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Facts
The assessee, a shareholder and director, received a loan of Rs. 1.40 crore from a closely held company. The Assessing Officer treated this as a deemed dividend under Section 2(22)(e) of the Income Tax Act. Additionally, the assessee claimed expenses of Rs. 16.87 lakhs against consultancy income, which were disallowed.
Held
The Tribunal held that the loan received by the assessee was a deemed dividend under Section 2(22)(e) as it was not a genuine business transaction and the company's loan policy was not applicable to the assessee in his capacity as a shareholder. The disallowance of expenses was upheld due to lack of nexus with consultancy income.
Key Issues
Whether the loan received by a shareholder-director from a closely held company is a deemed dividend. Whether expenses claimed against consultancy income have a nexus with the earning of such income.
Sections Cited
2(22)(e), 143(3), 57
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
ORDER PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against order dated 07.02.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds:
1. The learned CIT (A) has erred both in facts and in law, in upholding the addition of Rs. 1,40,00,000 made under section 2(22)(e) of the Income Tax Act by the Ld. AO. The appellant prays to delete the said addition as the loan was received in the capacity of an the capacity of an employee and not as a director of the employee and not as a director of the company.
2. The Ld. CIT (A) has erred, both in fact and in law, by The Ld. CIT (A) has erred, both in fact and in law, by The Ld. CIT (A) has erred, both in fact and in law, by upholding the disallowance of Rs. upholding the disallowance of Rs. 16,87,356 made by the Ld. 16,87,356 made by the Ld. AO. The appellant prays that the said addition may please be The appellant prays that the said addition may please be The appellant prays that the said addition may please be deleted as the expenses were inc deleted as the expenses were incurred for the purpose of urred for the purpose of earning consultancy earning consultancy income.
2. At the threshold, it is noticed that the appeal has been filed At the threshold, it is noticed that the appeal has been filed At the threshold, it is noticed that the appeal has been filed with a delay of 482 days. The order of the learned CIT(A) was with a delay of 482 days. The order of the learned CIT(A) was with a delay of 482 days. The order of the learned CIT(A) was passed on 07.11.2023, and the appeal ought to have been filed passed on 07.11.2023, and the appeal ought to have been filed passed on 07.11.2023, and the appeal ought to have been filed within 60 days, i.e., on or before 06.01.2024. The appeal has, days, i.e., on or before 06.01.2024. The appeal has, days, i.e., on or before 06.01.2024. The appeal has, however, been filed on 02.05.2025. however, been filed on 02.05.2025.
2.1 Learned counsel for the assessee has placed reliance upon the Learned counsel for the assessee has placed reliance upon the Learned counsel for the assessee has placed reliance upon the application for condonation of delay accompanied by an affidavit. In application for condonation of delay accompanied by an affidavit. In application for condonation of delay accompanied by an affidavit. In the affidavit, it is averred that the affidavit, it is averred that the impugned order of the learned the impugned order of the learned CIT(A) was supplied to the assessee by his earlier consultant, M/s CIT(A) was supplied to the assessee by his earlier consultant, M/s CIT(A) was supplied to the assessee by his earlier consultant, M/s CNK & Associates LLP, only on 24.02.2025 through e-mail. The CNK & Associates LLP, only on 24.02.2025 through e CNK & Associates LLP, only on 24.02.2025 through e assessee, being unacquainted with income assessee, being unacquainted with income-tax procedures, was tax procedures, was unaware that the order was simul unaware that the order was simultaneously available on the taneously available on the Income-tax Portal. It is further stated that no physical copy of the tax Portal. It is further stated that no physical copy of the tax Portal. It is further stated that no physical copy of the order was ever received. On obtaining the said copy, the assessee order was ever received. On obtaining the said copy, the assessee order was ever received. On obtaining the said copy, the assessee engaged a new consultant, M/s CBV & Associates LLP, who advised engaged a new consultant, M/s CBV & Associates LLP, who advised engaged a new consultant, M/s CBV & Associates LLP, who advised him to pursue the statutory re him to pursue the statutory remedy of appeal, whereupon the medy of appeal, whereupon the present appeal was filed without further delay. It is thus urged that present appeal was filed without further delay. It is thus urged that present appeal was filed without further delay. It is thus urged that the delay is neither deliberate nor contumacious, but occasioned the delay is neither deliberate nor contumacious, but occasioned the delay is neither deliberate nor contumacious, but occasioned solely by lack of timely professional guidance. solely by lack of timely professional guidance.
2.2 We have heard rival submissions and car We have heard rival submissions and carefully examined the efully examined the record. The short issue before us is whether the delay of 482 days record. The short issue before us is whether the delay of 482 days record. The short issue before us is whether the delay of 482 days can be condoned as being attributable to ‘sufficient cause’ within can be condoned as being attributable to ‘sufficient cause’ within can be condoned as being attributable to ‘sufficient cause’ within the meaning of section 5 of the Limitation Act, 1963, read with the the meaning of section 5 of the Limitation Act, 1963, read with the the meaning of section 5 of the Limitation Act, 1963, read with the procedural provisions of the Incom procedural provisions of the Income-tax Act.
