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Income Tax Appellate Tribunal, DELHI BENCH “E” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI O.P. KANT
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E” NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER
I.T.A. No.812/DEL/2018 Assessment Year: 2015-2016
ACIT, vs. Neena Kandhari, Central Circle-15, B-1643, Pocket-I, Vasant Kunj, New Delhi. New Delhi. TAN/PAN: AEKPK5577N (Appellant) (Respondent)
Appellant by: Ms. Rinku Singh, Sr.D.R. Respondent by: Shri V.K. Agarwal, A.R. and Ms. Sweta Bansal, CA Date of hearing: 04 03 2021 Date of pronouncement: 20 04 2021
O R D E R PER AMIT SHUKLA, JM:
The aforesaid appeal has been filed by the Revenue against the impugned order dated 03.11.2017, passed by Ld. Commissioner of Income Tax (Appeals)-XXVI, New Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2015-16. In various grounds of appeal, the Revenue has challenged the deletion of addition of Rs.1,97,99,254/- made u/s. 2(22)(e) by treating it to be business advance in the hands of the assessee.
The facts in brief are that the Assessing Officer on the perusal of the balance sheet and ledger account of the company, M/s. Enrich Agro Foods Products Pvt. Ltd. noted
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that the company has given regular advance/loans to major shareholders, wherein the assessee’s husband (Shri Varinder Pal Singh Khandari) was having 32.29%; and assessee (Neena Khandari) was having 18.95% shareholding in M/s. Enrich Agro Foods Products Pvt. Ltd. In response to show cause notice, the assessee submitted that it was a business advance for the purpose of acquisition of property and a detail reply was submitted which has been incorporated in the assessment order from pages 3 to 5. Ld. Assessing Officer has treated the loans and advances given to the assessee for sums aggregating to Rs.1,97,99,254/- as deemed dividend u/s.2(22)(e).
Ld. CIT (A) after detailed discussion and on perusal of the material placed on record has deleted the said addition after observing and holding as under: “The AO mentioned on page 5 of the asstt. order that M/s Enrich Agro Food Products Pvt. Ltd. had given the money to the appellant for purchase of property. Under the circumstances, I agree with the arguments of the Ld. AR that there is no question of the amount being unexplained. Further, the Ld. AO has also not given any reasoned finding to establish that the impugned amount is unexplained. The Ld. AO has made the addition u/s 2(22)(e) on the ground that advance for property is covered u/s 2(22)(e). He has rejected the submissions of the assessee on the ground that no such explanation was ever offered by the assessee during the course of search and survey proceedings. The Ld. AO should have
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considered the explanation given during the course of assessment proceedings instead of outright rejecting the same. M/s Enrich Agro Food Products Pvt. Ltd is maintaining three ledger accounts in the name of the assessee as under: i. Loan Account which has an opening credit balance of Rs. 1,05,10,980/- and closing balance at Rs. 1,33,00,746/-. There is credit balance through out the year which means that it is the assessee who has given money to the company. It is the company which has derived the benefit because of the transactions in this account and not the assessee.
ii. Advance for property account which was initiated on 23/04/2014. It has a closing debit balance of Rs. 3,31,00,000/- iii. Salary account which has nil opening as well as closing balance. The appellant has filed consolidated ledger account by amalgamating the above three accounts. It is noticed that the consolidated ledger account has 56 entries throughout the year. The Ld. AR argued that this indicates that it is a running / current account and not an account for loans or advance where entries are just a few. It will be seen that during the whole year, the balances were fluctuating between credit and debit. In fact, the credit balance of the appellant in the books of the company continues right from 01/04/2014 to 07/10/214 which indicates that credit balance was for more than six month as compared to debit balance. Therefore, it is the company also which benefited by the money given to it by the appellant. Even in the earlier
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years the appellant had been advancing money to the company. He relied on the following case laws to emphasis that section 2(22)(e) is not applicable to running/current account. • Shri Satish Kumar Gupta vs. ACIT, TS-631-ITAT-2016 (Del) • CIT (TDS) SCHUTZ DISHMAN BIO-TECH Pvt. Ltd., 2016- TIOL-09-HC- AHM • M/s THE HOOGHLY MILLS CO LTD vs. DCIT, 2016- TIOL-1472-ITAT- KOL • ITO vs. GAYATRI CHAKRABORTY, 2015-TIOL-2115- ITAT-KOL I have gone through all of the above case laws. It has been clearly held that the transactions in the nature of loans and advances are usually very few in number whereas in the current account, there will be comparatively many more entries. It was also held that looking to large number of entries in the accounts between two entities, the amounts were not in the nature of loan or deposit and hence section 2(22)(e) is not to be invoked? It was further held that section 2(22)(e) of the Act covers only such situations, where the shareholder alone benefits from the loan but if the company benefits from the said transaction, it will take the character of a commercial transaction and hence will not qualify to be dividend. It has also been emphasized that the loan account is different from a current account and the provisions of Sec. 2(22)(e) will not be applicable to the current account. Therefore, these case laws are squarely applicable to the case of the appellant. Therefore, no addition can be made under section 2(22)(e).
