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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI S.S.GODARA, JM & SHRI DR. DIPAK P. RIPOTE, AM
आदेश / ORDER PER S. S. GODARA, JM :
This Revenue’s appeal for A.Y. 2011-12 is directed against the CIT(A) - 1, Pune’s order dated 24/05/2017 passed in case No. PN/CIT(A) - 1/DCIT Cir.1(2)/PN/294/15-16, involving proceeding u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 ; in short “the Act”. Heard both the parties. Case file perused.
Dhariya Construction Pvt. Ltd.,
2. The Revenue’s sole substantive grievance raised in the instant appeal pleads that the CIT(A) has erred in law and on facts in reversing action making section 2(22)(e) deemed dividend of Rs.1,61,35,222/- vide following detailed discussion. “6. I have carefully considered the facts of the case as well as reply of the appellant. In this case undisputed fact remains that the amount of Rs. 1,61,35,222/- received from Dhariya Infrastructure Pvt. Ltd. is in the nature of "Inter Corporate Deposit" as claimed before the Assessing Officer too. This claim remains uncontroverted by the AO in the assessment: order while invoking the provisions of sec. 2(22)(e) of the Income Tax Act, 1961 The only argument taken by the A.O. against the appellant is that the appellant has tried to camouflage loan/ advances taken/given under the name of Inter Corporate Deposits. A.O. has disputed the claim of the appellant on the ground that period of repayment is quite small and lender Company has charged lower interest compared to Banks and that appellant has also given loan to the lender company on which no interest has been charged. The A.O. may be right to some extent in his observations but the same will not change the character of deposit as there can be no fixed time period for making and accepting deposits as such. This being so, the only question remains to be decided is whether provisions of sec. 2(22)(e) can be invoked in case of "Inter Corporate Deposit”. Sec.2(22)(e) clearly mentions the term advance or loan and not deposits. Mumbai Tribunal n the case of Bombay Oil Industries Ltd. Vs. DCIT (2009) - TIOL-297, ITAT,Mum; (2009) 28 SOT 383 (Mum) has held that Inter corporate deposits cannot be treated as a loan falling with the provisions of sec. 2(22)(e) of the Income Tax Act, 1961. The relevant portion of the order of the Hon. Mumbai Tribunal (supra) is reproduced hereunder for the sake of clarity:
Dhariya Construction Pvt. Ltd.,
"From the above it is clear there is distinction between deposits vis-a-vis loans/advances. s. 2 (22)(e) enacts a deeming fiction whereby the scope and ambit of the word dividend has been enlarged to bring within its sweep certain payments made by a company as per the situations enumerated in the section. Such a deeming fiction would not be given a wider meaning than what it purports to do. The provisions would necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits. The requisite condition for invoking s. 2(22)(e) of the Act is that payment must be by way of loan or advances. Since there is a clear distinction between the ICDs vis-a-vis loans/advances, according to us the authorities below were not right in treating the same as deemed dividend under s. 2(22)(e) of the Act."
Since facts of the case being identical, following the above decision of the Hon. Mumbai Tribunal, it is held that the Assessing Officer was not right in invoking the provisions of sec. 2(22)(e) of the Income Tax Act, 1961 in respect of deemed dividend. Accordingly, he is directed to delete the same. Thus, Grounds No. 2 and 3 are allowed.”
3. It next emerges that the very issue had arisen between the parties in succeeding assessment year 2012-13 where in this tribunal’s co-ordinate bench has accepted the Revenue’s appeal on 11.02.2020 as follows :-
“4. We have heard the rival contentions and perused the material available on record. In the present case, the assessee company namely, M/s.Dhariya Construction Pvt. Ltd. had received loan/advances amounting to Rs.2,93,26,224/- from M/s. Dhariya Infrastructure
Dhariya Construction Pvt. Ltd., Development Pvt. Ltd. for which during the assessment year under consideration, interest of Rs.3,26,224/- was paid to lender company. Further, it was mentioned that the assessee company was beneficial owner of 50% shares in the lender company in which the public was not substantially interested. Thus, requirements for invoking provisions of section 2(22)(e) of the Act were fulfilled as (i) the amount was received by the assessee company; (ii) the assessee company was beneficial owner of 50% shares in the lender company A.Y.2012-13 i.e. M/s. Dhariya Infrastructure Development Pvt. Ltd. and therefore, it is required to be taxed in the hands of the assessee company being deemed dividend.
4.1 There are judicial pronouncements to distinguish deposit from loan.
Loans are given at the request of borrower against interest payment. Per contra, deposits are given out of excess fund voluntarily on the proposal of the lender with interest.
4.2 In the present case, the assessee has not placed on record any document or agreement inviting the deposit. Leave alone such invitation, the assessee sister concern is whole depositor and the same is described as „Inter Corporate Deposit‟ in the books of the assessee. There is no document placed before us for deciphering the real intention of the depositor or to find out whether it was deposit or loan and therefore, on the facts of the present case, there is requirement of taking adverse inference against the assessee. 4.3 From perusal of the ledger account of the depositor i.e. M/s. M/s.
Dhariya Infrastructure Development Pvt. Ltd., it is noticed that the same appears to be running loan account rather than ICD account. There is no deposing documentation, no terms and conditions, no details about the interest, no details of maturity periods and no board resolution of the company for accepting the deposits were placed on record. Hence, it is Dhariya Construction Pvt. Ltd., not possible to infer that the depositor has given the money on his volition in the form of deposit out of his excess fund normally.
4.4 Further, for the purpose of treating the amount as "Inter Corporate Deposit", there has to be availability of funds with the lender which is not out of the borrowed funds. In fact, under the Companies Act, 1956, rules were framed which requires that before deposits are accepted, there should be advertisement for accepting the deposit. We are reproducing herewith Rule 58A of the Companies Act, 1956: A.Y.2012-13 "58A Deposits not to be invited without issuing an advertisement. (1) The Central Government may, in consultation with the Reserve Bank of India, prescribe the limits up to which, the manner in which and the conditions subject to which deposits may be invited or accepted by a company either from the public or from its members. (2) No company shall invite, or allow any other person to invite or cause to be invited on its behalf, any deposit unless- (a) such deposit is invited or is caused to be invited in accordance with the rules made under sub- section (1), and (b) an advertisement, including therein a statement showing the financial position of the company, has been issued by the company in such form and in such manner as may be prescribed."
4.5 In our opinion, though there is distinction between "Inter Corporate Deposits" and loan/advances, but for that purpose, the assessee was required to substantiate that the amount received by the assessee was in the form of "Inter Corporate Deposits". As mentioned herein above, the assessee was failed to bring on record any documentary evidences except oral submission that the amount received by it was in the form of "Inter Corporate Deposit". No evidence towards the nature of amount received by the assessee was brought on record or laid before the Ld. CIT(Appeals) or before us. No confirmations on "Inter Corporate Deposit" or Balance Sheet treating the amount of "Inter Corporate Deposit" were Dhariya Construction Pvt. Ltd., filed before us. Further, no terms and conditions were brought to our notice disclosing the nature of the amount received by the assessee company.