2.3 It is by now well settled that the expression ‘sufficient cause’ It is by now well settled that the expression ‘sufficient cause’ It is by now well settled that the expression ‘sufficient cause’ must receive a liberal construction to advance the cause of must receive a liberal construction to advance the cause of must receive a liberal construction to advance the cause of substantial justice. In substantial justice. In Collector, Land Acquisition v. Mst. Katiji Collector, Land Acquisition v. Mst. Katiji [(1987) 167 ITR 471 (SC)], the Hon’ble Supreme Court emphasised [(1987) 167 ITR 471 (SC)], the Hon’ble Supreme Co [(1987) 167 ITR 471 (SC)], the Hon’ble Supreme Co that when technical considerations are weighed against substantial that when technical considerations are weighed against substantial that when technical considerations are weighed against substantial justice, the latter must prevail, for the other side cannot claim a justice, the latter must prevail, for the other side cannot claim a justice, the latter must prevail, for the other side cannot claim a vested right in injustice being done on account of a non-deliberate vested right in injustice being done on account of a non vested right in injustice being done on account of a non delay. Likewise, in Improvement Trust, Improvement Trust, Ludhiana v. Ujagar Singh & Ludhiana v. Ujagar Singh & Ors. [(2010) 6 SCC 786], the Supreme Court observed that a [(2010) 6 SCC 786], the Supreme Court observed that a [(2010) 6 SCC 786], the Supreme Court observed that a pedantic approach should not result in meritorious matters being pedantic approach should not result in meritorious matters being pedantic approach should not result in meritorious matters being dismissed at the very threshold. dismissed at the very threshold.
2.4 In the present case, the explanation advanced by the assessee In the present case, the explanation advanced by the assessee In the present case, the explanation advanced by the assessee is consistent and supported by affidavit. The assessee, admittedly a nsistent and supported by affidavit. The assessee, admittedly a nsistent and supported by affidavit. The assessee, admittedly a lay person in tax matters, was not aware of electronic dissemination lay person in tax matters, was not aware of electronic dissemination lay person in tax matters, was not aware of electronic dissemination of appellate orders, and became cognizant of the order only when it of appellate orders, and became cognizant of the order only when it of appellate orders, and became cognizant of the order only when it was forwarded to him by his earlier consultant on 24.02.2025. was forwarded to him by his earlier consultant on 24.02 was forwarded to him by his earlier consultant on 24.02 Thereafter, he acted with due expedition by engaging another Thereafter, he acted with due expedition by engaging another Thereafter, he acted with due expedition by engaging another professional and filing the appeal. The conduct does not disclose professional and filing the appeal. The conduct does not disclose professional and filing the appeal. The conduct does not disclose any mala fide intent, deliberate negligence, or want of bona fides. any mala fide intent, deliberate negligence, or want of bona fides. any mala fide intent, deliberate negligence, or want of bona fides.
Further, the Revenue has not placed on record any material to Further, the Revenue has not placed on record any mate Further, the Revenue has not placed on record any mate controvert the explanation so tendered. controvert the explanation so tendered.
2.5 Having regard to the settled principles and bearing in mind Having regard to the settled principles and bearing in mind Having regard to the settled principles and bearing in mind that refusal to condone delay would result in denial of an that refusal to condone delay would result in denial of an that refusal to condone delay would result in denial of an adjudication on merits, we are persuaded to hold that the assessee adjudication on merits, we are persuaded to hold that the assessee adjudication on merits, we are persuaded to hold that the assessee has demonstrated sufficient cause for the delay of 482 days. The ufficient cause for the delay of 482 days. The ufficient cause for the delay of 482 days. The delay is, therefore, condoned. We accordingly proceed to consider delay is, therefore, condoned. We accordingly proceed to cons delay is, therefore, condoned. We accordingly proceed to cons the appeal on merits. the appeal on merits.
