THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(2), SURAT vs. SAI JYOTI FASHIONS PVT. LTD., SURAT

आदेश /ORDER PER O. P. MEENA, AM 1. This appeal at the instance of the Revenue is directed against an order of learned Commissioner of Income tax (Appeals)-II, Surat [in short CIT(A)] dated 17.12.2016 for the Assessment Year 2008-09. 2. Ground no. 1 to 3 states that Ld. CIT (A) has erred in deleting addition of Rs. 1,07,00,923 made on account of deemed dividend u/s. 2(22)(e) of the Act without appreciating the fact that the recipient assessee company was not shareholder of M/s. Sai Jyoti

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Dyeing & Printing Mills Ltd. However, a shareholder of lender company Shri Anil Yadav was having more than 10% of voting rights in the assessee company in the period relevant to assessment year 2008-09. Therefore, the lender company M/s. Sai Jyoti Dyeing & Printing Mills Ltd. gave loan/advances to the assessee company in which a shareholder having more than 10% of voting rights in the lender company was also having substantial interest in the borrower assessee company, and therefore, provisions of section 2(22)(e) of the Act are clearly attracted , therefore, Ld. CIT (A) ought to have upheld the order of the AO. 3. Succinctly, facts as culled out from the orders of lower authorities are that the AO noticed that the assessee had taken loan from its sister concern i.e. M/s. Sai Jyoti Dyeing & Printing mills Ltd. which attracts the provisions of section 2(22)(e) of the Act, which says that any payment by way of loans or advances to the extent of accumulated profits by a closely held company to a shareholder beneficially holding 10% or more equity shares in the company or concern in which shareholder holds substantial interest at any time during the previous year is to be treated as deemed dividend u/s. 2(22)(e) of the Act is taxable in the hands of recipient as income

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from other source under section 56(2)(i) of the Act. Therefore, under facts and circumstances, an amount of Rs. 1,07,00,923 received as loans was treated as income of the assessee company and accordingly, added to total income. 4. Being aggrieved, the assessee filed an appeal before the ld. CIT (A), who has deleted the addition of Rs.1,07,00,923 by observing that the assessee company is a sister concern of M/s. Sai Jyoti Dyeing & Printing Mills Ltd. but it is not shareholder and therefore, the provisions of section 2(22)(e) are not applicable. The ld. CIT (A) relied on the decision of Ahmedabad Tribunal in the case of M/s. Sai Jyoti Dyeing & Printing Mills Ltd. v. ACIT [I.T.A.No. 813/Ahd/2010/ A.Y. 06-07 dtd. 06.07.2012] wherein similar addition was deleted. 5. Being aggrieved, the Revenue has assailed the order of CIT (A) before this Tribunal by way of this appeal. The ld. Sr. D.R. submitted that Shri Hari Prasad H Yadav and Shri Anil H Yadav directors of M/s. Sai Jyoti Dyeing & Printing mills Ltd. were having more than 10% share holding in the assessee company i.e. M/s. Sai Jyoti Fashion Pvt. Ltd. The ld. Sr. D.R. contended that as is manifested from the assessment order that section 2(22)(e) of the Act inter-alia , includes in its sweep payment to any concern in which such shareholder is a member or a

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partner and has a substantial interest. Since the directors of the lender company are having substantial interest in the assessee company. Therefore, provisions of section 2(22)(e) of the Act are attracted. The assessee has taken loans and advances of Rs. 1,07,00,923 during the year under consideration. Therefore, this attracts provisions of section 2(22)(e) of the Act. Therefore, CIT (A) was not justified in deleting the addition so made , hence, the order of the AO may be upheld. 6. Au contraire, the learned counsel for the assessee submitted that the assessee company is not shareholder of M/s. Sai Jyoti Dyeing & Printing Mills Ltd. hence, provisions of section 2(22)(e) are not applicable. Further, the issue is covered in favour of the assessee, by several judgements including M/s. Sai Jyoti Dyeing & Printing Mills Ltd. v. ACIT [I.T.A.No. 813/Ahd/2010/A.Y. 06-07 dtd. 06.07.2012], Pr. CIT v. Encore Cargo Container Terminal Pvt. Ltd.[ T.C. (A) Nos. 105 and 106 of 2017 dated 27.03.2017] , DCIT v. Casil Health Products Ltd. [I.T.A.No. 1429/Ahd/2014/A.Y. 06-07 dtd. 15.05.2017- Ahmedabad Trib] , DCIT v. M/s. Gilbarco Veeder Root India Pvt. Ltd. [I.T.A.No. 1003/Mum/2017 A.Y. 10-11 dtd. 20.06.2018] and CIT v.