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Further, it is observed that the company had decided to invest in a residential property at Gurgaon. It is evident from the board resolution passed on 12/03/2014 by M/s Enrich Agro Food Products Pvt. Ltd. that consent of the board was accorded for making payment upto Rs. 5 crore to Smt. Neena Kandhari for the specific purpose of purchase of residential property in Gurgaon, Haryana for the purpose of company’s business. Balance amount was to be invested by the appellant through her own sources. The property was to be used for the residence of the directors. It was explained that under the given circumstances and availability of the funds, the investment was not feasible without taking housing loan which was the only economical option. Under the RBI guidelines, housing loan can be granted only to the individual and not to the company. Therefore, It was decided to buy property in the individual name of the Directors on behalf of the company which can be used as rent free accommodation by them. I have seen that the builder has been requested vide letter dt. 04/02.2015 to register the property in the joint name of the Director and the company, if possible. Even the housing loan was sanctioned by the HDFC bank with the company as co- "borrower. Under the circumstances, amount was given for acquiring the property on behalf of the company and not for the personal use of the directors. Therefore, section 2(22)(e) cannot be invoked. The Ld. AR has placed reliance on the following case laws:- Green Valley Housing and Land Development Pvt. Ltd. vs ACIT, 2015-TIOL- 1144-ITAT-DEL ITO vs. ABP Entertainment Pvt. Ltd., 2016-TIOL-311-ITAT- KOL
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It has been clearly held in the cases cited above that advance given by the company for purchase of land cannot amount to deemed dividend. It was further held that sec 2(22)(e) cannot be invoked in the case of business advance. In the case of the appellant also, the advance was given for purchase of property for the company’s business as laid down in the board resolution. Therefore, in the case of the appellant, also it is a business advance. Therefore, on this ground also, no addition can be made under section 2(22)(e). The addition on its count is directed to be deleted.”
Before us, ld. DR relying upon the order of the Assessing Officer submitted that here the money has been given as an advance to the shareholder having more than 10% of shareholding in the same company for the purpose of purchase of property which was in the name of the assessee, and therefore, deeming provision of Section 2(22)(e) is clearly applicable.
Before us, ld. counsel for the assessee submitted that on the perusal of the ledger account of the assessee with the company, namely, M/s. Enrich Agro Foods Products Pvt. Ltd., it is seen that it is a current account and not a loan/advance which is evident from page 63 of the paper book, wherein there was opening credit balance amounting to Rs.1,05,10,980/-, which clearly shows that it is an assessee who has given money to the company and not the company has given the money to the assessee. There are more than 56
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entries in the ledger account which clearly indicates that it is a running/current account and not an account for loans or advances where entries are just a few. For a large period, there was a credit balance as compared to the debit balance, and therefore, it was the company which is benefitted more. In support, he relied upon the following case laws. Shri Satish Kumar Gupta vs. ACIT, TS-631-ITAT-2016 (Del) "Conclusion Delhi ITAT allows assessee’s appeal AY 2006-07, deletes addition made u/s 2(22)(e) towards deemed dividend; Observes that for the applicability of Sec. 2(22)(e), apart from other conditions, the amount received by the shareholder should be in the nature of loan or advance; On perusal of company’s account in assessee's books notes that it was a "running account” with regular receipt / payment of money between the assessee and the company; " CIT (TDS) VsSchutzDishman Bio-Tech Pvt. Ltd., 2016-TIOL-09- HC-AHM "++ it is seen that the CIT(A) as a matter of fact found that the payments were not in the nature of current adjustment. There was movement of fund both ways on need basis. The transactions in the nature of loans and advances are usually very few in number whereas in the present case, such transactions are in the form of current accommodation adjustment entries. The CIT(A) therefore, held that the transactions were not in the nature of loans and advances. The Revenue carried the matter in appeal. The Tribunal concurred with the view of the CIT(A) and held that the amounts were not in the nature of Inter Corporate Deposits
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and were therefore, not to be treated as loans or advances as contemplated u/s 2(22)(e). The issue is substantially one of appreciation of facts. When the CIT(A) as well as Tribunal concurrently held that looking to large number of adjustment entries in the accounts between two entities, the amounts were not in the nature of loan or deposit, but merely adjustments, application of section 2(22)(e) would notarise." M/s The Hooghly Mills Co Ltd vs. DC1T, 2016-TIOL-1472- ITAT-KOL “++ Both the parties are beneficiary of the transaction being current account of the above transactions. So as per the legal proposition decided by jurisdictional High Court, it is clear that section 2(22)(e) of the Act was inserted to bring within the purview of taxation those amounts which are actually a distribution of profits but are disbursed as a loan so that tax thereon can be avoided. It is pertinent to note here that when dividends are declared by a company, it is solely the shareholders who benefit from the transaction. No benefits accrue to the company by way of dividend distribution. Thus, section 2(22)(e) of the Act covers only such situations, where the shareholder alone benefits from the loan. In the instant case the company benefits from the said transaction, it will take the character of a commercial transaction and hence will not qualify to be dividend. Now it can be said that sec. 2(22)(e) of the Act covers only those transactions which benefit the shareholder alone and results in no benefit to the company. On the other hand, if the transaction is mutual bv which both sides are benefited, it is undoubtedly outside the purview of provisions of sec. 2(22)(e) of the Act. From the above, it is clear that the loan account differs from current account and the
