ASSISTANT COMMISSIONER OF INCOME-TAX vs. SHRI VILAS RASIKLAL SHAH, NASHIK

PDF · subscribers
ITA 1918/PUN/2016Status: DisposedITAT Pune12 December 2018AY 2012-134 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that Section 2(22)(e) does not apply to non-gratuitous advances. Since the assessee mortgaged property for the company's loan, the advances received were not deemed dividend.

What were the facts?

The Assessing Officer added Rs. 2,48,73,753/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961, on advances paid by a company to its shareholder. The assessee argued that the advances were not gratuitous as they were linked to the company taking a larger loan against the assessee's mortgaged property.

What were the issues?

Whether advances received by a shareholder from a company, where the shareholder has mortgaged property as collateral for a larger company loan, constitute deemed dividend under Section 2(22)(e).

Which sections of the Income-tax Act were involved?

Section 2(22)(e)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE

For Appellant: Ms. Sabhana Parveen
For Respondent: Shri Sanket Joshi
Hearing: 27.11.2018Pronounced: 12.12.2018

आदेश/ ORDER

PER D. KARUNAKARA RAO, AM :

This appeal is filed by the Revenue against the order of CIT(A)-2, Nashik dated 30.06.2016 for the Assessment Year 2012-13.

2.

The grounds raised by the Revenue are as under :- “i) Whether on the facts and in the circumstances of the case, the Ld. CIT(A)-2, Nashik was justified in deleting the addition of Rs.2,48,73,753/- on account of deemed dividend? ii) Whether the Ld. CIT(A) should have considered that the assessee himself is proffering various alternative arguments and propositions which show his vacillating stand? iii) The appellant prays that the order of the Ld. CIT(A)-2, Nashik may please be cancelled and the order of Assessing Officer may please be restored. iv) The appellant prays to adduce such further evidence to substantiate his case. v) The appellant prays leave to add, alter, clarify, amend and or withdraw any grounds of appeal as and when the occasion demands.”

ITA No.1918/PUN/2016

3.

From the above, it is evident that the solitary issue raised in the

grounds of appeal relates to the addition of Rs.2,48,73,753/-. The brief

facts relate to the issue include that the assessee is engaged in the

business of land development. Assessee filed the return of income on

29.03.2013 declaring total income of Rs.6,35,00,717/-. In the scrutiny

assessment proceedings u/s 143(3) of the Act, the Assessing Officer made

the said addition of Rs.2,48,73,753/- u/s 2(22)(e) of the Act relating to

“deemed dividend”. In the assessment order, the Assessing Officer

mentioned that the assessee held 79.17% of shares of the company in M/s

Viraj Estates Private Limited. The company paid advances to the assessee

amounting to Rs.2.35 crores. Therefore, the Assessing Officer invoked the

provisions of section 2(22)(e) of the Act and taxed the same as “deemed

dividend” in the hands of the assessee. Assessee argued that the payment

of loan/advance was done in the context of giving the assets of the

assessee. High value assets of the assessee are mortgaged. However, the

Assessing Officer rejected the assessee’s submissions dated 23.02.2015

wherein assessee mentioned that the assessee mortgaged his property for

the benefit of the company for getting the loan of Rs.5 crores for the

company. As a guarantor, the liability to pay the loan is on the assessee

and the same constitutes the huge liability. This liability is much more

than the loans/advance taken by the assessee from the company.

4.

During the first appellate proceedings, this issue was adjudicated by

the CIT(A) in favour of the assessee relying on the judgment of Hon’ble

Calcutta High Court in the case of Pradeep Kumar Malhotra vs. CIT, 338

ITR 538. The operational part given by the CIT(A) in para 10.2 of his order.

In the said judgement, the fact of the case is that a shareholder mortgaged

his property for acquiring loan from bank. The facts are similar to that of

ITA No.1918/PUN/2016

the assessee. Further, relying on the said judgement, the CIT(A) granted

relief to the assessee.

5.

Aggrieved with the above decision of the CIT(A), the Revenue is in

appeal before the Tribunal with the grounds extracted above.

6.

Before us, ld. Counsel for the assessee read out the relevant facts

narrated above and also the relevant paragraphs of the order of the CIT(A)

one side and the judgements cited by the CIT(A) on the other.

7.

On the other hand, ld. DR for the Revenue relied on the order of the

Assessing Officer and submitted that the judgement of Hon’ble Calcutta

High Court (supra) is not binding on the office of the Pune jurisdiction.

Therefore, the CIT(A)’s order requires reversal. However, ld. DR could not

file any contrary judgement in force on this issue under consideration.

8.

We have heard both sides on this limited issue of invoking the

provisions of section 2(22)(e) of the Act in respect of the loans/advances

given by the company to the assessee, when the assessee mortgaged his

property as a guarantee for the company to take loan of higher amount

from the banks. In the process, the assessee gave up his rights on the

property. Therefore, taking advance of Rs.2.35 crores from his company is

not deemed dividend when the liability of the company of Rs.5 crores is on

the asessee. On hearing both sides and perused the said judgement, we

find the said judgement is relevant for the following legal proposition and

held portion of the same is extracted as under :-

“Allowing the appeal, that for retaining the benefit of loan availed of from the bank if decision was taken to give advance to the assessee such decision was not to give gratuitous advance to its shareholder but to protect the

4 ITA No.1918/PUN/2016

business interest of the company. The sum of Rs.20,75,000 could not be treated as deemed dividend.”

9.

From the above, it is evident that in case of non-gratuitous advances, the provisions of section 2(22)(e) of the Act has no application. It is not the case of the Revenue that the loan taken by the assessee from the company constitutes gratuitous advances. The facts of the company taking loan from the Bank against the guarantee of property of the assessee and given loan of Rs.2.35 crore to the assessee are undisputed. Therefore, we are of the opinion that the decision given by the CIT(A) in his order is fair and reasonable and does not call for any interference.

10.

In the result, the appeal of the Revenue is dismissed.

Order pronounced on this 12th day of December, 2018.

Sd/- Sd/- (SUSHMA CHOWLA) (D.KARUNAKARA RAO) �या�यकसद�य/ JUDICIAL MEMBER लेखासद�य/ ACCOUNTANT MEMBER पुणे/ Pune; �दनांकDated : 12th December, 2018. Sujeet आदेशक���त�ल�पअ�े�षत/Copy of the Order is forwarded to : अपीलाथ�/ The Appellant; 1. ��यथ�/ The Respondent; 2. 3. The CIT(A)-2, Nashik; 4. The Chief CIT, Nashik; �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, पुणे“A” / DR ‘A’, 5. ITAT, Pune; गाड�फाईल/ Guard file. 6.

// True Copy // आदेशानुसार/ BY ORDER,

स�या�पत ��त//True Copy// Senior Private Secretary आयकरअपील�यअ�धकरण ,पुणे/ ITAT, Pune

Similar judgments

Other orders that rely on the same authority or decide the same section.

More judgments on Section 2(22)(e)

All 1,757 judgments and leading authorities on Section 2(22)(e) →

Latest GST High Court judgments

Search GST case law →