4.6 The assessee had filed ledger account of M/s. Dhariya Infrastructure Development Pvt. Ltd. (Inter Corporate Deposit) for the period 1st April, 2011 to 31st March, 2012 wherein various amounts were given by the A.Y.2012-13 said M/s. Dhariya Infrastructure Development Pvt. Ltd to the assessee company between 5th April, 2011 to 31st March, 2012 and it appears from Page 21 of the Paper book annexed on record that interest paid on the deposit was amounting to Rs.2,69,260/-. However, looking into the various entries which were done by the M/s. Dhariya Infrastructure Development Pvt. Ltd, it appears that every now and then amount was transferred from M/s. Dhariya Infrastructure Development Pvt. Ltd to the account of M/s. Dhariya Construction Pvt. Ltd. like the amount of Rs.50 Lakhs was transferred to M/s. Dhariya Construction Pvt. Ltd. on 23.04.2011, Rs.10 Lakhs on 27.04.2011, another amount of Rs. 10 Lakhs on 02.05.2011, another amount of Rs.10 Lakhs 05.05.2011 and Rs.50 Lakhs on 09.05.2011 and also Rs.20 Lakhs deposited to the M/s. Dhariya Infrastructure Development Pvt. Ltd. on 09.05.2011. The entries of those various amounts received by the assessee and given back by the assessee clearly show that it was Running Account . 4.7 If we examine the issue from another angle, to find out whether the amount given by the assessee was in fact in the nature of loan/advances and was "Inter Corporate Deposit". It is essential for the amount given as "Inter Corporate Deposits", there should be voluntariness emanating from the lender to give the amount to the assessee and not from assessee. In this case, there being common Managing Director, amount was being transferred as and when there was requirement of fund by the assessee from the account of M/s. Dhariya Infrastructure Development Pvt. Ltd. and thereafter returned ITA No. 1440/PUN/2015 A.Y.2012-13 back by Dhariya Construction Pvt. Ltd., the assessee to the lender. Hence the element of voluntariness is missing in the conduct of parties.
4.8 In view of the above, we are of the opinion that the amount was in the nature of loan/advances only. Merely by mentioning in the ledger account, it was "Inter Corporate Deposit", the nature and colour of transaction would not changed to "Inter Corporate Deposit" ,as it continues to be loan/advances. Hence required to be taxed for the purposes of deemed dividend. We may rely upon the Jurisdictional High Court in the Durga Prasad Mandelia v. Registrar of Companies [1987] 61 Comp. Cas. 479 (Bom., has noticed the distinction between deposits and loans in the context of section 370 of the Companies Act. The Court held as under :
"There can be no controversy that in a transaction of a deposit of money or a loan, a relationship of a debtor and creditor must come into existence. The terms "deposit" and "loan" may not be mutually exclusive, but nonetheless in each case what must be considered is the intention of the parties and the circumstances. In the present case, barring the assertion of the respondent that the moneys advanced by the company to the Associated Cement Companies Ltd. constitute a loan and offend section 370 of the Companies Act, there is nothing else to show that these moneys have been advanced as a "loan". In the context of the statutory provisions, the word "loan" may be used in the sense of a "loan" not amounting to a deposit. The word "loan" in section 370 must now be construed as dealing with loans not amounting to deposits, because, otherwise, if deposit of moneys with corporate bodies were to be treated as loans, then deposits with scheduled banks would also fall within the ambit of section 370 of the Companies Act. Therefore, moneys given by the company to the other bodies corporate is a loan within the meaning of section 370 of the Companies Act must be negatived. Therefore, the petitioners would well be entitled to the relief."
Dhariya Construction Pvt. Ltd., 4.9 Further we may also rely upon the coordinate Bench decision in the matter of KIIC Investment Company [2019] 101 taxmann.com 19 A.Y.2012-13 (Mumbai - Trib.) , wherein the Bench had allowed the claim, as the intention can be gathered from the agreement, board resolution and other circumstances. However in the present case nothing is available to infer the intention of parties to give ICD. Thus, Ground Nos. 2 to 4 raised in appeal by the Revenue are required to be allowed and we order accordingly. Thus, Grounds No. 2 to 4 raised in appeal by the Revenue are allowed.”
4. Learned authorities representative vehemently argued that learned co- ordinate bench has failed to consider sum clinching facts as well as the relevant law qua the impugned deeming fiction of dividend u/s. 2(22)(e) of the Act. Learned CIT has also taken pains to file a detailed note of objections dated 24.05.2022 as under :-
“1. The Income Tax Appellate Tribunal, Pune Bench passed order dated 11th Feb 2020 pertaining to AY 2012-13 in assessee‟s case on issue of deemed dividend reversing the order passed by the Commissioner of Income Tax Appeals and upholding addition made by the AO.