4. Briefly stated, the facts are that the assessee filed his return of Briefly stated, the facts are that the assessee filed his return of Briefly stated, the facts are that the assessee filed his return of income for the year under consideration on 28.08.2015 declaring a income for the year under consideration on 28.08.2 income for the year under consideration on 28.08.2 total income of Rs.20,26,090/ total income of Rs.20,26,090/-. The return was selected for scrutiny . The return was selected for scrutiny and notices under the Income and notices under the Income-tax Act, 1961 (‘the Act’) were duly tax Act, 1961 (‘the Act’) were duly issued and complied with. In the assessment completed u/s 143(3) issued and complied with. In the assessment completed u/s 143(3) issued and complied with. In the assessment completed u/s 143(3) of the Act on 30.12.2017, the Assessing O of the Act on 30.12.2017, the Assessing Officer made two additions: fficer made two additions: (i) treating loan of Rs.1,40,00,000/ (i) treating loan of Rs.1,40,00,000/- received from M/s Taurrus received from M/s Taurrus Finsec Pvt. Ltd. as deemed dividend u/s 2(22)(e) of the Act; and (ii) Finsec Pvt. Ltd. as deemed dividend u/s 2(22)(e) of the Act; and (ii) Finsec Pvt. Ltd. as deemed dividend u/s 2(22)(e) of the Act; and (ii) disallowance of expenses of Rs.16,87,356/ disallowance of expenses of Rs.16,87,356/- against consultancy against consultancy income of Rs.26,05,000/ income of Rs.26,05,000/-. On appeal, the learned CIT(A) upheld eal, the learned CIT(A) upheld both the additions/disallowance. Aggrieved, the assessee is in the additions/disallowance. Aggrieved, the assessee is in the additions/disallowance. Aggrieved, the assessee is in appeal before the Tribunal by way of raising grounds as reproduced appeal before the Tribunal by way of raising grounds as reproduced appeal before the Tribunal by way of raising grounds as reproduced above.
5. Before us, the Ld. Counsel for the assessee filed a Paper Book Before us, the Ld. Counsel for the assessee filed a Paper Book Before us, the Ld. Counsel for the assessee filed a Paper Book containing pages 1 to 92. containing pages 1 to 92.
The ground No. 1 of the appeal of the assessee relates to The ground No. 1 of the appeal of the assessee relates to The ground No. 1 of the appeal of the assessee relates to addition of Rs.1,40,000/ addition of Rs.1,40,000/- for deemed dividend u/s 2(22)(e) of the for deemed dividend u/s 2(22)(e) of the Act in the hands of the assessee. The b Act in the hands of the assessee. The brief facts qua the issue in rief facts qua the issue in dispute are that the assessee is a shareholder holding 36.07% dispute are that the assessee is a shareholder holding 36.07% dispute are that the assessee is a shareholder holding 36.07% shares in M/s Taurrus Finsec Pvt. Ltd. The assessee was also shares in M/s Taurrus Finsec Pvt. Ltd. The assessee was also shares in M/s Taurrus Finsec Pvt. Ltd. The assessee was also holding the position of the Director in said company during the year holding the position of the Director in said company during the year holding the position of the Director in said company during the year under consideration. T . The assessee purchased a new residential property having his share at Rs.3.8 crores. The assessee . The assessee received loans from difference sources including loan from scheduled banks from difference sources including loan from scheduled banks from difference sources including loan from scheduled banks amounting to Rs.1,75,00,000/ amounting to Rs.1,75,00,000/- and loan from Taurrus Finsec Pvt. and loan from Taurrus Finsec Pvt. Ltd. amounting to Rs.1,40,00,000/ Ltd. amounting to Rs.1,40,00,000/-. The Assessing Office observed . The Assessing Office observed that assessee being registered as well as beneficial shareholder of that assessee being registered as well as beneficial shareholder of that assessee being registered as well as beneficial shareholder of more than 10% shares of the closely held company, the loan of more than 10% shares of the closely held company more than 10% shares of the closely held company Rs.1,40,00,000/- received from said closely held company namely received from said closely held company namely received from said closely held company namely M/s Taurrus Finsec Pvt. Ltd. w M/s Taurrus Finsec Pvt. Ltd. was liable to be treated as deemed as liable to be treated as deemed dividend in terms of section 2(22)(e) of the Act in terms of section 2(22)(e) of the Act in the hands of the in the hands of the assessee, subject to upper limit of subject to upper limit of accumulated accumulated profit of the company. The assessee contended that the loan was sanctioned The assessee contended that the loan was sanctioned The assessee contended that the loan was sanctioned under the company’s ‘loan poli under the company’s ‘loan policy’ as an employee benefit, and cy’ as an employee benefit, and hence was received in the capacity of an employee and not of a hence was received in the capacity of an employee and not of a hence was received in the capacity of an employee and not of a shareholder. The said contention of the assessee was however The said contention of the assessee was however The said contention of the assessee was however rejected by the Assessing Officer and he treated the said amount of rejected by the Assessing Officer and he treated the said amount of rejected by the Assessing Officer and he treated the said amount of the loan/advance as deemed divid the loan/advance as deemed dividend in the hands of the assessee. end in the hands of the assessee. Before the Ld. CIT(A) the assessee reiterated the submissions, but Before the Ld. CIT(A) the assessee reiterated the submissions Before the Ld. CIT(A) the assessee reiterated the submissions the learned CIT(A) likewise found no merit in the plea and upheld the learned CIT(A) likewise found no merit in the plea and upheld the learned CIT(A) likewise found no merit in the plea and upheld the addition.
