10. Request was also made to the learned AO for providing opportunity for cross- examination of the persons who have alleged/investigated that the share trading is in Penny Stock resulting in the bogus capital gain. Observations Of the learned AO: 11. The learned AO disregarded the submissions of the appellant for the reasons not relating to the specific facts of the appellant but stems from the following

20 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta • Report/information received from the DIT (Inv.) Kolkata dated 27.04.2015 and statements recorded by the Investigation Wing of various operators, entry providers and stock brokers (though no extracts are reproduced in the assessment order). This is enumerated at para 5.3 to para 5.8, pages 2 to 4 of the assessment order.  Price and volume movement of shares of Trinity Tradelink Pvt. Ltd. in the stock market during the period 01.04.2011 to 31.12.2016 as provided in para 7.1. page 5 of the assessment order.  Financial health of the said company lacked commercial feasibility as depicted at para 7.3, page 6 of the assessment order.  The learned AO has then assumed that the appellant has purchased shares through Kolkatta based entry providers namely Rinam Dealmark Pvt.Ltd and Diganta Properties Pvt. Ltd. - para 7.6, page 6 of the assessment order.  The learned AO has then assumed that a party named Crescent Digital Technologies has functioned as alleged entry operator in the appellant's case who has helped in managing the routing of cash - para 7.6, page 7 of the assessment order.  General Findings of cash trail arising out from Investigations by the Investigation Wing and orders of SEBI.  Third SIT report on Black Money depicting general modus operandi in money laundering as stated in para 10.1, pages 10 and 11 of the assessment order.  The learned AO relied on the decision in the case of Ratnakar M. Pujari VS ITO (I.T.A, No.995/Mum/2012, Mumbai ITAT) 12. The learned AO concluded at para 9 and 10, pages 8 to 12 of the assessment order and made additions u/s 68 of Rs 27,99,270/- being sale proceeds of the said shares. Observations of the learned CIT(A): 13. The learned CIT(A) confirmed the said additions on the following brief reasoning. 13.1. The learned CIT(A) has relied on the observations made by the learned AO at para 9 and 10 of the assessment order. 13.2. The learned CIT(A) at para 5.2.4, page 36 of his order accepted that the appellant has sufficiently documented the said transaction of purchase and sale. However, the learned CIT(A) held that the said issue needs to be seen from the perspective of human probabilities and relied on the following decisions.

21 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta • Sumati Dayal 214 ITR 801 (SC) - Para 5.2.7, page 37 of the CIT(A) Order. • Shamim Imtiaz Hingora vs ITO (ITA No. 1875/Pune/2018) Para 5.2.8, . pages 37 and 38 of the CIT(A) Order. • 13.3. The learned CIT(A) has relied on the following decision for not allowing cross examination. • Pankaj Agarwal & Sons (HUF) vs ITO (ITA No. 413/Chennai/2018) – Para 5.2.6, page 38 of the CIT(A) order. Appellant's submissions: 14. The appellant relies on the submissions made during the assessment and first appellate proceedings wherein complete details with documentary evidences regarding the said transaction of capital gains was submitted. 15. Copy of the Investigation Report issued by DIT (Inv.) Kolkata relied on by the learned AO and CIT(A) was requested on the basis of which Trinity Tradelink Limited was identified as Penny Stock and the evidences gathered on the basis of which the LTCG derived from them are regarded as Bogus Capital Gains. See pages 41 and 45 of the Paper book. 16. It is submitted that unless the name of the Trinity Trade Link Limited as well as of the appellant is appearing in the investigation report as identified beneficiary, the said report cannot be used against the appellant to allege that he has earned bogus capital gains. 17. The assessment order is passed without providing opportunity for cross- examination of the persons who have alleged/investigated, thereby not following rule of natural justice. 18. As regards reliance placed on statement of Rinam Dealmark Pvt Ltd and Diganta Properties Pvt. Ltd, they have no connection with the appellant and the appellant has fulfilled his onus fully. No opportunity was granted to cross examine these parties. There is violation of principle of natural justice and therefore additions need to be deleted. 19. Further as regards the name of Crescent Digital Technologies being the alleged entry operator in the appellant's case, it is submitted that the appellant is not aware as to how this name is referred and how is that entity connected to the appellant. The learned AO has neither examined him nor he has given any copy of the statement wherein that entity has said that it knows the appellant. The learned AO has merely acted on here say without proving directly any allegation whatsoever. 20. Further as regards reliance placed by the learned AO on the report of SIT, it is submitted that said impugned report does not deal with facts of individual cases. The learned AO relied on the decision in the case of Ratnakar M. Pujari. In that case there is a conclusive and final finding of fact that purchases of shares were bogus and sham as was held by the Revenue in the assessment year 2005-06 which has not been dislodged so far as the appellant accepted the said findings which became conclusive. Thus the facts in the instant case are distinguishable.

