ACIT 12(1)(1), MUMBAI vs. ASSOCIATED HOSPITALITY LTD DEVELOPERS P. LTD, MUMBAI

आयकर अपील�य अ�धकरण, मुंबई �यायपीठ, ‘ए’,मुंबई। IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “A”, MUMBAI Before Shri MAHAVIR SINGH, Judicial Member, and Shri G. MANJUNATHA, Accountant Member

ITA No.1348/Mum/2017 Assessment Year 2013-14 DCIT-12(1)(1), M/s Associated Hospitality & Room No.223, 02nd Floor, Developers Pvt. Ltd. बनाम/ Aayakar Bhavan, 4th Floor, Techniplex-1, Off. Vs. M.K. Road, Veer Savarkar Flyover, Mumbai-400020 Goregaon (W), Mumbai-400062 (राज�व /Revenue) (�नधा�रती /Assessee) P.A. No. AAFCA7847P Shri Anadi Varma CIT-DR राज�व क� ओर से / Revenue by �नधा�रती क� ओर से / Assessee by Shri Rajesh S. Shah

20/02/2019 सुनवाई क� तार�ख / Date of Hearing : 17/05/2019 आदेश क� तार�ख /Date of Order: आदेश / O R D E R Per G. Manjunatha (Accountant Member) This appeal filed by the Revenue is directed against order of the Ld. CIT(A)-20, Mumbai, dated 28/11/2016 and it pertains to AY 2013-14. The Revenue has raised following grounds of appeal.:-

2 ITA No.1348/Mum/2017 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the decision of M/s Gharda Chemicals Ltd. in ITA No. 6321 & 6025/Mum/2009 and other case laws which are not applicable to the facts of the instant case." 4. "The appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the A.O. be restored." 2. The brief, facts of the case are that the assessee is engaged in the business of

running a five star category Hotel and to give shops on leave and licence basis, filed

its return of income for AY 2013-14 on 29/09/2013 and declared total income at

Rs.2,34,80,210/-. The case was selected for scrutiny and the assessment has been

completed u/s 143(3) of the Act, on 29/02/2016 determining total income at

Rs.18,40,90,120/- inter alia by making addition towards disallowance of interest

debited in to the profit & loss account u/s 36(1)(iii) of the Act, on the ground that the

assessee has diverted funds borrowed from banks to sister/associate concern without

charging any interest. Similarly, the AO has made additions of Rs.15 crores u/s

2(22)(e) of the Act, on the ground that although the assessee has received loans from

a company where the common shareholders holding more than 10% of beneficial

interest but failed to declare deemed dividend envisaged u/s 2(22)(e) of the Act.

the ld. First Appellate Authority. The Ld. CIT(A), for the detailed reasons recorded in

its appellate order dated 28/11/2016 allowed appeal filed by the assessee and deleted

additions made by the AO towards disallowance of interest u/s 36(1)(iii) of the Act and

also addition towards deemed dividend u/s 2(22)(e) of the act. The relevant finding of

the Ld. CIT(A) are as under:-

3 ITA No.1348/Mum/2017

“6.5 I have gone through the assessment order and submissions made in this regard. It is seen that the assessee has claimed interest on borrowed funds u/s.36(l)(iii)/ which was realized for investment in AKBG Investments, which is a sister/associate concern. The investment was made for purchase of Land and Buildings with a view to construct hotel on said land, it is abundantly clear that the amount borrowed from SBI and Yes Bank Ltd. was advanced by the Appellant to its sister concern / group company to purchase a plot of land for construction of hotel and therefore there was a commercial expediency when the amounts were paid by the Appellant. The assessee had controlling interest in the associate concern, therefore the assessee was entitled for claim of interest on the funds acquired for investment made in these concerns out of commercial expediency. It is also found that investment was made in the subsidiary company with a similar line of business and for commercial expediency, therefore, no disallowance was warranted u/s.36(l)(iii), in view of the decision of Hon'ble Supreme Court in the case of S.A. Builders, 288 ITR 1(SC). It is found that the purpose for which advances were made is covered by the principle of commercial expediency, therefore, following the decision of Hon'ble Supreme Court in the case of S.A. Builders (supra) the disallowance of interest of Rs. 1,06,06,9067- made by the AO cannot be sustained in appeal and is directed to be deleted. Accordingly this ground of appeal is allowed.”

