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Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
Before: Sh. Amit ShuklaDr. B. R. R. Kumar
Per Amit Shukla , Judicial Member:
The present appeals have been filed by the assessee against the orders of the ld. CIT(A)-XII, New Delhi, dated 24.06.2014.
Since, the issues involved in both the appeals are common, they were heard together.
In , following grounds have been raised by the assessee: “That the assessment order is against law and facts and is based on wrong interpretation of the facts of the case and is liable to be struck down. & 4865/Del/2014 2 Spry Hospitality Pvt. Ltd.
2. The disallowance of Rs.39,20,650/- is based upon an incorrect interpretation of law on the point and in ignorance of the facts of the case. Moreover, Sec. 2(22)(e) had no applicability in the case of the assessee company.
3. The disallowance is against several judicial pronouncements including those sighted by the ITAT and that of the jurisdictional High Court.”
The assessee company has received unsecured loans from two concerns namely, M/s KMB Exports Pvt. Ltd. and M/s Spry Space Solutions Pvt. Ltd. to the tune of Rs.2.47 cr. in total. The Assessing Officer has made addition of Rs.14,20,646/- u/s 2(22)(e) and Rs.25,00,000/- being difference in the accounts of the assessee and the loaner M/s KMB Exports Pvt. Ltd. as per their balance sheet also u/s 2(22)(e).
The ld. CIT (A) confirmed the addition holding that the loan is extended to the share holder having substantial interest in the concern.
Heard the arguments of both the parties and perused the material available on record.
We find that the Assessing Officer has made addition primarily on the ground that one shareholder of the assessee company namely, Sh. Sunil Bhalla also held shares in M/s KMB Exports Pvt. Ltd. and M/s Spry Space Solutions Pvt. Ltd. We also find that the assessee itself is not a shareholder in any of these two concerns. Further, we also find that there is no transaction of loan with M/s KMB Exports Pvt. Ltd. during the year and the balance sheet of the assessee company shows an opening balance of Rs.80,00,000/- as on 01.04.2005 and the same as closing balance as on 31.03.2006. Thus, the contention of the revenue falls flat on the face of the uncontroverted facts before us viz. the loan has not been received during the year and the assessee is not a shareholder in the loaner & 4865/Del/2014 3 Spry Hospitality Pvt. Ltd. company hence does not attracts provisions of Section 2(22)(e). Keeping in view these facts, no addition is called for u/s 2(22)(e) of Rs.3,15,728/- and Rs.25,00,000/- being the difference in the balance sheet of the loanee company.
Regarding the loan received from M/s Spry Space Solutions Pvt. Ltd., we find that the assessee is not a shareholder in the said company. The provisions of Section 2(22)(e) reads as under: “Section 2(22)…………….
(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [made after the 31st day of May, 1987, by way of advance or loan to a shareholder, 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, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but "dividend" does not include—“
The act envisages that dividend u/s 2(22)(e) can only be taxed in the hands of a registered and beneficial shareholder. This view has been upheld by the ITAT Mumbai in the case of Bhaumik Color Pvt. Ltd. 27 SOT 270, the relevant portion of which reads as under:
“U/s 2(22)(e) deemed dividend can be assessed only in the hands of a person who is a “shareholder” of the lender company. The expression “shareholder” in Section 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder than the provisions of Section 2(22)(e) will not apply. Similarly if a person is a beneficial & 4865/Del/2014 4 Spry Hospitality Pvt. Ltd. shareholder but not a registered shareholder then also the provisions of Section 2(22)(e) will not apply.”
The Hon’ble Delhi High Court confirmed the view of the Mumbai ITAT as above and in the case of CIT Vs MCC Marketing Pvt. Ltd. (2012) 343 ITR 0350, it held as under:
“Where the assessee is not a shareholder of the company from which he received a loan or an advance, the loan or advance cannot be treated as covered by the definition of the word “dividend” as contained in Section 2(22)(e) of the Income Tax Act, 1961.”
The same view as above has been endorsed by the ITAT in its order wherein it is clearly stated that only if the assessee is found to be a registered and beneficial shareholder in these two concerns, can there be any deemed dividend u/s 2(22)(e).
Since, the assessee was never a shareholder in any of these two concerns, as is evident from the copies of Annual Returns filed with ROC and the list of shareholders, no deemed dividend u/s 2(22)(e) can be assessed in the hands of the assessee.
In the result, both the appeals of the assessee are allowed. Order Pronounced in the Open Court on 10/11/2020.