22 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta 21. Reliance is placed on FOLLOWING DIRECT DECISIONS wherein the same scrip is involved. Further the same allegations and the decisions relied on by the learned AO and CIT(A) has been discussed in the following direct decisions and then addition u/s 68 has been deleted. • ITO vs M/s Stuti Welfare Trust I.T.A No. 1508/Kol/2017 dated 24.10.2018 • Swati Mall vs ITO I.T.A No. 2423/Kol/2017 dated 07.12.2018 • Sanjay Mehta vs ACIT ITA No.1089/Kol/2018 • DCIT vs Shri Ghanshyam Agarwal ITA No. 532/JP/2019 • Seema Tayal vs ITO (ITA No. 1132 of 2018 Del) 22. Reliance is placed on following other decisions wherein additions relating to bogus capital gains has been deleted. • ITA No. 3801/Mum/2011 Ms. Farrah Marker Vs. Income Tax Officer 19(3)(1) • M/s Indravadan Jain HUF AND ITA No.5168/Mum/2014 AY :2005-2006) • Manish Kumar Baid vs. ACIT, (I.T.A. No1236/Kol/2017 dated 18-08-2017 • CIT v. Shyam R. Pawar [2015] 54 taxmann.com 108 (Bombay) • CIT vs Smt. Sumitra Devi [2014] 49 taxmann.com 37 (Rajasthan) • CIT vs Ms. Arvind Kumar Jain HUF, ITA No. 4862/Mum/2014 dated 18.09.2017 23. Cross examination decisions. Reliance is placed on following decisions:- • Smt. Sunita Dhadda v. DCIT [2013] 33 taxmann.com 639 (Jaipur-Trib) Dept's appeal in above case to Rajasthan High Court and SC were dismissed • Andaman Timber Industries vs CCE [2015] 62 taxmann.com 3 (SC) • CIT vs M/s. Ashish International ITA No. 4299 of 2009 dated 22.02.2011 (Bom HC) • Kamla Devi S. Doshi v. ITO [2017] 88 taxmann.com 773 (Mumbai - Trib.)

23 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta 24. The appellant has proved the genuineness of the transaction and disclosed and made available all relevant information / explanations /documents to prove the worthiness of the transactions of purchase & sale of shares and the same cannot be treated as bogus. with regard to Grounds of appeal no.2 in respect of Addition of Deemed Dividend u/s, 2(22)(e) of Rs. 1,50,00,000/- assessee submitted as under: - Facts : The Inter Corporate Deposit (hereinafter referred to as "ICD") of Rs. 1,50,00,000/- was given by Madhu Mattor Private Limited (hereinafter referred to as "MMPL") [Lender] to Madhu India Décor Limited (hereinafter referred to as "MIDL"). The appellant is a director of MIDL and MMPL holding substantial interest @50.84% and 19.86% respectively. It is a company in which public are not substantially interested. MIDL does not hold any shares/beneficial shareholding in MMPL. [Paras 11.1 and 11.2, Page 7 of 13 page 12 of the assessment order] 26. Share Holding Pattern of the said two companies:- (Page 13 of the assessment order) Sr. No Name of Shareholder MIDL (No. Percentage MMPL Percentage of shares) Holding (No. of Holding shares) 1. Mr. Anand M Gupta 115920 50.84% 5098 19.61% 2. Mrs. Madhu A Gupta 84005 36.84% 20544 79.03% 3. Madhu Finstock Pvt Ltd 20 0.01% 350 1.36% 4. Madhu Mattor Pvt Ltd 28020 12.28% - - 5. Others 35 0.035% - - Total 228,000 100% 25,992 100% 27. The ICD of Rs 1.50 cr is disclosed in the audited financials of both the companies as Related Party Transactions under AS 18 as they are group concerns. 28 During the course of assessment proceedings in the case of the appellant, the appellant had given a detailed submissions vide letter dated 19.12.2016 (enclosed at 46 to 52 pages of the Pb) for non-applicability of the provisions of section 2(22)(e). Similar submissions were also made during the assessment proceedings of MIDL vide letter dated 19.12.2016 29. The learned AO disregarded the submissions of the appellant and made additions u/s 2(22)(e) vide para 11.5, page 14 of the assessment order. 30. Similar additions were also made on protective basis during the assessment of MIDL vide para 5.7, pages 8 & 9 of the assessment order Briefly three reasons are given for the said additions: a) The learned AO has placed reliance on CBDT Circular no. 495 dated 20.09.1987 which provides for taxing the same in the hands of recipient concern and not the shareholder. b) Amount is already deposited in the bank account of MIDL and any subsequent defalcation of funds is extraneous to the application of section 2(22)(e).

