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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
ITA No. 1359/Mum/2021 (A.Y: 2015-16) Shreerang Prakash Vs. ITO – 1(3)(2) Chikhalikar,501, 5th Floor, Aayakar Sugan, Cumballa Hill Bhavan, M.K.Road, Road, Grant Road, Mumbai – 400020. Mumbai – 400036. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : ACDPC3706G Appellant .. Respondent Appellant by : Shri.DM Shah.AR Respondent by : Shri.Anoop Hiwase.DR Date of Hearing 29.06.2022 Date of Pronouncement 05.07.2022 आदेश / O R D E R PER PAVAN KUMAR GADALE JM: The assessee has filed the appeal against the order of the CIT(A)- National faceless Appeal Centre (NFAC), Delhi passed u/s 143(3) and 250 of the Act. The revenue has raised the following grounds of appeal:
On the facts and in the circumstances of the case, and in law the learned CIT(A) erred in confirming the addition made u/s.2(22)(e) of the IT Act of Rs.70,41,658/- as deemed dividend being bad in law and contrary to the facts and evidence on record the appellant prays that, the addition of Rs.70,41,658/- be deleted.
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On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the submissions made and failed to appreciate that the provision of Section 2(22)(e) are not attracted.
3 On the facts and in the circumstances of the case, the learned CIT(A) erred in not considering the detail submissions made supported by accounts and hence the addition be deleted.
On the facts and in the circumstances of the case, the learned CIT(A) erred in not appreciating the fact that, the company owed money to the appellant and the provision of Section 2(22)(e) is not applicable
On the facts and in the circumstances of the case, the learned CIT(A) failed to appreciate that, accumulated profit as per the explanation 2 to Section 22 do not include the share premium account and the reserve pertaining to the assets.
Without Prejudice, the addition u/s.2(22)(e) be restricted to the percentage of share holding of the appellant in the company which is 18.44%. The appellant prays that, necessary direction in this regard may be given.
7 The appellant craves leave to add amend or alter any or all the grounds of appeal.
The brief facts of the case are that the assessee is an individual and derives income from salary, income from house property & income from other sources. The assessee has filed the return of income for the A.Y 2015-16 on 27.08.2015 disclosing a total loss of Rs. 2,00,000/- and the return of income was processed u/s 143(1) of the Act. Subsequently the
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case was selected for limited scrutiny under the CASS to examine the issues (i) Deductions from income from other sources /large deduction claimed u/s 57(ii) interest income mismatch / gross interest shown in schedule OS of ITR is less than the interest reported in 26AS. Subsequently, the Assessing officer (A.O) has issued notice u/s 143(2) and 142(1) of the Act along with questionnaire. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. The limited scrutiny was converted into complete scrutiny to verify the possibility of escapement of income due to huge credits found in the assessee bank accounts.
The A.O. based on the information and details submitted found that the assessee has disclosed loss under income from other sources Rs.(-)24,84,109/ .Whereas, the assessee has received interest income of Rs. 5,93,841/- from different parties and against the interest income, the assessee has claimed deduction of Rs. 30,77,950/- on account of interest paid to various parties. The assessee was asked to explain the details in respect of claims and the reply
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was referred at Para 6.2 of the order. The A.O. has dealt on the facts and the findings in the scrutunity assesseement of A.Y.2014-15 were the excess interest claimed was disallowed. The A.O. find the facts of current year are similar and identical to earlier year and made the disallowance of interest to the extent of Rs.24,84,109/-.
The second disputed issue is in respect of deemed dividend u/s 2(22)(e) of the Act, the A.O found that the assessee has maintained three bank accounts and explained the sources of credits and debits in the bank accounts with the supporting ledger accounts. The assessee has submitted the details of the loans received and repaid during the year in respect 17 concerns referred at page 5 Para 7.2 of the A.O order. Further the A.O. Observed that the assessee has disclosed the substantial interest in one of the group concern M/s Shreerang Mercantile (India) Pvt Ltd. The assessee has advanced the money to this company and vice versa. The assessee’s share holding is 18.44% and the total reserves and surplus of the company as on 31.03.2015 is Rs.70,41,658/-.The A.O. has issued the show cause notice for invoking
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the provisions of deemed dividend U/sec2(22)(e) of the Act.. The assessee has filed the explanations referred at Page 7 Para 7.5 of the order read as under:
7.5 In view of the above and considering provisions of section 2(22)(e) of the I.T. Act, in the show cause letter dated 14/12/2017, the assessee was requested to show cause as to why the loan amount to the extent of accumulated profits i.e. Reserves & Surplus as appearing in the Balance Sheet of M/S. Shreerang Mercantile (India) Pvt. Ltd. of Rs.70,41,658/- should not be added to his total income as deemed dividend u/s.2(22) (e) of the I.T. Act for A.Y.2015-16. In response to same, the assessee, vide letter dated 19/12/2017 stated, as follows :
"In course of the assessment proceedings, I have given to you the complete details of my advances given to the company and amount received back from the company on day to day basis. I have got current account loan and advances with the company and I have charge interest of Rs.5,04,985/-, which is offer to tax, which interest is worked out on the basis of reducing balance and days basis.
The provisions of Section 2(22)(e) is not applicable as I have got a current loan account and it is covered by proviso Il and it does not fall within the meaning of dividend.
Further, Without Prejudice, the share premium of Rs.13,75,000/- is also included which is not accumulated profit as per the law. Hence, it should not be considered. Similarly, reserves pertaining to the assets of Rs.10,86,496/- should not be considered and it is not accumulated profit.