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provisions of section 2(22)(e) of the Act, being a deeming section, cannot be applied to current account. In such circumstances, the order of the CIT u/s 263 of the Act is not sustainable in law;" ITO vs. GayatriChakraborty, 2015-TIOL-2115-ITAT-KOL "++ neither the Assessee owes BAPL nor BAPL owes Assessee any sum. The Assessee was beneficiary of the sums given by BAPL at some point of time during the previous year and BAPL was the beneficiary of the sums given by the Assessee at another point of time during the previous year. It was therefore a case of mutual running or current account which created independent obligations on the other. There were reciprocal demands between the parties and the account was mutual. The transactions in question does not benefit the shareholder i.e., the Assessee alone. The loan account is different from a current account with a shareholder and the transactions between the Assessee and BAPL are in the nature of current account and provisions of Sec 2(22)(e) will not be applicable to the case of the Assessee."
Without prejudice to the above, he further submitted that the Ld. AO has mentioned that M/s Enrich Agro Food Products Pvt. Ltd. has given loan of Rs. 1,97,99,254/- to the assessee. The assessee is holding 14.57% of shares in the company. It was explained to the Ld. AO that the company had decided to invest in a residential property at Gurgaon. Even the builder has been requested to register the property in the joint name of the Director and the company and not in the single name of the assessee; because part payment was made by the company and remaining amount was paid by the assessee through housing loan. Under the circumstances, amount was given for acquiring the property on behalf of the company and not for the ownership of the directors.
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Hence, it is a commercial transfer. Therefore, section 2(22)(e) cannot be invoked.
Ld. Counsel further drew our attention to board resolution passed on 12/03/2014 by M/s Enrich Agro Food Products Pvt. Ltd. for making payment up to Rs. 5 crore to Smt. Neena Kandhari for the specific purpose of purchase of residential property in Gurgaon, Haryana for the purpose of company's business. Balance amount was to be invested by the appellant through her own sources as well as housing loan. The property was Jointly purchased by Mrs. Neena Kandhari and M/s Enrich Agro Food products Pvt. Ltd. However, inadvertently the allotment letter was issued in the name of Mrs. Neena Kandhari only. Thereafter, letters were written to the vendor/Builder for adding the name of the company along with the name of the assessee. It was also requested that the registration of the property should also be done in the joint name.
Thus, the amount was given to the assessee by the company for business purposes, because it was the duty of the company to provide residential accommodation to the Directors, if the Board so approves. It was purely a commercial transaction. Any amount given to a shareholder for business purposes does not attract section 2(22)(e). Reliance was placed on the following case laws: - Green Valley Housing and Land Development Pvt. Ltd. vs ACIT, 2015- TI0L-1144-ITAT-DEL "22. Now the department is in appeal. After considering the submissions of both the parties and the material available on the record, it appears that the assessee had shown the impugned amount in its balance sheet as current liability which was received as an advance against the purchase of suitable land. The AO although invoked the provisions of
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Section 2(22)(e) of the Act but could not bring any material on record to substantiate that the amount in question was a loan or deposit and not the advance received from associates concern M/s Countrywide Promoters Pvt. Ltd.. We, therefore, by keeping in view the ratio laid down by the Hon’ble Jurisdictional High Court in the aforesaid referred to case of CIT Vs. Ankitek Pvt. Ltd. (supra), do not see any valid ground to interfere with the findings of the Id. CIT(A). In that view of the matter, we do not see any merit in this ground of the departmental appeal." ITO vs. ABP Entertainment Pvt. Ltd., 2016-TIOL-311-ITAT-KOL "++ The advance has been given by one Group Company to another so that company is able to carry out and pursue its business activities with another party. This has not been doubted by the AO. It therefore, implies that this was a genuine business advance and not a ploy to pass on the profits of M/s. ABP Pvt. Ltd as an advance and not as dividend in order to save payment of tax on dividend distribution. In view of the above, we find no infirmity in the impugned order of the CIT (A) in deleting the addition made by the AO u/s 2(22)(e);" 8. We have heard the rival submissions and also perused the relevant finding given in the impugned orders as well as the material referred to before us at the time of hearing. The Assessing Officer has taxed amount received from M/s. Enrich Agro Foods Products Pvt. Ltd. amounting to Rs.1,97,99,254/- as unexplained deemed dividend u/s 2(22)(e). The company as noted by the ld. CIT(A) has maintained three ledger accounts in the name of the assessee, wherein loan Account which had an opening credit balance of Rs. 1,05,10,980/- and closing balance at Rs. 1,33,00,746/-. Ld. CIT(A) further noted that, there was credit balance throughout the year which means that it is the assessee who
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has given money to the company. It is the company which has derived the benefit because of the transactions in this account and not the assessee. However, when advance for property account was given on 23/04/2014, there was a closing debit balance of Rs. 3,31,00,000/- and salary account which has opening as well as closing balance at nil.