“7.4. I have gone through the assessment order and submissions made in this regard. It is seen that the AO had made addition of the amount of Rs.15,00,00,000/- as "Deemed Dividend" u/s 2(22)(e) of the Income-tax Act, 1961 in the hands of the appellant. The Appellant has submitted that on the facts and circumstances of the case and in law, the learned AO has erred in taxing a sum of Rs. 15.00 Cr. received by the Appellant from BRIPL as deemed dividend by invoking the provisions of section 2(22)(e) of the Act. In this regard the Appellant submitted that an amount of Rs. 15.00 cr. was received by the Appellant from BRIPL on behalf of sister/group company/firm to be formed and it was not received by the Appellant from BRIPL as a loan. The money was received from BRIPL in the normal course of business for the purpose of purchase of land on which a Hotel building was to be constructed for the purpose of business of the assessee. The Appellant, therefore, submitted that the provisions of section 2(22)(e) of the Act cannot be invoked as there was no loan transaction between appellant and BRIPL. It is seen that the Hon'ble Delhi High Court in the case of CIT vs. Raj Kumar 318 ITR 462 has dealt with similar issue wherein this issue was elaborately discussed as under: - "Section 2(22)(e) of the Income-tax Act, 1961, shows that a payment would acquire the attributes of a dividend within the meaning of the provision if the following conditions are fulfilled: (i) the company making the payment is one in which the public are not substantially interested; (ii) money should be paid by the company to a shareholder holding not less than ten per cent. of the voting power of the

4 ITA No.1348/Mum/2017

company. It would make no difference if the payment was out of the assets of the company or otherwise; (iii)the money should be paid either by way of an advance or loan or it may be "any payment" which the company may make on behalf of or for the individual benefit of any shareholder or also to concern in whihc such shareholder is a member or a partner and in which he substantially interested; and (iv)the limiting factor being that these payments must be to the extent of accumulated profits, possessed by such a company. The immediate precursor to section 2(22)(e) is found in section 2(6A) of the Indian Income-tax Act, 1922.

The purpose of insertion of sub-clause (e) to section 2(6A) in the 1922 Act was to bring within the tax net monies paid by closely held companies to their principal shareholders in the guise of loans and advances to avoid payment of x. Therefore, sub-clause (e) of section 2(22) of the 1961 Act, which is in pan i ateria with sub- clause (e) of section 2(6A) of the 1922 Act, plainly seeks to bring within the tax net, accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner that they assist the shareholders in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholders' money in the form of an advance or loan. The word "advance" has to be read in conjunction with the word "loan". Usually attributes of a loan are that it involves the positive act of lending coupled with acceptance by the other side of the money as loan: it generally carries interest and there is an obligation of repayment. On the other hand, in its widest meaning the term "advance" mayor may not include lending. The word "advance" if not found in the company of or in conjunction with a word "loan" mayor may not include the obligation of repayment. If it does, then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term "advance". The rule of construction which answers this conundrum is noscitur a sociis. The rule has been explained both by the Privy Council in the case of Angus Robertson v. George Day [1879] 5 AC 63 by observing "it is legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them" and the Supreme Court in the case of Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise, AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610. The principles with regard to the applicability of the rule of construction are briefly as follows : (i) does the term in issue have more than one meaning attributed to it, i.e., based on the setting or the context one could apply the narrower or wider meaning; (ii) are the words or terms used found in a group totally "dissimilar" or is there a "common thread" running through them; (iii) the purpose behind inserting of the term. In the instant case (i) the term "advance" has undoubtedly more than one meaning depending on the context in which it is used; (ii) both the terms, that is, "advance" or "loan" are related to the accumulated profits of the company; and (iii) the purpose behind the insertion of the term "advance" was to