In view of the above facts, there is no deem dividend as the transaction are in normal course of business of loans, advances bearing interest. Therefore, I submit that , no such admission be made.
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The A.O. was not satisfied with the explanations and has dealt on the provisions of Sec. 2(22)(e) of the Act and the facts relating to share holding and the loan transactions of the assessee and the company based on the ledger accounts and bank statements. The A.O. is of the opinion that the assessee is hit by the provisions of Sec.2(22)(e) of the Act and made an addition of Rs.70,41,658/- and assessed the total income of Rs.91,26,660/- and passed the order u/s 143(3) of the Act dated 22.12.2017.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) has considered the grounds of appeal, submissions of the assessee and the findings of the A.O and has confirmed the action of the A.O. and dismissed the assessee appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Honble Tribunal.
At time of hearing, the Ld. AR submitted that the CIT(A) erred in confirming the addition of deemed dividend irrespective of the facts that the assessee has obtained the loans from others and provided the
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short terms loans bearing interest to the company and offered the interest for taxation. Further the loan was vice versa transaction between the assessee and the company in the ordinary course of business and having current loan account carried forwarded from the earlier years and similar transactions in the subsequent years and the provisions of Sec. 2(22)(e) of the Act shall not be applicable. The Ld.AR substantiated the submissions with the paper book, judicial decisions and the Audited Annual Report of the company and prayed for allowing the appeal. Contra, the Ld. DR supported the order of the CIT(A) and relied on the judicial decisions.
We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue as envisaged by the Ld. AR that the CIT(A) has erred in confirming the deemed dividend u/s 2(2)(e) of the Act. The contentions of the Ld.AR that the assessee has advanced the money on interest to the company and there is a running current account between the company and the assessee. Whereas the assessee has obtained the loans from the outside parties and out of the said loan amount, the assessee
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has provided advances/loan to the company and the Ld.AR has demonstrated the Ledger account copy from the books of the company at page 4 to 6 of the paper book. The Ld.AR has referred to the facts of payment of interest and loans provided and repaid from the ledger accounts which cannot be disputed. Further the Audited Annual Report of M/s Shreerang Mercantile (India) Pvt Ltd for the financial year 2014- 15 was placed on record to substantiate the loan transactions disclosure in the Balance sheet. The Ld. AR also filed the ledger account reflecting the transactions between the assessee and the M/s Shreerang Mercantile Ind Pvt Ltd for the F.Y 2012-13, F.Y 2013-14 and subsequent F.Y.2015-2016 at page 1 to 3 and 7 to 9 of the paper book and emphatically submitted that that regular transactions are incorporated in the earlier years and subsequent years in the ordinary course of business. The alternative plea of the Ld.AR that the company’s Reserves and Surplus as on 31-03-2015 is Rs. 70,41,658/- which includes the share premium and reserves pertaining to the Assets are to be excluded for the purpose accumulated profit dealt under
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Sec2(22)(e) of the Act and should be restricted to the share holding percentage. We on perusal of the ledger account statements found that the assessee has been providing the loans and maintain the current account to facilitate the financial needs. The Ld.DR submitted that any excess in the course of the loan transactions and if any debit balance occurred, the assessee is hit by provisions of Sec. 2(22)(e) of the Act. 9. We find that the assessee is in a regular business transactions with the company in the earlier and subsequent years and substantiated with the ledger accounts and the transactions are in the knowledge of the revenue, which cannot be disputed. The Ld.AR demonstrated the assessment order passed under section 143(3) of the Act dated 13-10-2016 for A.Y 2013-14 where the transactions of claim of interest paid was set off against the interest receipt on loan from the company dealt at page 2 Para 4 & 5 of the order and was restricted to the extent of interest income and was accepted. When a query was raised to the Ld.AR, whether in the subsequently assessment year the similar claim was made by the assessee. The
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Ld. AR submitted that the interest claim was made ever year in the return of income and was processed u/s 143(1) of the Act. We on perusal of the notes to accounts & significant accounting policies of the Company find that at note 1 (F) disclosure required as per Accounting Standard -18 of ICAI on “Related Party Disclosure” the assessee is part of Key Management Personal, receives salary of Rs24 lakhs as Director of the Company, Interest on loan Rs.5.04,985/-, and the Company has taken Loan of Rs8,14,04,487/- and the company has repaid loan of Rs 8,70,61,698/-. The Tax Audit Report FORM NO 3CA u/sec44AB of the Act at S.no.31&32 column confirms the loan transactions. Prima facie, considering the evidences and disclosures in the financial statements, the assessee in wholly involved with the business operations of the company in the capacity as a director and drawing the salary. The assessee is making Loan transactions with the company in regular/ ordinary course of business, therefore the provisions of Sec. 2(22)(e) of the Act cannot be applied. The Assessing officer has overlooked the factual aspects of regular business transactions and the Audited financial statements.
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We do not find merits in the sustainment of the addition by the CIT(A). Accordingly, we set aside the order of the CIT(A) and direct the Assessing officer to delete the addition and allow grounds of appeal in favour of the assessee.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 05.07.2022.
Sd/- Sd/- (AMARJIT SINGH) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated 05.07.2022
KRK, PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / The CIT(A) 4. आयकर आयु�त(अपील) / Concerned CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, Mumbai / DR, ITAT, Mumbai 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// 1. ( Asst. Registrar) ITAT, Mumbai