The Assessee is a Private Limited Company registered under the Companies Act and engaged in the business execution of civil construction contract, supply of labour and is a government registered contractor with public works department of Government of Maharashtra.
The Assessee being aggrieved by the ITAT order dated 11/2/2020 passed by the Income Tax Appellate Tribunal has approached the Hon‟ble Bombay High Court and filed appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) in Dhariya Construction Pvt. Ltd., August 2021 as substantial questions of law arises out of the same. The issue involved in this appeal requires the interpretation of section 2 (22) (e) of the Act.
4. The ITAT treated/considered the amount received from shareholder as “loan‟ instead of treating it as “inter corporate deposit” as stated by the Assessee in its record and submissions.
5. The observations of the ITAT Pune bench in its order of AY 12 13 are reproduced hereunder for discussion.
The said financial transaction had not satisfied the terms and condition of „deposits: Some of the conditions are as follows : There should be availability of the fund with the lender which is not out of the borrow funds. ii. As per rules 58A of Companies Act 1956, before accepting deposit there should be proper advertisement for accepting the deposit. iii. There should be voluntariness emanating from the lender to give deposits to the borrower.
7. The lender (Dhariya Infrastructure Private Limited) had no surplus in the Balance Sheet for giving funds to the Assessee (Dhariya Construction Private Limited).
That the assessee company and lender company was having common Managing Director namely Shri Mukund Dhariya. 9. There was no formal agreement between the assessee and M/s. Dhariya Infrastructure Development Pvt. Ltd. to treat the amount as Inter Corporate Deposit. 10. From perusal of the ledger account of the depositor i.e. M/s. Dhariya Infrastructure Development Pvt. Ltd., it is noticed that the same appears to be running account rather than inter corporate deposits account. 11. In view of the aforesaid observation, the ITAT is of the opinion that the amount was in the nature of loan / advances only and not deposit.
Dhariya Construction Pvt. Ltd., Assessee’s objection 12. However, the impugned order of the Hon‟ble ITAT has not correctly interpreted the section and is also not consonance with facts and circumstances of the case.
It is the assessee‟s contention that the amount received from lender is a inter- company deposit and not a “Loan”. Hence it is not deemed dividend under section 2 (22) (e) of the Income Tax Act since the said section applies and refers to loan or advance and not to deposit. Loan / advance does not cover deposit.
The Hon‟ble ITAT erred in completely ignoring the ratio laid down by the Hon‟ble Bombay High Court and by the Hon‟ble Madhya Pradesh High Court in the judgements cited on the premise that the facts of the concerned cases were different from the case in hand without actually discussing as to what was the difference in the facts of those cases which led the Hon‟ble ITAT to distinguish those cases from the case at hand.
The Hon‟ble ITAT erred in coming to a conclusion that it is a “loan” when in fact, there is absolutely no discussion on the evidence in the Assessment Order passed by the Ld. Assessing Officer as to why the amount can not be called as “Inter Corporate Deposit” but is to be called as “Loan”. In other words, the facts regarding the amount not being “Inter Corporate Deposit” has been discussed by the Hon‟ble ITAT for the 1st time in the Impugned Order thereby denying the opportunity to respond to them before the earlier Forums.
Neither in the Assessment Order passed by the Ld. Assessing Officer nor in the impugned order passed by the Hon‟ble ITAT, there is any positive discussion as why the amount is to be considered as “Loan”
The Hon‟ble ITAT wrongly accepted the erroneous view of the Ld. Assessing Officer that the amount in question will have to be considered as „loan‟ and not „deposit‟ only because “the Appellant Assessee Company had substantial shareholding / interest in the Dhariya Construction Pvt. Ltd., borrower company”.