We have heard the rival submissions and perused the record. We have heard the rival submissions and perused the record. We have heard the rival submissions and perused the record. Before us, the assessee placed reliance on unsigned copies of he assessee placed reliance on unsigned copies of he assessee placed reliance on unsigned copies of submissions purportedly filed before the CIT(A), as well as on an submissions purportedly filed before the CIT(A), as well as on an submissions purportedly filed before the CIT(A), as well as on an unsigned ‘loan policy’ (PB 55 unsigned ‘loan policy’ (PB 55–57). The assessee failed to produce 57). The assessee failed to produce acknowledgements of filing or minutes of board/general meetings acknowledgements of filing or minutes of board/general meetings acknowledgements of filing or minutes of board/general meetings approving such a scheme, as required under the Companies Act, such a scheme, as required under the Companies Act, such a scheme, as required under the Companies Act, 2013. In the said submission In the said submissions, the assessee has claimed that , the assessee has claimed that company had floated floated a loan policy for its employees. This policy is loan policy for its employees. This policy is also unsigned. The relevant copy of the also unsigned. The relevant copy of the loan policy available on policy available on Paper Book page 55 to 57 is rep page 55 to 57 is reproduced as under:
Loan Policy
A. Purpose: The purpose of this policy is to lay down standards and terms and The purpose of this policy is to lay down standards and terms and The purpose of this policy is to lay down standards and terms and conditions for disbursement of loans to the eligible staff of Taurus Group. conditions for disbursement of loans to the eligible staff of Taurus Group. conditions for disbursement of loans to the eligible staff of Taurus Group. B. Eligibility:
1. 1. All employees, irrespective of g 1. All employees, irrespective of grades are eligible for availing this rades are eligible for availing this facility from company. facility from company. The employees should have completed minimum five years of un- The employees should have completed minimum five years of un The employees should have completed minimum five years of un interrupted service.
3. An employee who has already availed this facility cannot avail for 3. An employee who has already availed this facility cannot avail for 3. An employee who has already availed this facility cannot avail for another loan, during the tenure of his another loan, during the tenure of his existing loan and further before the existing loan and further before the lapse of three months from lapse of three months from 4. This is a welfare activity and hence loan cannot be demanded as a 4. This is a welfare activity and hence loan cannot be demanded as a 4. This is a welfare activity and hence loan cannot be demanded as a matter of right.
If a loan application is rejected, the employee can again apply for the 5. If a loan application is rejected, the employee can again apply for the 5. If a loan application is rejected, the employee can again apply for the loan only after completion of loan only after completion of a period of three months from the date of a period of three months from the date of rejection of his earlier application. rejection of his earlier application. While recommending the loan, the Head of the Departments should While recommending the loan, the Head of the Departments should While recommending the loan, the Head of the Departments should ensure that sufficient safeguards have been provided for the recovery of ensure that sufficient safeguards have been provided for the recovery of ensure that sufficient safeguards have been provided for the recovery of the money from the employee and/or his the money from the employee and/or his sureties. C. Types of Loans: There are two types of loans that the company may grant to its There are two types of loans that the company may grant to its There are two types of loans that the company may grant to its employees:
1.
1. Interest free loan: (Short term loans/ advances) (Employees who have 1. Interest free loan: (Short term loans/ advances) (Employees who have 1. Interest free loan: (Short term loans/ advances) (Employees who have completed less than 05 years of service are also eligible) completed less than 05 years of service are also eligible) a. Such type of loans a. Such type of loans will be in the form of advance against salary ie one will be in the form of advance against salary ie one month salary to be recovered in that month salary itself. month salary to be recovered in that month salary itself. b. Short term loans upto an amount equal to six months' salary can be b. Short term loans upto an amount equal to six months' salary can be b. Short term loans upto an amount equal to six months' salary can be availed, provided the repayment is made in a period of 12 months. availed, provided the repayment is made in a period of 12 months. availed, provided the repayment is made in a period of 12 months.