24 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta c) MMPL is not into any money lending and borrowing business and has no license from RBI for the same. 31. In the case of the appellant, the learned CIT(A) confirmed the additions at para 5.3.3 to 5.3.5, pages 40 & 41 wherein the learned CIT(A) has referred to the second limb of section 2(22)(e) which requires taxing the same in the hands of the shareholder of recipient concern. The Learned CIT(A) has stated that the appellant did not prove that it is ICD. 32. In the case of MIDL, the said additions are deleted by the learned CIT(A) vide order dated 02.12.2019 vide para 2.5, pages 27 and 28 of the said order. The Department is in further appeal against the relief provided by the learned CIT(A). The ground of appeal of the said Department appeal is reproduced below. "On the facts and circumstances of the case and in law, the Id CIT(A) has erred in deleting the addition of Rs 1.5 crores of deemed dividend u/s 2(22)(e)." 33. Since the issue of additions of deemed dividend are inter-connected in both the appeals le appeal of the appellant and Department appeal of MIDL, therefore submissions for the grounds of both the appeal to the said issue are being made together below. 34. Provisions of section 2(22)(e) are reproduced below. As per section 2(22) (e), "dividend includes - 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;- but "dividend" does not include- (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets (ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalized profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965;

25 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta (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; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off" Non-applicability of section 2(22)(e) in the case of ICD AND business expediency. 35. It is important to understand that the term "loans and advances in section 2(22)(e) does not cover within its ambit "deposit 36. The Hon'ble Supreme Court in the case of Gopal and Sons (HUF) v. CIT [2017] 77 taxmann.com 71/245 Taxman 48/391 ITR 1 noticed the aforesaid feature of Sec. 2(22)(e) of the Act and laid down that it is to be given a strict interpretation. In other words, as per the Hon'ble Supreme Court, since the provision extends the definition of 'dividend' on an artificial basis, strict interpretation is to be given in order to bring any amount into its fold. Thus, what can be safely deduced at the present is that unless a particular sum fulfils all the stated conditions of Sec. 2(22) (e) of the Act, the same cannot be brought to tax as a 'deemed dividend'. 37. It is in this manner that one has to appreciate that the payments sought to be covered in Sec. 2(22)(e) of the Act are only those which fall within the meaning of the expression 38. The distinction between an ICD and a loan has been eloquently brought out by the Hon'ble Jurisdictional High Court in the cases of Prasad Mandelia v. ROC [1987] 61 Comp. Cas. 479 and Pennwalt India Ltd. v. ROC [1987] 62 Comp. Cas, 112 (Bom.) This is referred to in the Case laws paper book - page J248 in the case of Bombay Oil, first para. 39. Following are distinguishing parameters for a deposit from loans/ advances Sr. Factual evidence in the case of Parameters for deposit No. appellant 1. In the case of a deposit, the initiation is at the Extracts from Minutes of Board instance of the depositor, i.e. the giver as Resolution dated 24.12.2013 distinct from the case of a loan where the passed by MMPL is enclosed at transaction is initiated at the instance of the page 86. Here it states that MMPL borrower who is in need of the money. (ie depositor giver) in view of surplus funds proposes to make ICD. ICD Receipt is also issued which is enclosed at page of the paper book. 2. Depositor has surplus funds to park by placing (a) The existence of surplus ICD akin to fixed deposit placed with a bank funds with the depositor, i.e. whereas a loan is a transaction of advancing MMPL is clearly noted in the money to earn higher interest. aforesaid Board Resolution. b) Further the Cash flow statement (enclosed at page 80 of the pb) clearly states that there is surplus funds in the form of 'Cash generated from Operations'