Though the consolidated ledger account shows 56 entries which ld. CIT (A) has held to be running/current account and not an account for loan and advances, but that itself will not absolve the assessee from attracting the deeming provision, albeit each and every advance needs to be explained. We do not agree with the contention that looking to large number of entries in the account between company and shareholder, then it should not be treated in the nature of loan and advances as stipulated u/s.2(22)(e).
However, if the investment in the residential property at Gurgaon for which Board resolution was passed on 12.03.2014 was for and on behalf of the company then only any such advance will not be treated in the nature of deemed dividend u/s.2(22)(e). The Board of Directors have passed a resolution for making payment up to Rs.5 crore to Smt. Neena Kandari for the specific purpose of purchase of residential property, solely for the purpose of Company’s business or asset and even if the balance amount was invested by the assessee through her own sources, then also it does not lead to inference that property is of the assessee only. The property
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was meant to be used for the residence of the Directors provided by the company. To justify the name of assessee in the said property, the contention of the assessee has been that, under the RBI guidelines, housing loan can be granted only to the individual and not to the company, and therefore, instead of buying the property in company’s name, it was decided to buy the property in the individual name of the Directors on behalf of the company. In support of this contention, it has been shown before us that the Builder of the flat where the assessee company intended to purchase the flat had written a letter dated 04.02.2015 to register the property in the joint name of the company as well as the Directors. Even the housing loan sanctioned by the HDFC Bank shows the company as a co-borrower. Thus, as culled out from the records placed, the property was jointly purchased by the assessee and M/s. Enrich Agro Foods Products Pvt. Ltd.
Now before us it has brought to our notice that, later on, the builder vide letter dated 26.11.2019 has made the allotment of the flat in the name of M/s. Enrich Agro Foods Products Pvt. Ltd., Thru. Mr. Taran Pal Singh Kandari (Director). However, this letter has been filed before us for the first time and therefore the veracity of the said letter needs to be examined by the Assessing Officer. Looking to the facts and circumstances and new evidence brought on record, we think it proper to set-aside the matter to the Assessing Officer for limited purpose, keeping in mind that:-
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The provision of deemed dividend u/s. 2(22)(e) can be invoked only when any loan and advance has been given to the shareholder which is not for the purpose of the business of the company or otherwise for the company itself, but as advance solely to the shareholders which is in the nature of loan. If the advance has been given for the purchase of property which is ultimately being allotted or belongs to the company and only name of the shareholder has been put on record, then ostensibly it is in the nature of advance for the purpose of company’s business or for the purpose of company and in such a case it cannot be taxed as deemed dividend u/s.2(22)(e) in the hands of shareholder. Now that, later on the entire allotment has been made in the name of the company, M/s. Enrich Agro Foods Products Pvt. Ltd. through another Director, Shri Taran Pal Singh Kandari and property is no longer allotted to the assessee, and if that may be the case, then under no circumstances deeming provision of Section 2(22)(e) cannot be attracted. 12. Accordingly, we are remanding this issue to the file of the Assessing Officer only for the purpose of examining, firstly whether the company had given the advance to the assessee for the purpose of acquisition of an asset/ property to be used for the purpose of company and; secondly, in whose name property has been finally registered. The Assessing Officer
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shall provide sufficient opportunity to the assessee to establish and substantiated the aforesaid facts. With this observation, the appeal of the Revenue is treated as partly allowed for statistical purposes. 13. In the result, the appeal of the Revenue is partly allowed for statistical purposes. Order pronounced in the Open Court on 20th April, 2021
Sd/- Sd/- [O.P. KANT] [AMIT SHUKLA] [ACCOUNTANT MEMBER] JUDICIAL MEMBER DATED: 20/04/2021 PKK: