DCIT, CHENNAI vs. ABAN INVESTMENTS P LTD., CHENNAI

आयकर अपीलीय अिधकरण, ‘बी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI �ी वी. दुगा� राव, �ाियक सद� एवं �ी मनोज कुमार अ�वाल, लेखा सद� के सम� । Before Shri V. Durga Rao, Judicial Member & Shri Manoj Kumar Aggarwal, Accountant Member आयकर अपील सं./I.T.A. Nos.933, 934 & 935/Chny/2017 िनधा�रण वष�/Assessment Years: 2010-11, 2011-12 & 2012-13 The Deputy Commissioner of Vs. M/s. Aban Investments P. Ltd., Income Tax, Corporate Circle 1(1), 113, Janpriya Crest, Pantheon Road, Chennai – 600 034. Chennai 600 008. [PAN: AAACA2926J] (अपीलाथ� /Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by Shri Clement Ramesh Kumar, CIT & : Shri P. Sajit Kumar, JCIT ��थ� की ओर से/Respondent by Shri R. Vijayaraghavan, Advocate : सुनवाई की तारीख/ Date of hearing 03.02.2022 : घोषणा की तारीख /Date of Pronouncement : 31.03.2022 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: These three appeals filed by the Revenue are directed against different orders of the ld. Commissioner of Income Tax (Appeals) 1, Chennai, all dated 30.01.2017 relevant to the assessment years 2010- 11, 2011-12 and 2012-13.

2 I.T.A. Nos.933 to 935/Chny/17

2.1 Brief facts of the case are that the assessee has earned dividend income of ₹.2,03,92,496/- in the assessment year 2010-11 and ₹.2,04,32,985 in the assessment year 2011-12. However, the Assessing Officer has disallowed a sum of ₹.2,70,77,009/- under section 14A of the Income Tax Act, 1961 [“Act” in short] for the assessment year 2010-11. Similarly, an amount of ₹.4,84,20,412/- was disallowed under section 14A of the Act and 2011-12. The disallowances for both the assessment years have been computed by taking proportionate interest paid on borrowed loans and loan processing charges and allocating pro-rata on all the investments.

2.2 On appeal, the ld. CIT(A) restricted the disallowance under section 14A of the Act to the extent of dividend income earned and partly allowed the ground of the appeal for both the assessment years.

2.3 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Against the disallowances made under section 14A of the Act, the ld. CIT(A) has rightly restricted the disallowance to the extent of exempt income earned by the assessee in view of the decision of the Hon’ble Delhi

3 I.T.A. Nos.933 to 935/Chny/17

High Court in the case of Joint Investments P. Ltd. v. CIT 372 ITR 694. We find no infirmity in the order of the ld. CIT(A) and accordingly, the ground raised by the Revenue is dismissed for both the assessment years.

2.4 In the assessment year 2012-13 also against the disallowance under section 14A r.w. Rule 8D of ₹.3,21,97,329/-, the ld. CIT(A) has observed that the disallowance in this case has to be restricted to the amount of dividend earned at ₹.2,04,12,283/- in view of the decision of the Hon’ble Delhi High Court in the case of Joint Investments P. Ltd. v. CIT (supra). Further it was observed that having regard to the fact that the assessee had offered voluntary disallowance of ₹.19,22,139/- and the same has to be reduced for the purpose of working the net disallowance which in this case is worked out at ₹.1,84,90,144/- [₹.2,04,12,283 – ₹.19,22,139]. Accordingly, the ld. CIT(A) has rightly directed the Assessing Officer to modify the disallowance under section 14A of the Act. We find no infirmity in the order of the ld. CIT(A) and thus, the ground raised by the Revenue is dismissed for the assessment year 2012-13.

4 I.T.A. Nos.933 to 935/Chny/17

The assessee has advanced a sum of ₹.150 crores to M/s. Aban 3.1 Offshore Ltd. and earned interest income of ₹.3,77,07,944/- in the assessment year 2010-11, ₹.21,47,82,733/- in the assessment year 2011-12 and ₹.20,95,31,092/-. The advance was made by utilizing the loan obtained from IFCI Ltd. The assessee has incurred an interest expenditure of ₹.84,96,620/- in the assessment year 2010-11, ₹.19.50 crores in the assessment year 2011-12 and ₹.23,59,04,893/- in the assessment year 2012-13. By excluding the earning of exempt income from total direct interest expenses, the Assessing Officer determined the net interest income after reducing from total interest income and computed the same as income from other sources and brought to tax under section 57(iii) of the Act. On appeal, the assessee has submitted before the ld. CIT(A) that the loan obtained from the Industrial Finance Corporation of India (IFCI) was utilized fully to fund M/s. Aban Offshore Ltd. by way of loan and the interest income earned was fully offered to tax. After considering the submissions of the assessee, the ld.CIT(A) directed the Assessing Officer to delete the addition.