26 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta Sr. Factual evidence in the case of Parameters for deposit No. appellant amounting to Rs 181.24 lakhs which is deployed in placing ICD amounting to Rs 150 lakhs (See para C - 'Cash flow from Financing Activities' in the said cash flow statement. 3. The depositor safeguards the deposit by a) Details of the utilization of ensuring specific use of the said funds which has the said ICD by MIDL is given at commercial expediency as well. page 81 of the paper book. b) It can be seen that it has been utilized to pay outstanding credit balance arising out of purchases made from MMPL by MIDL. (page 82 to 84 of the pb) 40. Copy of tax audit reports of MMPL and MIDL are enclosed herewith at pages 41 & 44 of the pb submitted in the case of MIDL it shows that there are business transactions between MMPL and MIDL in the form of purchases of Rs 2,61,71,447/- by MIDL from MMPL, and sale of Rs 2,28,28,863/- by MIDL to MMPL throughout the year. Thus your Honours will appreciate that said ICD is given in the course of the business of the MMPL and MIDL. Infact the entire proceeds of ICD is also utilized by MIDL to repay outstanding bills on account of purchases made by MIDL from MMPL. The appellant has not used the funds for himself but it is used for business purpose of the company only. On receipt the payment for business purpose is made on the same day. 41. Thus it being ICD and also it is given in the normal course of the business, accordingly provisions of section 2(22)(e) are not attracted. Reliance is placed on the following decisions. • Seamist Properties P. Ltd vs. ITO (95 TTJ 201) (Mumbai ITAT) • Bombay Oil Industries Limited vs DCIT [2009] 28 SOT 383 (Mumbai) • KIIC Investment Company vs DCIT [2019] 101 taxmann.com 19 (Mumbai - Trib) • DCIT vs M/s. Subhkam Monetary Services Pvt Ltd. ITA No. 6018/Mum/2009 dated 30.11.2011 • DCIT vs Nirmala C Thumar ITA No. 5624/Mum/2016 dated 03.10.2018. • DCIT vs M/s Pathik Constructions ITA No. 1498 & 1499/Mum/2012 dated 13.02.2015 • DCIT vs Jateen Madanial Gupta [2021] 126 taxmann.com 20 (Ahmedabad - Trib. [2021] 187 ITD 832 • Saamag Developers (P) Ltd vs ACIT [2018] 98 taxmann.com 467 (Delhi - Trib.)

27 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta • CIT v. Amrik Singh [2015] 56 taxmann.com 460 (Punjab & Haryana) • CIT vs Amrik Singh [2015] 62 taxmann.com 213 (SC) SLP of Department - dismissed. • Ishwar Chand Jindal vs. ACIT [2015] 61 taxmann.com 428 (Delhi- Trib.) • M/s IFB Agroind Ltd. Vs JCIT-ITA no. 114/Kol/2013 Kolkata ITAT 42. Without prejudice to the above and without admitting, it is further submitted that no addition can be made in the hands of MIDL as MIDL is neither registered nor beneficial shareholder. 43. The word 'shareholder is followed by the expression 'being a person who is the beneficial owner of shares'. This expression used in section 2(22)(e) both in the Act, and in the amended provisions with effect from 1-4-1988 only qualifies the word 'shareholder and does not in any way alter the position that the shareholder has to be a registered shareholder. 44. This provision also does not reduce the requirement of being a registered shareholder to a requirement of merely holding a beneficial interest in the shares without being a registered holder of shares. 45. Therefore, it is only where a loan is advanced by the company to the registered shareholder and the other conditions set out in section 2(22)(e) are satisfied, that amount of loan should be liable to be regarded as deemed dividend within the meaning of said section. Accordingly MIDL cannot be subject to tax u/s 2(22)(e) as it is not registered and beneficial shareholder 46. The following conditions are required to be satisfied for application of the above category of payment to be regarded as dividend (a) There must be a payment to a concern by a company (b)A person must be shareholder of the company being a registered holder and 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. This is because of the expression Such Shareholder' found in the relevant provision. This expression only refers to the shareholder referred to in the earlier part of section 2(22)(e), viz., a registered and a beneficial holder of shares holding 10 per cent voting power (c) The very same person referred to in (b) above must also be a member or a partner in the concern holding substantial interest in the concern. 47. As mentioned earlier, the appellant i.e. Shri Anand Gupta does not obtain any benefit arising out of the said ICD being given by MMPL to MIDL as entire amount is used by MIDL to repay trade creditors Accordingly the appellant not being a beneficial shareholder but only a registered shareholder, he cannot also be subject to the provisions of section 2(22)(e). 48. Reliance is placed on the following decisions • CIT v Universal Medicare (P) Ltd (2010) 324 ITR 263 (Bombay)