2. Loan with interest: (Long term loans and advances). ith interest: (Long term loans and advances). a. Such type of loans will basically be given for buying a house property a. Such type of loans will basically be given for buying a house property a. Such type of loans will basically be given for buying a house property in the name of the employee. in the name of the employee. b. Loan to be repaid within a period of maximum twenty years. b. Loan to be repaid within a period of maximum twenty years. b. Loan to be repaid within a period of maximum twenty years. c. The total loan amount cannot exceed ten ti c. The total loan amount cannot exceed ten times of the CTC (Cost to mes of the CTC (Cost to company) of the period, in which the application is made/sanctioned (to company) of the period, in which the application is made/sanctioned (to company) of the period, in which the application is made/sanctioned (to be decided by Management Management). D. Monetary Limits: D. Monetary Limits: The loan amount in any case should not exceed ten times of the CTC (of The loan amount in any case should not exceed ten times of the CTC (of The loan amount in any case should not exceed ten times of the CTC (of the running financial year) of the employe the running financial year) of the employee. However the total sanction limit of all outstanding loans at any point of However the total sanction limit of all outstanding loans at any point of However the total sanction limit of all outstanding loans at any point of time should not exceed 15% of the Group's Networth as on March 31, time should not exceed 15% of the Group's Networth as on March 31, time should not exceed 15% of the Group's Networth as on March 31, 2014. If the number of applications exceed the prescribed limit, loans will be If the number of applications exceed the prescribed limit, loans will be If the number of applications exceed the prescribed limit, loans will be sanctioned after taking into cons sanctioned after taking into consideration the need and urgency of the ideration the need and urgency of the person. E. Rate of Interest: E. Rate of Interest:
The interest bearing loans will be given at a minimum rate of 10 year The interest bearing loans will be given at a minimum rate of 10 year The interest bearing loans will be given at a minimum rate of 10 year Gsec bond yield as on April 02, 2014 ie 8.96% plus 50 basis point per Gsec bond yield as on April 02, 2014 ie 8.96% plus 50 basis point per Gsec bond yield as on April 02, 2014 ie 8.96% plus 50 basis point per annum on monthly reducing balance basis, to be re annum on monthly reducing balance basis, to be recovered in monthly covered in monthly instalments as per the loan repayment schedule provided to the employee instalments as per the loan repayment schedule provided to the employee instalments as per the loan repayment schedule provided to the employee at the time of disbursement of the loan. The 10 year Gsec rate to be taken at the time of disbursement of the loan. The 10 year Gsec rate to be taken at the time of disbursement of the loan. The 10 year Gsec rate to be taken as on April 01, every year. as on April 01, every year. For high value loans ie above 50 lacs, only interest is to be recovered in For high value loans ie above 50 lacs, only interest is to be For high value loans ie above 50 lacs, only interest is to be the year the loan is disbursed and the immediate following year. The the year the loan is disbursed and the immediate following year. The the year the loan is disbursed and the immediate following year. The principal repayment to begin from the next following financial year principal repayment to begin from the next following financial year principal repayment to begin from the next following financial year Note: Please note that in case of any type of loan, the perquisite value of Note: Please note that in case of any type of loan, the perquisite value of Note: Please note that in case of any type of loan, the perquisite value of the loan will be calculated on the loan will be calculated on the basis of the rate declared by SBI every the basis of the rate declared by SBI every year and TDS on salary will be deducted accordingly. year and TDS on salary will be deducted accordingly. F. Repayment and Recovery of Loan: F. Repayment and Recovery of Loan:
1. 1. The EMI (Equated monthly instalment) will deducted from the salary on 1. The EMI (Equated monthly instalment) will deducted from the salary on 1. The EMI (Equated monthly instalment) will deducted from the salary on monthly basis.
2. The HR should ensure that the to 2. The HR should ensure that the total liability of the individual towards tal liability of the individual towards his EMI doesn't exceed 50% of his monthly salary. his EMI doesn't exceed 50% of his monthly salary.
3. Principal repayment in excess of the EMI can be made by the 3. Principal repayment in excess of the EMI can be made by the 3. Principal repayment in excess of the EMI can be made by the individual at any point of time during the year but not exceeding two individual at any point of time during the year but not exceeding two individual at any point of time during the year but not exceeding two times. The mode of repayment will times. The mode of repayment will only be in cheque or a Demand Draft. only be in cheque or a Demand Draft.
4. If the office assistants avail the benefit of encashing their leaves to the 4. If the office assistants avail the benefit of encashing their leaves to the 4. If the office assistants avail the benefit of encashing their leaves to the credit of their account, it would be first adjusted against their outstanding credit of their account, it would be first adjusted against their outstanding credit of their account, it would be first adjusted against their outstanding loans.
5. In case the employee resigns or ceases to be in 5. In case the employee resigns or ceases to be in service of the company service of the company due to any reason, he/she will have to liquidate the outstanding amount due to any reason, he/she will have to liquidate the outstanding amount due to any reason, he/she will have to liquidate the outstanding amount of the loan against his name before full and final settlement of his/her of the loan against his name before full and final settlement of his/her of the loan against his name before full and final settlement of his/her dues.
6. The company will have the right to adjust the loan amount against 6. The company will have the right to adjust the loan amount against 6. The company will have the right to adjust the loan amount against gratuity or any other dues payable to the employee. ny other dues payable to the employee. G. Procedure for Applying: G. Procedure for Applying: 1. An employee has to apply in the format as given in Annexure I below.
1. An employee has to apply in the format as given in Annexure I below.
1. An employee has to apply in the format as given in Annexure I below.
2. The applicant has to provide names of two employees who will act as 2. The applicant has to provide names of two employees who will act as 2. The applicant has to provide names of two employees who will act as sureties for him (The sureties should not have sureties for him (The sureties should not have any loan outstanding in any loan outstanding in their name as on the date of application their name as on the date of application of the loan).
The application after getting approved from the HOD has to be given to 3. The application after getting approved from the HOD has to be given to 3. The application after getting approved from the HOD has to be given to the HR department which will present it to the Board for final approval. the HR department which will present it to the Board for final approval. the HR department which will present it to the Board for final approval.
The loan will be disbursed 4. The loan will be disbursed only after sanction from the Board and the only after sanction from the Board and the procedural time taken will be minimum 15 working days. procedural time taken will be minimum 15 working days. H. Other terms:
1.