The Hon‟ble ITAT completely misread provision under section 58A of the Companies Act, 1956. The concerned provision requires the Company “inviting” deposits to publish an advertisement for the same. The Hon‟ble ITAT wrongly read the provision to mean that the Company would require to publish an advertisement even for “accepting" deposit. The clear distinction between the words “invite” and “accept” has been missed by the Hon‟ble ITAT.
The Hon‟ble ITAT failed to appreciate that as per Rule No. 2 (b) (iv) of the Companies (Acceptance of Deposits) Rules, 1975 framed under section 58A (1) of the Companies Act, 1956, “any amount received by a Company from any other Company” is not considered as “deposit” for the purpose of section 58A of the Companies Act, 1956 and hence the pre-requirement of publishing an advertisement for inviting deposits does not apply to the Inter Corporate Deposits.
There is a subtle distinction between a deposit and a loan. In the case of a loan, the amount is given by the creditor to the debtor at the request of and for the requirements and dues of the debtor under certain terms and conditions. On the contrary, in the case of a deposit, the depositee receives money at the instance of the depositor. In the case of a deposit, the requirement of the depositee is neither relevant nor material. The depositor has to go to the depositee for depositing the amount or the depositee may go and collect the amount. But in case of a loan, the debtor has to request the creditor to advance certain amount for meeting his requirement for using the amount.
It also needs to be appreciated that it is not necessary that a deposit is always “invited” by a Company, a deposit received without any invitation can also be considered as “deposit” and can-not be considered as a loan in absence of any financial need of the recipient.
The lender company approached the assessee and placed deposits
Dhariya Construction Pvt. Ltd., from time to time. The assessee paid interest on the said deposit as well @12% p.a.
The Hon'ble ITAT failed to appreciate that in absence of any document suggesting otherwise, the version of the Assessee has to be accepted unless circumstantial evidence suggests otherwise, which is not the case in this matter.
The Hon‟ble ITAT erred in basing its opinion on non-disclosure of availability of funds with the depositor. It is submitted that whether the depositor had funds to deposit in the Assessee Company is a subject matter of scrutiny of the depositor‟s case and will not justify any otherwise inference.
The Hon‟ble 1TAT failed to appreciate that it is a trite law that current account/running account transactions are outside the purview of deemed dividend and hence, same cannot be recorded as deemed dividend. This is because no part of the current/ running account can be treated as loans and advances as the amount is constantly moving one and the balances reflected in the current/running account are momentary in nature and subject to frequent changes. The Hon‟ble ITAT erred in coming to a conclusion that despite being a transaction in a “Running Account”, the amount received was a Loan and hence a dividend under section 2 (22) (e) of the Income Tax Act and hence a taxable income.
The principle is that the loans are given at the request of borrower and that there was no evidence to suggest that the Assessee had ever requested for loan, the Hon‟ble ITAT erroneously came to a conclusion that the amount is a loan and not inter corporate deposit.
Whether the Hon‟ble ITAT is justified in treating the amount of Rs.2,93,26,224/- transferred by Appellant‟s sister concern to the Assessee Company as “loan” instead of “Inter Corporate Deposit” just because Assessee Company holds 50% shares in the depositor Company.
Dhariya Construction Pvt. Ltd.,
Whether an amount transferred by one Company to another Company can be presumed to be a loan in absence of any evidence in support, especially evidence about any financial requirement of the Assessee Company.