28 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta • CIT vs Impact Containers (P) Ltd [2014] 48 taxmann.com 294 (Bombay) • ACIT v Britto Amusement (P.) Ltd [2014] 49 taxmann.com 256 (Bombay) • CCIT v Sarva Equity (P.) Ltd [2014] 44 taxmann.com 28 (Karnataka HC) • CIT vs. Ankitech (P.) Ltd [2011] 11 taxmann.com 100 (Delhi HC) • ACIT vs Bhaumik Colour (P) Ltd (2009) 118 ITD 1 (Mum SB) • Neha Builders P Ltd. vs DCIT (2018) 98 Taxmann.com 465 (Mum ITAT) 49. We wish to submit that the decision of the Hon'ble Delhi Court in the case of Ankitech (supra) has inter-alia relied on the decision of Special Bench of Mumbai ITAT in the case of Bhaumik Colour (supra). Later on, the said decision of the Hon'ble Delhi Court in the case of Ankitech (supra) is also approved by the Hon'ble Apex Court in the case of CIT vs Madhur Housing and Development Co Civil Appeal no. 3961 of 2013, dated 05.10.2017-SC. 50. The said Special Bench of Mumbai ITAT in the case of Bhaumik Colour (supra) is followed by the Hon'ble Bombay High Court in the cases mentioned above. Thus impliedly all the above decisions are now approved by the Hon'ble Apex Court in the case of Madhur Housing (supra).”

i. Suman Poddar v. ITO (2019) 112 taxmann.com 330 (SC) ii. Sanjay Bimalchand v. Pr.CIT (20158) 89 Taxmann.com 196 (Bombay) iii. CIT v. Mrs. Manish D. Jain (HUF) (2020) 122 taxmann.com 180 (madras) iv. Sandeep Bhargava v. ACIT (2019) 109 taxmann.com 174 (Delhi-Trib)

29 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta 16. With regard to u/s. 2(22)(e) of the Act, Ld.DR supported the findings of the Ld.CIT(A) and relied on the following case laws:

i. Shri Sahir Sami Khatib v. ITO [2018] 98 taxmann.com 453 (Bombay) ii. ACIT v. Jasubhai Engineering (P.) Ltd., [2020] 118 taxmann.com 430 (Mumbai – Trib.)

30 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta Diganta Properties Pvt. Limited. These entities are based in Kolkata and these are known as exit entry providers. We observe that this scrip and the manner it has behaved in the market clearly indicate that this is peculiar case of penny stock and there is no doubt that in the present case assessee has bought the shares and sold the shares through the operators who are under the scanners of the department as entry and exit operators. Even though there is no direct link was established by the tax authorities, however, the action of the assessee is clearly indicate that he has purchased those shares off-market and offloaded the same in the BSE. This transaction has contained all the ingredients of penny stock and based on the nature of the transactions, Assessing Officer has treated the same as penny stock and made the addition u/s. 69 of the Act. The only issue raised by the assessee before appellate authority is that no cross examination opportunity was granted to the assessee. Since the Assessing Officer has relied heavily on the statement recorded from the exit operators. By considering the overall facts on record and the nature of transaction clearly indicate that this transaction basically falls under the category of penny stock and assessee has not proved basic information why he has invested in the company which does not have any net-worth and no financial activities. Without actually satisfying the onus for such

31 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta investment, merely relying on non-availing of the opportunity for cross examination which is subsequent development, the assessee cannot claim benefit. Therefore, we do not find any reason to disturb the findings of the Ld.CIT(A), accordingly, ground raised by the assessee is dismissed.