5 ITA No.1348/Mum/2017

bring within the tax net payments made in the guise of loan to shareholders by companies in which they have a substantial interest so as to avoid payment of tax by the shareholders. The word "advance" which appears in the company of the word "loan" could only mean such advance which carries with it an obligation of repayment. Trade advances which are in the nature of money transacted to give effect to a commercial transaction would not fall within the ambit of the provision of section 2(22)( e) of the Act. The assessee was in the business of manufacturing customized kitchen equipment. The assessee was also the managing director and held nearly 65 per cent. of the paid-up share capital of C. A substantial part of the business of the assessee, which was nearly 90 per cent was obtained through C. For this purpose, C would pass on the advance received from its customers to the assessee to execute the job work entrusted to the assessee. The Assessing Officer was of the opinion that the money received by the assessee was in the nature of a loan given by C to the assessee who admittedly held more than 10 per cent. of the shares in C. The Assessing Officer concluded that the money received by the assessee was deemed dividend within the meaning of the provisions of section 2(22)(e). The Commissioner (Appeals) reversed the order of the Assessing Officer. The Tribunal sustained the decision of the Commissioner (Appeals). On appeal: Held, that the trade advances given to the assessee by C could not be treated as deemed dividend under section 2(22)(e)." The Hon'ble Mumbai ITAT in ITA No. 6321 & 6025/Mum/2009 Gharda Chemicals Ltd. Asst. Year 2003-04 vide order dt. 22nd April, 2016 had followed the principles established by the Hon'ble Delhi High Court in the case of CIT vs. Raj Kumar 318 ITR 462. The same principles were also reiterated by the Hon'ble Delhi Court in the case of CIT vs. Ambassador Travels P. Ltd. 318 ITR 376. It is seen from the facts and circumstances of the present case the Appellant had received Rs.15.00 crore from BRIPL on behalf of sister/group company/firm to be formed and it was not received by ie Appellant from BRIPL as a loan. It was part of normal business transactions of assessee and provisions of section 2(22) (e) are not attracted in the case of normal business transactions. It is noted that the that the amount of Rs. 15.00 cr. was received by the Appellant from BRIPL on behalf of sister/group company/firm to be formed and it was not received by the Appellant from BRIPL as a loan. The money was received from BRIPL in the normal course of business for the purpose of purchase of land on which a Hotel building was to be constructed for the purpose of business of the assessee. It was not a loan transaction but a transaction in the normal course of business. As per the legal precedents discussed above the commercial transactions between two companies cannot be brought within the purview of the provisions of section 2(22)(e). In view of this discussion the addition made by the learned AO by taxing a sum of Rs. 15.00 cr. received by appellant from group company as deemed dividend by invoking the provisions of section 2(22)(e) of the Act cannot be sustained in appeal and is directed to be deleted. Accordingly this ground of appeal is allowed.”

6 ITA No.1348/Mum/2017 5. The first issue that came up for our consideration from ground no. 1 of

Revenue’s appeal is deletion of additions made towards disallowance of interest u/s

36(1)(iii) r.w.s 37(1) of the Act. The factual matrix of the impugned dispute are that

during the course of assessment proceedings, the AO noticed that assessee has

borrowed huge term loans from YES Bank Ltd. and also advanced various loans to its

sister concern M/s AKBG Investment, therefore, called upon to explain as to why

interest expenditure shall not be disallowed u/s 36(1)(iii) of the Act. In response, the

assessee, vide its letter dated 05/10/2015 submitted that as a measure of commercial

expediency, the assessee has given loans and advances to its sister concerns for the

purpose of development of a hotel. It was further stated that the said firm invested the

amount in Associated hospitality Pvt. Ltd. which is one of the sister concern, for the

purpose of buying land and building with intention to construct of a hotel. Therefore,

there is commercial expediency in advancing in loans and accordingly, no

disallowance could be made u/s 36(1)(iii) of the Act.

taken note of the fact that the assessee has diverted interest bearing funds to non-

business purpose to give loans and advances to its sister concern without establishing

the nexus between loans and advances and commercial expediency, disallowed

interest debited in to the profit & loss account u/s 36(1)(iii) of the Act. The relevant

observations of the AO are as under:-

“3.8 The land purchased under consideration was made towards the auction done by Kotak Mahindra Bank for a total amount of

7 ITA No.1348/Mum/2017

Rs.36.50 crores. The ledger accounts and the payment schedules of the assessee company shows that for the total consideration payable, till 27.06.2012, the assessee has already paid an amount of Rs.27.37 crores from its own books of accounts, which means the source of investment is from the funds available from its own cash flow. The assessee vide its letter dated 08.02.2016 has submitted the details of payment made towards the purchase of land wherein the source of these payments has been tabulated, which indicates that the source have been received from the cash credit facilities availed from SBl/loan from the Directors/the amount received from its sister/group concern i.e., Balwas Realty & infrastructure Pvt Ltd. (BRIPL). It is clearly evident that the sources of such funds are interest bearing cost to the company and the assessee has to pay interest thereon for a primary cause to acquire the Land. The investment in land shall in long term yield capital gains to the assessee company and not business profits because the assessee had scrupulously registered the land in the name of its subsidiary company i.e., Associated Hospitality Pvt Ltd. (AHPL). It is worthwhile to mention here that AHPL was incorporated on 09.07.2012. Secondly, the partnership firm in which the assessee company invested i.e., AKBG Investment was registered on 05.10.2012. Initially, when the investment was made in AHPL, the percentage of holding was 82% on 09.07.2012. Subsequently, within a span of two months, the shareholding was decreased and it came down to 16.40%. Similar incidence took place while making investment in the firm's account i.e., AKBG Investment. Initially, it was higher and on the Balance Sheet date, it was holding a meager 10%. The assessee has miserably undertaken transactions to camouflage the investment made in the land. Initially, the investment in land was acquired from auction from ' Kotak Mahindra Bank in the name of the assessee company. Though the bid was successfully made, the assessee had insufficient funds and hence, the Balance Sheet clearly reveals that the assessee has substantially borrowed in the form of long term borrowings from SBI and Yes Bank in order to make payment towards the purchase of land. The schedule of payments and its source are tabulated as under: Cheq./ PO Bank and Amount (Rs.) Paid By Paid to Source No.RTGS branch

806520 / SBI, Malad 3,00,00,000 Associated Kotak Out of the credit facilities 09.04.2012 (West), Hospitality & Mahindra of Rs.750.00tacs availed Mumbai Developers Pvt. Bank Ltd. from SBI as informed by our letter dated 5tfl Ltd. - Assessee January, 2016 565151 / SBI, Malad 4,30,00,000 Associated Kotak 23.04.2012 (West), Hospitality & Mahindra Mumbai Developers Pvt. Bank Ltd. Ltd. - Assessee

8 ITA No.1348/Mum/2017

5651577 SBI, Malad 5,47,00,000 Associated Kotak Loan from the Directors 24.05.2012 (West), Hospitality & Mahindra Mumbai Developers Pvt. Bank Ltd. Ltd. - Assessee 331586/ SBI, Malad 7,30,00,000 Associated Kotak Amount received from 14.06.2012 (West), Hospitality & Mahindra sister / group concern Mumbai Developers Pvt. Bank Ltd. Balwas Reality & Ltd. -Assessee Infrastructure Pvt Ltd as its contribution towards capital of the new company / firm.

8389837 SBI, 7,30,00,000 Associated Kotak Amount received from 27.06.2012 Malad Hospitality & Mahindra sister / group concern (West), Developers Pvt, Bank Ltd. Balwas Reality a Mumbai Ltd. -Assessee Infrastructure Pvt Ltd as its contribution towards capital of the new company / firm.

RTGS/ SBI, 9,13,00,000 Associated Kotak Rs.176.00 lacs from the 19.07.2012 Malad Hospitality Pvt. Mahindra assessee - Out of loan (West), Ltd. - Bank Ltd. proceeds from Yes Mumbai Subsidiary of Bank Ltd as informed the assessee by our letter dated 5th January, 2016. Rs.40.00 lacs received from sister / group company Balwas Reality 6t Infrastructure Pvt. Ltd. as its contribution towards capital of the new company / firm Rs.575.00lacs received as share application money and loan from shareholders. Rs.122.00 lacs from internal resources of the assessee company and the loans from Directors and their relatives.

3.9 In normal course, the interest on the borrowed funds for acquisition of land deserves to be capitalized under the land account and disallowed from the business expenditure, in order to escape from the clutches of the disallowance, the assessee had made arrangements as investments in its subsidiary company AHPL and firm -AKBG Investment, and has diverted the revenue that the investments are made in their subsidiary

9 ITA No.1348/Mum/2017

companies and firm in order to camouflage that the gains from this adventure shall be business income. But, in real terms, any gain from the firm or from its subsidiary company shall be income which shall be treated u/s 10(14) and 10(2A) of the Act in the form of dividend income and share from partnership firm or capital gains by way of sale of shares. In none of the case, the assessee company can have any income which is chargeable to tax under the head "Income from Business or Profession". Thus the assessee may earn exempt income or capital gains but correspondingly, the interest cost towards the investment in the firm and the subsidiary company has been debited to the P&L a/c. 3.10 The group entity (Associated Hospitality Pvt. Ltd.) in whose name the Andheri Plot has been finally registered has ceased to be the subsidiary of the assessee company within few months of incorporation and the assessee company is holding only 16.40% shares in Associated Hospitality Pvt. Ltd., therefore, has ceased to be a subsidiary so as to get covered by the decision of the Hon'ble Apex Court in the case of S.A^ Builders and Hero Motors. Further, the logic of "Business Expediency" highlighted by the assessee company relying upon the said judgements is not acceptable since it is a case where the intention is business expansion. The assessee company could not make out any case of exigency or expediency. 3.11 Accounting Standard-16 deals with and prescribes the treatment for borrowing costs. The objective of this Standard is to prescribe the accounting treatment for borrowing costs. The following terms are used in AS 16 with the meanings specified:

"Borrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing of funds. A qualifying asset is on asset that necessarily takes a substantial period of time to get ready for its intended use or sate. Further as per Explanation to the definition of the ASH: What constitutes a substantial period of time primarily depends on the facts and circumstances of each case. However, ordinarily, a period of twelve months is considered as substantial period of time unless a shorter or longer period can be justified on the basis of facts and circumstances of the case. Borrowing costs may include: • Amortization of ancillary costs incurred in connection with the arrangement of borrowings; • finance charges in respect of assets acquired under finance leases or under other similar arrangements; and