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Creative Dyeing & Printing Pvt. Ltd. [2009] 318 ITR 476/ 184 Taxman 483 (Delhi). 7. We have heard the rival submissions and perused the relevant material on record. We are of the view that provisions of section 2(22)(e) of the Act covers three types of payment i.e. firstly, the payment by way of loan or advances to a shareholder, secondly the payment to any concern in which such shareholder is a member or a partner and , thirdly any payment made on behalf of or for the individual benefit of any such shareholder. Ostensibly, the assessee recipient company is not a shareholder in the lender company i.e. M/s. Sai Jyoti Dyeing & Printing Mills Ltd. and therefore, it is not covered by Category of payment. In fact, it is second category which has been sought to be invoked by the AO. No doubt, there is common shareholder, both in the assessee company and lender company, and even if we were to assume that the amount received by the assessee company is for the benefit of stated aforesaid common shareholder, yet it could be assessed in the hands of such registered shareholder and not in the hands of the assessee company. This proposition has been relied upon by the CIT (A) while relying on the decision in the case of M/s. Sai Jyoti Dyeing & Printing Mills Ltd. v. ACIT [I.T.A.No.

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813/Ahd/2010/A.Y. 06-07 dtd. 06.07.2012] in which decision in the case of ACIT v. Bhaumik Colour (P) Ltd. [2009] 118 ITD 01 (SB)(Mum)/ 27 SOT 270 (Mumbai), CIT v. Ankitech Pvt. Ltd. [2012] 340 ITR 14/ [2011] 199 Taxman 341/11 taxmann.com 100 (Delhi) , CIT v. Universal Medicare Pvt. Ltd. 324 ITR 263 (Bom) CIT v. Hotel Hilltop 313 ITR 116 (Raj) were referred and relied upon. Thus, we find no justifiable reason to interfere in the conclusion drawn by the Ld. CIT (A). The learned counsel for the assessee relied on the decision of Hon`ble Madras High Court in the case of Pr. CIT v. Encore Cargo Container Terminal Pvt. Ltd.[T.C. (A) Nos. 105 and 106 of 2017 dated 27.03.2017] wherein it was observed that where both the registered and beneficial shareholder are two individuals and not the assessee company. Therefore, the provision of section 2(22)(e) cannot be invoked. Similar views were also expressed by the Hon`ble Delhi High Court in the case of CIT vs. Creative Dyeing and Printing (P) Ltd. [2009] 318 ITR 476(Del) relied by the learned counsel for the assessee. The issue is covered by decision of Co-ordinate Bench in the case of sister concern of ACIT v. M/s. Sai Jyoti Dyeing & Printing Mills Ltd. (supra). The issue is also covered by decision of Special Bench in the case of ACIT v. Bhaumik Colour (P) Ltd. [2009] 118

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ITD 01 (SB)(Mum)/ 27 SOT 270 (Mumbai) wherein it was held that section 2(22)(e) can be invoked only in such a case where the person who has received the loan is having share holding in the company who has given the loan and such person should be registered as well as beneficial shareholder of that company which has given the loan. In view of above discussion, we upheld the order of Ld. CIT (A) accordingly, Ground No. 1 to 3 appeal of Revenue are therefore, dismissed. 8. In the result, the appeal of the Revenue is dismissed. 9. Order pronounced in the open Court on 16.11.2018. Sd/- Sd/- (C.M. GARG) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: 16.11.2018 /opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat