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Income Tax Appellate Tribunal, RANCHI BENCH, RANCHI
Before: Shri S. S. Godara, J.M. & Dr.A.L.Saini, A.M.)
IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH, RANCHI (Before Shri S. S. Godara, J.M. & Dr.A.L.Saini, A.M.)
ITA No. 156/Ran/17 : Asstt. Year : 2014-15
D.C.I.T, Cir-1(1), JSR Vs Shri Anil Roy PAN: ADCPR5511N (APPELLANT) (RESPONDENT)
Department by : Shri P.K.Mondal, JCIT, ld.Sr.DR Assessee by : Shri Partha Sarathi Paul, CA, ld.AR
Date of Hearing : 09-01-2019 Date of Pronouncement: 05 -04-2019
ORDER PER BENCH: The captioned appeal filed by the revenue, pertaining to assessment year 2014-15,is directed against the order passed by the Commissioner of Income-tax (Appeals), Jamshedpur Appeal No. 140/JSR/2016-17, dated 27-04-2017, which in turn arises out of an assessment orders dated 28-12-2016, passed by the Assessing Officer u/s. 143(3) of the Income-Tax Act, 1961 (in short, the Act). 2. The grievances raised by the revenue are as follows:- 1. Under the facts and in the circumstances of the case, whether the ld. CIT(A) is justified in allowing relief to the assesse to the extent of Rs.93,58,100/- which was added back to its total income by the Assessing Officer under section 2(22) (e) of the IT Act, 1961, on the ground that the assesse has taken loan/advance from its own Company M/s. Omini Auto Limited, being Director. 2. Under the facts and circumstances of the case, whether the ld. Page1 CIT(A) is justified in treating/considering the advance received by the assesse from its Company as TRADE ADVANCE.” 1 ITA No. 156/Ran/2017 Shri Anil Roy
The brief facts qua the issue are that the AO noted that the assesse had received an advance amounting to Rs. 93,58,100/- from M/s. Omni Auto Limited. The AO treated the same as “ deemed dividend” u/s. 2(22)( e) of the Act. During the assessment proceedings the assesse submitted an explanation before the AO, but the AO rejecting the same held as follows:- “ 3.8 The concept of Deemed Dividend treats specified set of payments made by closely held companies by way of loans or advances to shareholders of the company or to the concerns/companies in which shareholders have substantial interest. Any payment is made by way of loan or advance, the recipient of the loan or advance will be liable to be taxed on the received amount as dividend, to the extent which the company has accumulated profits, under the deeming provisions of section 2(22)( e) even though such loan or advance may have been given for genuine business need and even if the receiving company may have repaid the loan amount. Thus the section deems certain payments as dividend income which is not income under normal course of business. Therefore, the name is Deemed Dividend. The concept of deeming certain payments or loans or advances to substantial shareholders as income was introduced with the object of curbing tax evasion and monitoring the payments. Many company which have surplus of funds and do not wish to pay the dividend distribution tax as per section 115O, but at the same time want to distribute the profits with the shareholders make arrangement like this. These amounts of loans or advances are sought to be taxed as dividend by section 2(22) (e) of the Act by way of a deeming provision. 3.9 After carefully reading the provisions of the above section, the assesse fulfills all the criteria laid down for the loans/advances to be considered as Deemed Dividend under the meaning of Section 2(22)( e) of the Income Tax Act- a) Shri Anil Roy is holding more than ten percent in M/S Omni Auto Limited from whom he has received Rs. 93,58,100/- as advance in the Page2 FY 2013-14 relevant to the AY 2014-15.
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b) M/S Omni Auto Limited is a company in which public is not substantially interested. c) This case also does not come under any of the exceptions laid down above. d) M/S Omini Auto Limited has an accumulated profit of Rs.1,16,51,500/- as on 31.03.2013 as per its Balance Sheet, which is much above the advance amount of Rs. 93,58,100/- given to its beneficiary shareholder. 4. Therefore, in this case, Advance amount being lower than the accumulated Profit, the lower of the two is added to the total income of the assesse.
Aggrieved by the stand so taken by the AO, the assessee carried his matter in appeal before the ld. CIT(A), who has deleted the impugned addition by observing as under:- ´4.3 I have gone through the order of the learned AO as well as the written submission made by the appellant. The assesse in his submission before the AO relied on the decision of the Hon’ble Delhi High Court in the case of CIT vs. Creative Dyeing & Painting Pvt. Ltd (2009) 318 ITR 476(Delhi) against which revenues special leave petition (SLP) in Civil No. 18197 of 2010 was dismissed. In this case it is held that payment made by the company for sale consideration as part performance of agreement cannot be said deemed dividend within the meaning of section 2(22)( e) of the IT Act, 1961. The assesse also relied on similar decision of Bombay High Court in the case of CIT vs. Nagindas M Kaparia ( 1999) 177 ITR 393 (Bombay). In the case of CIT vs. Pradip Kumar Malhotra, the Hon’ble Kolkata High Court held that ‘ we are of the opinion that the phrase “by way of advance or loan” appearing in sub-section ( e) must be construed to mean those advance or loans which a shareholder enjoys for simply on account of 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 profit’ holding not less than 10% of the voting power but if such loan or advance is given to such share-holder in such case, such advance or loan cannot be said to be a deemed dividend within the meaning of Act. Page3 3 ITA No. 156/Ran/2017 Shri Anil Roy
The word ‘ advance’ which appears in the company of the word ‘ loan’ in section 2(22)( e ) can only mean such advance which carriage with it an obligation to re-payment, trade advance, which is in the nature of money transacted to give effect a commercial transaction would not fall within the mischief of section 2(22)( e ). The Hon’ble Delhi High Court in the case of CIT vs. Sunil Chopra (2011) 201 Taxman 316 has held that loan/advance received by assesse share holder from certain companies in which/were not substantially interested against sale of a property which was not handed over even after 5 years of execution of a agreement for Sale and said property continued to be reflected in balance sheet of assesse was to be treated as deemed dividend u/s.2(22)(e ). In appellant case, the sale agreement has been entered into on 28.01.2012 only i.e one year two month before the commencement of previous year only. Hence, it cannot be said that the property is in continuous possession of vendors for a long period of time i.e even after 5 years of time which is yet to elapsed. Hence trade advance are not covered u/s. 2(22) ( e ). i.e deemed dividend in the hands of the assesse. In this case payment for the said property has been made in subsequent year also. In view of the above, I do not find addition made is proper and addition on account of deemed dividend amounting to Rs. 93,58,100/- made by the AO is hereby deleted.”
Aggrieved by such order of the ld. CIT(A), the Revenue is in appeal before us.
Shri P.K. Monal, JCIT, ld. Sr.DR has primarily reiterated his stand as taken by the AO. Whereas Shri Partha Sharathi Paul, CA, ld.AR of the assesse has defended the order of the ld. CIT(A).
We have given careful consideration to the rival submissions and perused the Page4 material available on record. We note that trade advances are not covered u/s. 2(22)( e) of the Act. Therefore, ld. CIT(A) has passed a reasoned order, which does not 4 ITA No. 156/Ran/2017 Shri Anil Roy
require any interference. Hence, we approve the order of ld. CIT(A), and therefore grounds of appeal raised by Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed Order Pronounced in the Open Court on 05-04-2019
Sd/- Sd/- (S. S. Godara) (Dr. A.L.Saini) Judicial Member Accountant Member Dated: 05 -04-2019
*PRADIP (Sr.PS) Copy of the order forwarded to: 1. The Appellant/Revenue : D.C.I.T, Cir-1(1), JSR 2 The Respondent/Assessee; Shri Anil Roy 3. The CIT-, 4. The CIT(A)-, 5. DR, Ranchi Benches, Ranchi True Copy, By order, Senior P.S ITAT, Ranchi Benches
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