The loans already sanctioned till the effective date of this policy, will 1. The loans already sanctioned till the effective date of this policy, will 1. The loans already sanctioned till the effective date of this policy, will continue on the same terms and conditions as sanctioned at the time of continue on the same terms and conditions as sanctioned at the ti continue on the same terms and conditions as sanctioned at the ti their disbursement. However, the recovery standards of this policy would their disbursement. However, the recovery standards of this policy would their disbursement. However, the recovery standards of this policy would apply.
2. Foreclosure of the loans will not attract 2. Foreclosure of the loans will not attract any charges.” 7.1 The assessee has not filed any minutes of meeting of The assessee has not filed any minutes of meeting of The assessee has not filed any minutes of meeting of General body required under the provisions of the Comp body required under the provisions of the Company Law Act, 2013 any Law Act, 2013, which reads as under: which reads as under:
(2) A company may advance any loan including any loan represented by a (2) A company may advance any loan including any loan represented by a (2) A company may advance any loan including any loan represented by a book debt, or give any guarantee or provide any security in connection book debt, or give any guarantee or provide any security in connection book debt, or give any guarantee or provide any security in connection with any loan taken by any person in whom any of the director of the with any loan taken by any person in whom any of the director of the with any loan taken by any person in whom any of the director of the company is interested, subject to the condition that company is interested, subject to the condition that— (a) a special resolution is passed by the company in general meeting: a special resolution is passed by the company in general meeting: a special resolution is passed by the company in general meeting: Provided that the explanatory statement to the notice for the that the explanatory statement to the notice for the relevant general meeting shall disclose the full particulars of the relevant general meeting shall disclose the full particulars of the relevant general meeting shall disclose the full particulars of the loans given, or guarantee given or security provided and the loans given, or guarantee given or security provided and the loans given, or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to purpose for which the loan or guarantee or security is proposed to purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security and lised by the recipient of the loan or guarantee or security and lised by the recipient of the loan or guarantee or security and any other relevant fact; and any other relevant fact; and (b) the loans are utilised by the borrowing company for its principal the loans are utilised by the borrowing company for its principal the loans are utilised by the borrowing company for its principal business activities. business activities. Explanation.—For the purposes of this sub For the purposes of this sub-section, the expression section, the expression "any person in whom any of the director of the company is interested" means— person in whom any of the director of the company is interested" means person in whom any of the director of the company is interested" means (a) any private company of which any such director is a director or any private company of which any such director is a director or any private company of which any such director is a director or member; (b) any body corporate at a general meeting of which not less than any body corporate at a general meeting of which not less than any body corporate at a general meeting of which not less than twenty-five per cent of the five per cent of the total voting power may be exercised or total voting power may be exercised or controlled by any such director, or by two or more such directors, controlled by any such director, or by two or more such directors, controlled by any such director, or by two or more such directors, together; or together; or (c) any body corporate, the Board of directors, managing director or any body corporate, the Board of directors, managing director or any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the manager, whereof is accustomed to act in accordance with the manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, directions or instructions of the Board, or of any director or directors, directions or instructions of the Board, or of any director or directors, of the lending company. of the lending company. 7.2 Even otherwise, the policy mandates five years’ service for Even otherwise, the policy mandates five years’ service for Even otherwise, the policy mandates five years’ service for eligibility. The assessee, appointed Managing Director only on eligibility. The assessee, appointed Managing Director only on eligibility. The assessee, appointed Managing Director only on 01.01.2015, had not completed 01.01.2015, had not completed the prescribed tenure. Thus, the prescribed tenure. Thus, reliance on the so-called policy is misplaced. called policy is misplaced.
7.3 The assessee further relied on The assessee further relied on Pradip Kumar Malhotra v. CIT Pradip Kumar Malhotra v. CIT [338 ITR 538 (Cal)], where the Hon’ble High Court held that [338 ITR 538 (Cal)], where the Hon’ble High Court held that [338 ITR 538 (Cal)], where the Hon’ble High Court held that advances made in consideration of a benefit to the company do not advances made in consideration of a benefit to the comp advances made in consideration of a benefit to the comp fall within s.2(22)(e). However, in the present case, the assessee has fall within s.2(22)(e). However, in the present case, the assessee has fall within s.2(22)(e). However, in the present case, the assessee has failed to demonstrate any corresponding benefit to the company. failed to demonstrate any corresponding benefit to the company. failed to demonstrate any corresponding benefit to the company. His services as Director were already compensated through salary, His services as Director were already compensated through salary, His services as Director were already compensated through salary, perquisites, and commission, details of whic perquisites, and commission, details of which are on record. h are on record.
7.4 Reliance on CIT v. Jayant H. Modi CIT v. Jayant H. Modi [232 Taxmann 737 (Bom)] [232 Taxmann 737 (Bom)] and the coordinate bench ruling in and the coordinate bench ruling in Ramesh Kumar Pabbi in Kumar Pabbi in 6168/Mum/2017 6168/Mum/2017 for for for assessment assessment assessment year year year 2013-14 2013 2013 is also misconceived. Those authorities applied where lending of money misconceived. Those authorities applied where lending of mone misconceived. Those authorities applied where lending of mone was a substantial part of business, or the transaction was in the was a substantial part of business, or the transaction was in the was a substantial part of business, or the transaction was in the ordinary course of business. Here, no material has been adduced to ordinary course of business. Here, no material has been adduced to ordinary course of business. Here, no material has been adduced to show that money lending constituted a substantial part of the show that money lending constituted a substantial part of the show that money lending constituted a substantial part of the business of Taurrus Finsec Pvt. Ltd. Rather, the scheme appears to business of Taurrus Finsec Pvt. Ltd. Rather, the scheme app business of Taurrus Finsec Pvt. Ltd. Rather, the scheme app have been crafted and implemented for the benefit of the assessee have been crafted and implemented for the benefit of the assessee have been crafted and implemented for the benefit of the assessee himself, who was the first and principal beneficiary. In the instant himself, who was the first and principal beneficiary. himself, who was the first and principal beneficiary. case also this is not a normal business transaction. The Ld. case also this is not a normal business transaction. The Ld. case also this is not a normal business transaction. The Ld. Counsel for the assessee submitted that the company had granted Counsel for the assessee submitted that the company Counsel for the assessee submitted that the company loan to one more employee other than the assessee and therefore loan to one more employee other than the assessee and therefore loan to one more employee other than the assessee and therefore this was a loan in the normal course of the business of the assessee this was a loan in the normal course of the business of the assessee this was a loan in the normal course of the business of the assessee for maintaining employee relationship. We do not subscribes to for maintaining employee relationship. We do not subscribes for maintaining employee relationship. We do not subscribes these arguments of the Ld. Counsel for the asse these arguments of the Ld. Counsel for the assessee. In our opinion, ssee. In our opinion, this scheme has been floated by the assessee. He was the Managing this scheme has been floated by the assessee. He was the Managing this scheme has been floated by the assessee. He was the Managing Director of the assessee company for facilitating loans to himself, Director of the assessee company for facilitating loans to himself, Director of the assessee company for facilitating loans to himself, this was not a policy which was in existence for earlier years and this was not a policy which was in existence for earlier years and this was not a policy which was in existence for earlier years and the assessee is the first benefic the assessee is the first beneficiary of such policy. The assessee has iary of such policy. The assessee has taken undue advantage of his position of managing director and taken undue advantage of his position of managing director and taken undue advantage of his position of managing director and sanctioned loan to himself. loan to himself. The assessee being shareholder of more ssessee being shareholder of more than 10% satisfy all the conditions laid down u/s 2(22)(e) of the Act. than 10% satisfy all the conditions laid down u/s 2(22)(e) of the Act. than 10% satisfy all the conditions laid down u/s 2(22)(e) of the Act. The exception to definition of definition of said deemed dividend said deemed dividend provides that any advance or loan by a company in ordinary course of its any advance or loan by a company in ordinary course of its any advance or loan by a company in ordinary course of its business where lending business where lending of money is substantial part of business of money is substantial part of business of the company. But in the case of assessee has failed to substantiate the company. But in the case of assessee has failed to substantiate the company. But in the case of assessee has failed to substantiate whether the lending of the money is substantial part of business of whether the lending of the money is substantial part of business of whether the lending of the money is substantial part of business of the company and therefore, said exception does not apply to the the company and therefore, said exception does not apply to the the company and therefore, said exception does not apply to the assessee.
7.5 The CBDT Circular No. 19/2017 dated 12.06.2017 clarifies he CBDT Circular No. 19/2017 dated 12.06.2017 clarifies he CBDT Circular No. 19/2017 dated 12.06.2017 clarifies that genuine trade advances in the ordinary course of commercial that genuine trade advances in the ordinary course of commercial that genuine trade advances in the ordinary course of commercial transactions would fall outside the ambit of s.2(22)(e). The present transactions would fall outside the ambit of s.2(22)(e). The present transactions would fall outside the ambit of s.2(22)(e). The present loan cannot be so characterised; it was neither in the ordinary loan cannot be so characterised; it was neither in the ordinary loan cannot be so characterised; it was neither in the ordinary course of business nor a trade advance. On the contrary, it reflects ourse of business nor a trade advance. On the contrary, it reflects ourse of business nor a trade advance. On the contrary, it reflects a misuse of authority by the Managing Director to secure funds for a misuse of authority by the Managing Director to secure funds for a misuse of authority by the Managing Director to secure funds for personal benefit.Thus Thus, this loans squarely falls into definition of this loans squarely falls into definition of deemed dividend u/s 2(22)(e) of the Act. The ground No. 1 of the deemed dividend u/s 2(22)(e) of the Act. The ground N deemed dividend u/s 2(22)(e) of the Act. The ground N appeal of the assessee is accordingly dismissed. appeal of the assessee is accordingly dismissed.
