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Facts
The assessee, Ms. Soyuz Trading Company Ltd., filed its return for AY 2014-15 declaring a loss. During scrutiny, the AO made additions for a loan deduction under Section 2(22)(e) and disallowance under Section 14A. The CIT(A) partly allowed the appeal, deleting the Section 2(22)(e) addition and modifying the Section 14A disallowance.
Held
The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order. It was held that Section 2(22)(e) was not applicable as the assessee's shareholding in the lending company (Rishi Trading Company Ltd.) was less than 10%, both entities were NBFCs engaged in lending, and the loan was interest-bearing and not gratuitous, in line with prior judicial pronouncements.
Key Issues
Whether a loan received by the assessee from Rishi Trading Company Ltd. constituted a deemed dividend under Section 2(22)(e) of the Income Tax Act, considering the assessee's shareholding and the nature of the transaction.
Sections Cited
143(2), 142(1), 2(22)(e), 14A, 263
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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM:
This is the appeal preferred by the revenue against order of Commissioner of Income Tax (Appeal)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)] dated 08.11.2023 for AY 2014-15. 2. At the outset, there is a delay of 44 days in filing the appeal. The Ld. Counsel for the Department filed condonation petition for explaining the delay. The Ld. AR did not
Brief facts of the case of the assessee is that the assessee filed its return of income for AY 2014-15 declaring total loss of Rs. 60,92,952/-. The case of assessee was selected for scrutiny, notice u/s 143(2) was issued thereafter notice u/s 142(1) along with questionnaire was issued, in response to the notice the assessee appeared and represented his case. The AO after hearing the assessee made following additions: i) Addition of Rs. 4,15,49,879/- on account of loan deduction from Rishi Trading ltd. u/s 2(22)(e ) of the Act. ii) Addition of Rs. 84,85,568/- u/s 14A read with Rule 8D.
The assessee preferred an appeal before the Ld. CIT(A), the Ld. CIT(A) has partly allowed the appeal of the assessee by deleting the addition of Rs. 4,15,49,879/- and further modify the addition u/s 14A read with Rule 8D an amount of Rs. 8,76,693/- .
Being aggrieved and dissatisfied the department has preferred the instant appeal.
The Ld. Counsel for the revenue challenges the impugned order thereby submitting that the Ld. CIT(A) was not justified in law in deleting the addition made by the AO u/s 2(22)(e) of the Act ignoring the facts that Section 2(22)(e ) does not contain any such specific provision or restriction and no where provides as to who is to be taxed in respect of such income. The Ld. Counsel further submits that CBDT circular No. 495 dated 22.09.1987 issued in respect of amounting provision of Finance Act, 19987 to the effect the deemed dividend would be taxed in the hands of source where the company makes the payment by way of loan / advances where a member or a personnel of the concern holds 10% of the voting power of the company, where a member of personnel of the concern is also the beneficiary entitled to 20% of the income of such concern.
Assessment Year: 2014-15 Ms. Soyuz Trading Company Ltd.
Contrary to that the Ld. A.R supports the impugned order thereby submitting that there is no illegality in the impugned order as the Ld. CIT(A) has passed order in favour of the assessee after going over the judicial pronouncement as well as documents placed by the assessee. The Ld. A.R submits that the assessee is NBFC duly registered with the Reserve Bank of India and lender company is also NBFC company duly registered in the Reserve Bank of India and main objects of the company is granting loan and advances. The Ld. Counsel further submits that the assessee company is holding 7.9% of the vote right in the said company. The Ld. Counsel of the assessee filed following documents which are as follows: i) Copy of NBFC certificate ii) Copy of share holding pattern of Rishi Trading Company Ltd. iii) Copy of loan confirmation. v) Copy of memorandum and Article of Association of Rishi Trading Company Ltd.
He has also cited a judicial pronouncement passed by the Hon’ble High Court in the case of PCIT vs. Suprabha Industries Ltd. [2022] 136 taxmann.com 259 (Cal).
Upon hearing the submissions of the respective parties, we have perused the order of Ld. CIT(A) and find the following facts: i) the assessee is a NBFC duly registered with the Reserve Bank of India and engaged in the business of advancing of loans and also investment in shares. ii) Rishi Trading Company Ltd. is also registered with NBFC iii) Loan taken from M/s Rishi Trading Company Ltd. during the course of assessment proceedings. Copy of share holding pattern of Rishi Trading Company Ltd. reveals that
It is pertinent to mention herein that the loan advanced by Rishi Trading Company are not a gratuitous loan and interest has been duly charged i.e. apparent from the loan confirmation. Documents filed by the assessee i.e. final account of Rishi Trading Company Ltd. and details of loan and advances relating to last transaction with M/s Rishi Trading Company Ltd. supports the case of the assessee. The above documents go to establish that the loan advanced by M/s Rishi Trading Company Ltd. are not a gratuitous loan but interest has been duly charged. It is further pertinent to mention herein that the assessee and lender both are finance company engaged in the business of lending and borrowing. The assessee has paid 7% to 10.25% interest on different loan amount received from Rishi Trading Company Ltd. as per ledger account. Now, we have gone through the judgment of Hon’ble Calcutta High Court passed in the case of PCIT vs. Suprabha Industries Ltd. (supra), Hon’ble High Court has held thus:
“Section 2(22)(e) of the Income tax Act, 1961- Deemed Dividend (loans and advances to share holders)- Assessment year 2012-13 – Assessee company received unsecured loan from its group companies during relevant assessment y ear- Assessing Officer passed assessment order – commissioner set aside assessment order by invoking section 263 on ground that Section 2(22)(e ) would be applicable on loan received by the assessee as same were deemed dividend and directed Assessing Officer to recompute assessee’s income- Tribunal set aside said order- It was noted that assessee paid off loan with interest in same year itself-Furthermore, details of shareholders holding more than 10% shares were provided by assessee -company- during assessment proceedings and Assessing Officer after taking into consideration all relevant documents held that Section 2(22)(e ) would not be applicable in case of assessee- Whether thus, there was no justification for invoking Section 263 and Tribunal was right in setting aside order of Commissioner (Appeals)- Held, yes [Para 3] [in favour of assessee].” It is important to mention herein that SLP filed by the department against the said judgment, has also been dismissed by the Apex Court i.e. reported in [[2023] 154 taxmann.com 536. We have also gone through the judgment passed by the Hon’ble Calcutta High Court in case of Pradip Kumar vs. CIT reported in [2011] 15 Taxmann.com 66 (Cal) wherein the Court has held thus:
“After hearing the learned counsel for the parties and after going through the aforesaid provisions of the Act, we are of the opinion that the phrase ‘by way of advance of loan’ appearing in sub-clause (e) must be construed to mean those advances or loans which a share Assessment Year: 2014-15 Ms. Soyuz Trading Company Ltd. holder 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 profits) holding not less than ten per cent of the voting power, but if such loan or advance is given to such share holder as a consequence of any further consideration which is beneficial to the company received from such a share holder, in such case, such advance or loan cannot be said to be a deemed dividend within the meaning of the Act. Thus, for gratuitous loan and advance given by a company to those classes of share holders would come within the purview of Section 2(22) but not to the cases where the loan or advance is given in return to an advantage conferred upon the company by such share holder.”
Going over the facts of the case and the order of Ld. CIT(A), we do not find any infirmity in the impugned order, as a result of which, the appeal of the revenue is hereby dismissed.
In the result, the appeal filed by the revenue is dismissed.
Order is pronounced in the open court on 17th January, 2025
Sd/- Sd/- (Rajesh Kumar/राजेश कुमार) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 17th January, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- ACIT, Circle-7(1), Kolkata 2. Respondent – Ms. Soyuz Trading Company Ltd., 16B, Shakespeare Sarani, West Bengal-700071 3. Ld. CIT(A)-NFAC, Delhi 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)