5 I.T.A. Nos.933 to 935/Chny/17

3.2 We have considered the rival contentions and perused the orders of authorities below. In this case, the admitted facts are that the assessee is engaged in the business of investment and finance and has obtained loan from Industrial Finance Corporation of India (IFCI) and was utilized fully to fund M/s. Aban Offshore Ltd. by way of loan and the interest income earned was fully offered to tax. Moreover, the Assessing Officer has not disputed the total interest expenditure incurred by the assessee. However, the Assessing Officer has no justification by reducing the same from earning of except income by reckoning the direct interest expenditure for the purposes of section 14A of the Act. Therefore, the ld. CIT(A) has held that the disallowance does not have any merit and accordingly directed the Assessing Officer to delete the addition. Under the above facts and circumstances, we find no reason to interfere with the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed for all the assessment year under appeal.

6 I.T.A. Nos.933 to 935/Chny/17

4.1 In the assessment year 2012-13, while examining the issue relating to deemed dividend the Assessing Officer has noted that a sum of ₹.8,84,00,060/- was received as loans by the assessee from two of its group concerns viz., M/s. Aban Infrastructure Pvt. Ltd. and M/s. Aban Hotel & Resorts P Ltd of ₹.8,41,00,060 and ₹.43,00,000 respectively on the ground that the assessee company and the two entities from whom loans were received have common shareholders holding more than 10% of shareholding, the Assessing Officer was of the view that the provisions of section 2(22)(e) of the Act are attracted and accordingly added to the total income of the assessee under the head “Income from other sources” for the assessment year 2012-13.

4.2 On appeal, before the ld. CIT(A) the assessee has submitted that it was not a shareholder of Aban Infrastructure Pvt. Ltd. or Aban Hotels & Resorts Pvt. Ltd. from whom it had received the loans and hence section 2(22)(e) of the Act could not be made applicable to the assessee. That the provisions of section 2(22)(e) can neither be applied to a non-shareholder nor to a deposit. That the loan received was inter-corporate deposits advanced in the course of business and interest has been charged by both the companies. These inter-

7 I.T.A. Nos.933 to 935/Chny/17

corporate deposits will not be loans and advances contemplated under section 2(22)(e) of the Act and hence cannot be treated as deemed dividend in the hands of the assessee. To support its claim the assessee relied on the following case-laws: (i) IFB Agro Industries Ltd v. JCIT 39 CCH 392 (Kolkata Tribunal) (ii) Bombay Oil Industries Ltd v. DCIT 28 CCH 0053 (Mumbai Tribunal) (iii) CIT v. Ankitech P Ltd & Ors 340 ITR 0014 (Delhi HC) 4.3 After considering the submissions of the assessee, the ld. CIT(A) has observed as under: “13. I have carefully considered the facts, order of the AO, submissions made by the appellant and material on record. From a reading of s.2(22)(e) it is evident that dividend includes any payment by a company in which public are not substantially interested by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares holding not less than 10% of the voting power, or to any concern in which such shareholder is a member or a partner in which he has a substantial interest 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. The issue of deemed dividend is to be examined in relation to the advances received by the appellant company from its sister concerns Aban Infrastructure P Ltd and Aban Hotels & Resorts P Ltd. 14. The appellant's argument is directed against the order of the AD is on two basic grounds. First, that the appellant was not a shareholder of Aban Infrastructure P Ltd or Aban Hotels & Resorts P Ltd from whom it had received the loans. Therefore, the provisions of s. 2(22)(e) would not be applicable in its case and the loans cannot be treated as deemed dividend in its hands. Second, the loan received were in the nature of inter corporate deposits advanced in the course of business and interest has been charged by both the companies. Such deposits therefore would not constitute loans & advances contemplated u/s 2(22)(e). 15. From the shareholding pattern given in the table by the AO it is seen that individuals being shareholders viz., Saley Abraham, Deepa Reji Abraham, Shema Renny Abraham hold more than 10% shares in one of the three concerns or some of the concerns (as in the table). The issue of deemed dividend would therefore arise in the hands of these shareholders if any. This