Ground No. 2 pertains to the disallowance of Rs.16,87,357/ Ground No. 2 pertains to the disallowance of Rs.16,87,357/ Ground No. 2 pertains to the disallowance of Rs.16,87,357/- claimed by the assessee as expenditure against consultancy fee claimed by the assessee as expenditure against consultancy fee claimed by the assessee as expenditure against consultancy fee declared under the head ‘Income from Other Sources’. The assessee declared under the head ‘Income from Other Sources’. The assessee declared under the head ‘Income from Other Sources’. The assessee had disclosed consultancy receipts aggregating to Rs.26,05,000/ d disclosed consultancy receipts aggregating to Rs.26,05,000/- d disclosed consultancy receipts aggregating to Rs.26,05,000/ from three concerns of the Taurrus Group as under: from three concerns of the Taurrus Group as under: from three concerns of the Taurrus Group as under:
Sr. No. Name of the concern Amount Amount
1. M/s. Taurrus Finsec. P. Ltd. M/s. Taurrus Finsec. P. Ltd. 5,05,000 5,05,000
M/s. Taurrus Corps P. Ltd. M/s. Taurrus Corps P. Ltd. 9,00,000 9,00,000
3. M/s. Taurus Treasury Management Services M/s. Taurus Treasury Management Services 12,00,000 12,00,000 P/Ltd.
Total 26,05,000 26,05,000 8.1 The assessee submitted that he was well familiar with the The assessee submitted that he was well familiar with the The assessee submitted that he was well familiar with the functioning of debt market debt market and therefore, he provided advis and therefore, he provided advisory services for trading in debt services for trading in debt market to those enterprises from which market to those enterprises from which he received consultancy services.The assessee claimed claimed he received consultancy services.The assessee claimed he received consultancy services.The assessee claimed deduction of various expenses, including interest on loan, petrol, deduction of various expenses, including interest on loan, petrol, deduction of various expenses, including interest on loan, petrol, electricity, society maintenance, telephone and bank charges electricity, society maintenance, telephone and bank charges electricity, society maintenance, telephone and bank charges against above consultancy against above consultancy income as under:
Sr.No. Particulars Amount Rs.
1. Electricity expenses Electricity expenses 56,450 2. Petrol Expenses Petrol Expenses 2,58,053 3. Interest on loan taken for business Interest on loan taken for business 12,64,043 4. Society Maintenance Society Maintenance 85,488 5. Telephone Expenses Telephone Expenses 11,800 6. Bank Charges 11,522 Total Rs. 16,87,356 8.2 The Assessing Officer, on examination, found that the The Assessing Officer, on examination, found that the The Assessing Officer, on examination, found that the assessee had failed to establish any nexus between the expenditure assessee had failed to establish any nexus between the expenditure assessee had failed to establish any nexus between the expenditure claimed and the earning of the consultancy income. In particular, claimed and the earning of the consultancy income. In particular, claimed and the earning of the consultancy income. In particular, the interest expenditure of Rs.12,64,043/ the interest expenditure of Rs.12,64,043/- was held to was held to be unconnected with the advisory services rendered, while the other unconnected with the advisory services rendered, while the other unconnected with the advisory services rendered, while the other expenses such as petrol, electricity, and society maintenance were expenses such as petrol, electricity, and society maintenance were expenses such as petrol, electricity, and society maintenance were also not shown to have proximate connection with the earning of also not shown to have proximate connection with the earning of also not shown to have proximate connection with the earning of consultancy receipts, which were in any case sourced from consultancy receipts, which were in any case sourced fro consultancy receipts, which were in any case sourced fro associated entities. The Ld. CIT(A) affirmed the disallowance on the associated entities. The Ld. CIT(A) affirmed the disallowance on the associated entities. The Ld. CIT(A) affirmed the disallowance on the same reasoning.
8.3 Before us also, the assessee has not placed any cogent Before us also, the assessee has not placed any cogent Before us also, the assessee has not placed any cogent evidence to demonstrate that the impugned expenditure was evidence to demonstrate that the impugned expenditure was evidence to demonstrate that the impugned expenditure was incurred wholly and exclusively for the purpose of earning incurred wholly and exclusively for the purpose of e incurred wholly and exclusively for the purpose of e consultancy income. In the absence of such nexus, deduction under consultancy income. In the absence of such nexus, deduction under consultancy income. In the absence of such nexus, deduction under section 57 of the Act cannot be allowed. section 57 of the Act cannot be allowed.
8.4 Accordingly, we find no infirmity in the orders of the lower we find no infirmity in the orders of the lower we find no infirmity in the orders of the lower authorities and uphold the uphold the same. The ground No. 2 No. 2 of appeal of assessee is accordingly dismissed. cordingly dismissed.
In the result, the appeal of the assessee is dismissed. In the result, the appeal of the assessee is dismissed. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on 28 nounced in the open Court on 28/08/2025. /08/2025.