Whether an advertisement under section 58A of the Companies Act, 1956 is mandatory for Inter Corporate Deposits in the light of the Rule No. 2 (b) (iv) of the Companies (Acceptance of Deposits) Rules, 1975 30. Whether the Hon‟ble ITAT was correct in reading and interpreting the provision under section 58A of the Companies Act, 1956 to mean that the advertisement is necessary even for accepting the deposit by a Company. The concerned provision requires the Company “inviting” deposits to publish an advertisement for the same. The Hon‟ble ITAT wrongly read the provision to mean that the Company would require to publish an advertisement even for “accepting" deposit. The clear distinction between the words “invite” and “accept” has been missed by the Hon‟ble ITAT. 31. Whether in absence of any evidence suggesting the amount transferred to be an “Inter Corporate Deposit” will automatically lead to a conclusion that the said amount is nothing but a loan. 32. Whether an amount reflected in a “Running Account”, can be treated as a Loan and hence a deemed dividend just because the account is not a Inter Corporate Deposit Account in absence of any evidence to support the inference of loan. 33. Whether it is mandatory to have some agreement for treating the amount transferred between the sister concern Companies as “Inter Corporate Deposit”.
Other issues / error in the assessment order
There is an error of considering / treating transaction of recovery of deposit given of Rs 60,00,000/- in / as the transaction of acceptance of deposit while making addition of deemed dividend
Dhariya Construction Pvt. Ltd., u/s 2(22)(e) as per assessment order dated 19th Oct 2015. 35. The amount of Rs 60,00,000/- is not the amount of deposit accepted, but it is a transaction of recovery of deposit given / paid. So, this amount should not have been added back and not considered as part of deemed dividend by the AO. Prayer
The same issue of deemed dividend has come up for hearing for the AY 2011-12 37. The objections and issues raised as above are applicable to the AY 2011-12 as well. The same needs to be addressed before disposing of the appeal.”
We have given our thoughtful consideration to the assessee foregoing objections and find no merit therein once the learned co-ordinate bench has already considered all the relevant facts hereinabove. The same would amount to revisiting the earlier findings in our considered opinion. We therefore adopt judicial consistency and restore the impugned deemed dividend in light of learned co-ordinate bench forgoing observations. The Revenue succeeds in its instant sole substantive grievance.
6. The assessee at this stage sought to highlight the fact that the impugned sum of deemed dividends to the tune of Rs.1,35,222/- wrongly includes Rs.60 lakhs which represents transaction of recovery of deposit given/ paid. Mr. Abhay Avchat also sought to highlight fact the assessee has preferred its cross objections as against the CIT(A)’s instant order well regarding erroneous computation impugned addition amount to this effect.
Dhariya Construction Pvt. Ltd., The foregoing cross objection(s) is neither registered nor listed as on date. Be that as it may, we make it clear it shall be very much open to the assessee to seek correct computation of the impugned addition in-consequential proceeding; if so advised, which will be considered as per the law by the Assessing Officer. Ordered accordingly.
This Revenue’s appeal is allowed in above terms. Order pronounced in the Open Court on this 12th day of August, 2022.
Sd/- Sd/- (DR.DIPAK P.RIPOTE) (S.S. GODARA) लेखध सदस्य/ ACCOUNTANT MEMBER न्यधनयक सदस्य/JUDICIAL MEMBER पपणे / Pune; ददनधांक / Dated : 12th August, 2022. Ashwini आदेश की प्रनतनलनप अग्रेनषत / Copy of the Order forwarded to : अपऩलधथी / The Appellant. 1. प्रत्यथी / The Respondent. 2.
3. The CIT(A)-1, Pune.
The Pr.CCIT -I, Pune. 5. नवभधगऩय प्रनतनननध, आयकर अपऩलऩय अनधकरण, “ए” बेंच, पपणे / DR, ITAT, “A” Bench, Pune. गधर्ा फ़धइल / Guard File. आदेशधनपसधर / BY ORDER, 6. // True Copy // Senior Private Secretary आयकर अपऩलऩय अनधकरण, पपणे / ITAT, Pune.
Dhariya Construction Pvt. Ltd., S.No. Details Date Initials 1 Draft dictated on 22.06.2022 2 Draft placed before author 12.08.2022 Draft proposed & placed before the Second 3 Member 4 Draft discussed/approved by Second Member 5 Approved Draft comes to the Sr. PS/PS 6 Kept for pronouncement on 7 Date of uploading of Order 8 File sent to Bench Clerk 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order