8 I.T.A. Nos.933 to 935/Chny/17

issue has not been examined by the AO. As regards the appellant is concerned it is not a registered shareholder and therefore the ratio of the jurisdictional court in CIT v. Printwave Services P Ltd 373 ITR 665 (Mad) would apply squarely to its case. The appellant has no doubt pressed into service Delhi High Court decision in the case of CIT v Ankitch P Ltd (supra). 16. In this context reference is invited to the case-law relied upon by the appellant. The Hon'ble Madras High Court in CIT v. Printwaves Services P Ltd 373 ITR 665 have held that deemed receipt of dividend can only be in the hands of a substantial shareholder. In that case the assessee company itself was not a shareholder in the company Frontline Printers which had lent the sum of monies to Printwave Services P Ltd., a sister concern. It was found that the director T.R. Jawahar was holding 10% of shareholding in Printwave Services P Ltd and 43.9% in assessee's sister concern Frontline Printers P Ltd. It was held that the assessee company not being a registered or beneficial owner of shareholding is not liable to be taxed and hence the Tribunal placing reliance on the explanatory notes to the Finance Act, per se cannot override the provisions of the Act. 17. In the case of the appellant the situation is similar and the appellant company is not the beneficial shareholder in M/s. Aban Infrastructure P Ltd or Aban Hotels & Resorts P Ltd. Therefore, no deemed dividend can be brought to tax in the hands of the appellant company u/s 2(22)(e). 18. Further, in the case of ACIT v. Jakhau Salt Co. P. Ltd for A.Ys 2004- 05 & 2007-08 in ITA Nos.2284 & 2285(Mds)/2012 dated 19.6.2013 the Hon'ble Jurisdictional ITAT took a similar view in as much that the assessee there, was not a shareholder of the company relying on the ratio in the case of ACIT vs. Bhaumik Color P. Ltd 118 ITO 1 Mumbai Special Bench wherein it was held that the expression 'shareholder' referred to in Sec.2(22)(e) refers to both a registered shareholder and the beneficial shareholder. And further that if a person is a registered shareholder but not a beneficial shareholder, then the provisions of Sec.2(22)(e) would not apply and likewise if a person is a beneficial shareholder but a registered shareholder then too the provisions of sec.2(22)(e) would not apply. While in the case at hand the IT AT noted that the assessee was not a shareholder at all and hence the provisions of sec.2(22)(e) would not apply. 19. On the second plea that they constituted inter corporate deposits it has to be examined from the balance-sheets of the two entities making such deposits viz., M/s. Aban Hotels & Resorts P Ltd and M/s. Aban Infrastructure P Ltd as to whether such deposits were made in the ordinary course of its business.

9 I.T.A. Nos.933 to 935/Chny/17

10 I.T.A. Nos.933 to 935/Chny/17

as well as shareholding pattern given in the assessment order, the ld. CIT(A) has observed that since the individuals being shareholders viz., Saley Abraham, Deepa Reji Abraham, Shema Renny Abraham holding more than 10% shares in one of the three concerns or some of the concerns as has been tabulated in the assessment order, the deemed dividend would therefore arise in the hands of these shareholders, if any. As regards the assessee is concerned, it is not a registered shareholder and therefore, the ratio of the Hon’ble jurisdictional High Court in CIT v. Printwave Services P Ltd 373 ITR 665 (Mad) would apply squarely to its case. By elaborately discussing the above case law and in the present case, since the assessee is not the beneficial shareholder in M/s. Aban Infrastructure P. Ltd. or Aban Hotels & Resorts P. Ltd, the ld. CIT(A) has held that no deemed dividend can be brought to tax in the hands of the assessee under section 2(22)(e) of the Act.

4.5 By relying upon the decision in the case of ACIT v. Jakhau Salt Co. P. Ltd. for the assessment years 2004-05 & 2007-08 in ITA Nos.2284 & 2285(Mds)/2012 dated 19.6.2013, wherein, the Coordinate Benches of the Tribunal took a similar view by relying on the ratio in the case of ACIT vs. Bhaumik Color P. Ltd 118 ITO 1 Mumbai Special

11 I.T.A. Nos.933 to 935/Chny/17

Bench, in which, it was held that the expression 'shareholder' referred to in section 2(22)(e) of the Act refers to both a registered shareholder and the beneficial shareholder. And further that if a person is a registered shareholder but not a beneficial shareholder, then the provisions of section 2(22)(e) of the Act would not apply and likewise if a person is a beneficial shareholder but a registered shareholder then also the provisions of section 2(22)(e) of the Act would not apply. While in the case at hand the ITAT noted that the assessee was not a shareholder at all and hence the provisions of section 2(22)(e) of the Act would not apply. The ld. DR could not controvert the above decisions of the Tribunal, which were relied upon by the ld. CIT(A). Under the above facts and circumstances, we are of the considered opinion that the ld. CIT(A) has rightly rejected the view taken by the Assessing Officer in bringing the loans and advances received by the assessee as deemed dividend within the meaning of section 2(22)(e) of the Act. Thus, the ground raised by the Revenue is dismissed for the assessment year 2012-13.

4.6 On similar facts and circumstances, an identical ground has also been raised by the Revenue for the assessment year 2011-12. By following above decision in the assessment year 2012-13, for the

12 I.T.A. Nos.933 to 935/Chny/17

assessment year 2011-12 also, we confirm the order passed by the ld. CIT(A) on this issue and dismiss the ground raised by the Revenue.

Order pronounced on the 31st March, 2022 at Chennai.

Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, the 31.03.2022 Vm/- आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��यथ�/ Respondent, 3. आयकर आयु� (अपील)/CIT(A), 4. आयकर आयु�/CIT, 5. िवभागीय �ितिनिध/DR & 6. गाड� फाईल/GF.