“9. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee is a shareholder and carrying voting rights not less than 10% in the company namely JP infrastructure Pvt. Ltd. Similarly the assessee is

32 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta also holding substantial interest in other entities/companies namely Dev Infratrade Pvt. Ltd. and Gujarat mall Management Company Pvt. Ltd. respectively. Accordingly, the AO in the case on hand has treated the amount of Rs. ₹2,62,33,800/- as deemed dividend in the hands of the assessee on the reasoning that the transactions of advancing loan to the companies as discussed above falls within the purview of the provisions of section (2)(22)(e) of the Act which has 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. 9.1 The 1st question before us arises whether it is sine qua non that the assessee, being a registered shareholder has to obtain the benefit out of the loan provided to the companies in which he was holding the substantial interest. 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— XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXX XXXX (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; 9.2 A plain reading of the provisions reveals that the provisions of section 2(22)(e) of the Act will be attracted in a situation where the

33 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta company, in which the assessee was the registered shareholder, advances loans and advances to the other companies in which the assessee was holding the substantial interest and the assessee get some benefit out of such loans and advances. In the case on hand, the learned CIT (A) has given very clear-cut finding that there was no benefit accrued to the assessee out of the loans and advances given by the company namely JP Infrastructure Pvt. Ltd. to the companies as discussed above. It is also pertinent to note that, same contention was also raised by the assessee before the AO during the assessment proceedings as well as before us which was not disputed either by the AO or by the ld. DR. 9.3 We also find that there was another shareholder of JP infrastructure Limited and Gujarat Mall Management Pvt. Ltd. namely Shri Jayesh T Kotak, who was also subject to similar addition for the year under consideration i.e. being dividend under section 2(22)(e) of the Act. But the Hon’ble Gujatrat High Courts in his case reported in 116 taxmann.com 426, has held that to apply the provision of section 2(22)(e) there must be personal benefit arises to the assessee out of such loan and advances. The relevant finding of the Hon’ble Court is reproduced as under: any payment made by a company in which a shareholder has shareholding exceeding 10 per cent of the voting power to any concern in which such shareholder has substantial interest, would be deemed to be dividend in his hands if any benefit from such transaction has been received by such shareholder. The intention of the legislature is to tax funds ultimately received by a shareholder holding more than 10% voting power in the company, which have been routed through different modes/concerns. What needs to be taxed as deemed dividend is the amount ultimately used for the benefit of the shareholder. It is not the case of the Assessing Officer in the reasons recorded for reopening the assessment that the petitioner has received any amount as holder of substantial shares from the loan giver company or the loan receiver company. Therefore, in the absence of any benefit having been received by the petitioner, there was no obligation cast upon him to disclose such transactions.

34 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta Once it is established that there is no benefit accrued to the assessee out of the loan transactions as discussed above, the provisions of section 2 (22)(e) of the Act cannot be attracted. 9.4 Moving further, we also note that the assessee has contended before the AO that the loans has been advanced by the company, JP infrastructure to the parties as discussed above as inter corporate deposits. The relevant submission of the assessee stands as under: Without prejudice to the above submissions, it is further submitted that in the present case, inter corporate deposits (ICD) ICD during the normal course of the business for the business transaction by one company JPIL to group companies (Gujarat Mall Mgt Company Pvt. Ltd. and Aryan Arcade Pvt. Ltd.) and where the assessee is the common shareholder in above specified companies, the same cannot be treated as deemed dividend in the hands of the assessee. 9.5 However, on perusal of the order of the assessment order, we find that the contention of the assessee has not been disputed by the AO. Similarly, the learned CIT (A) has also observed that the company has advanced money to the parties as inter corporate deposits which has not been disputed by the learned DR appeared for the revenue. 9.6 In the absence of any adverse finding from the side of the AO and the favorable finding of the learned CIT (A), it seems that the loans and advances were made as inter corporate deposits in ordinary course of its business which are not subject to the provisions of deemed dividend as provided under section 22(2) of the Act. In view of the above, we do not find any reason to interfere in the finding of the learned CIT (A) and thus we set aside the same with the direction to the AO to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed.”

35 ITA NO.2948/MUM/2019 (A.Y: 2014-15) Estate of Shri Anand M. Gupta cases are distinguishable to the facts in this case. Accordingly, ground raised by the assessee is allowed.

Order pronounced in the open court on 20th March, 2023

Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 20/03/2023 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER

(Asstt. Registrar) ITAT, Mum