10 ITA No.1348/Mum/2017

• Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. " • Interest and commitment charges on bank borrowings and other short-term and long-term borrowings; - • Amortization of discounts or premiums relating to borrowings; Examples of qualifying assets are manufacturing plants, power generation facilities, inventories that require a substantial period of time to bring them to a saleable condition, and investment properties. As per the AS-16, borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of the cost of that asset. The amount of borrowing costs eligible for capitalization should be determined in accordance with this Standard. Borrowing costs are capitalized as part of the cost of a qualifying asset when it is probable that they will result in future economic benefits to the enterprise and the costs can be measured reliably. Borrowing Costs Eligible for Capitalization are the borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. When an enterprise borrows funds specifically for the purpose of obtaining a particular qualifying asset, the borrowing costs that directly relate to that qualifying asset can be readily identified and should be capitalized. The assessee company has entirely ignored this Accounting Standard even when it is evident that there entire borrowings have been used for acquiring the "Andheri Plot" when the majority of the payment were made by it to the bank. Also in the subsequent act of getting it transferred to its subsidiary, the claim of interest cannot be allowed as revenue expenditure in the books of the assessee company. Things which are not allowed directly, cannot be allowed indirectly. Had the Andheri plot remained with the assessee company, then the interest expenditure pertaining to the funds utilized for acquiring the same should have been capitalized. By shifting the land to its subsidiary, the assessee company is attempting to claim interest expense while simultaneously not charging the same from the group concern. 3.12 Therefore, primarily, the interest cost in any case deserves not to be allowed because the interest cost enters the investment in land and even otherwise, since has been finally registered in the hands of the subsidiary company, the income from such company shall be dividend income exempt to tax. As aforesaid and established fact that all the term loans from Yes Bank and SBI has entered towards the cost of investment in land, the total interest on these loans deserves not allowable u/s 36(1)(iii) and 37(1) of the Act because the yield of the interest cost have no business exigency nor it is a revenue expenditure. 3.13 The total interest cost debited in the P&L A/c is as follows:

11 ITA No.1348/Mum/2017

Interest on cash credit facility - SBI Rs. 26,58,525 Interest on term loan - SBI Rs. 64,22,364 Interest on term loan - Yes Bank Rs. 15,29,017 Total Rs. 1106,09,906 In view of the above discussion, the aggregate amount of interest cost of Rs.1,06,09,906/- is hereby not allowable u/s. 36(1)(iii) of the Act and added to the total income of the assessee. Without prejudice, the aggregate interest cost of Rs.1,06,09,906/- is held to be not incurred wholly and exclusively for the purpose of business of the assessee in view of the detailed discussion made in the foregoing paragraphs. Hence, the said interest is not admissible an expenditure u/s. 37(1) of the Act. 3.14 Penalty proceedings u/s. 271(1)(c) of the Income-tax Act, 1961 are hereby initiated for furnishing inaccurate particulars of income leading to concealment of income by way of claiming expenditure not allowable as the provisions of the Act.

towards disallowance of interest expenditure u/s 36(1)(iii) of the Act without

appreciating the fact that the AO has narrated the facts and evidence before coming to

the conclusion that the arguments advanced by the assessee of business expediency

is not proved with necessary evidences. The Ld. DR further submitted that the AO has

brought out clear facts to the effect that the assessee has borrowed huge loans and

advances from bank and diverted such interest bearing funds to its sister concern for

the purpose of acquisition of land and building. The AO has discussed the issue in his

assessment order at para 3.8 and 3.9 before coming to the conclusion that the

assessee has failed to establish the nexus between loans and advances and business

expediency. Therefore, without considering the facts brought out by the AO in the

12 ITA No.1348/Mum/2017 assessment order, the Ld. CIT(A) simply deleted the additions made towards interest

disallowance by following the decision of the Hon’ble Supreme Court in the case of S.

A. Builders Ltd. vs CIT 288 ITR 1(SC) without specifying how the facts of the present

case are identical are similar to the facts considered by the Hon’ble Supreme Court in

the case of S.A. Builders Ltd. (supra).

the Ld. CIT(A) submitted that the assessee has filed complete details to prove nexus

between loans and advances and business expediency, therefore, the Ld. CIT(A) has

rightly appraised the facts before coming to the conclusion that the assessee has

sufficient interest free funds in form of share capital and reserve & surplus, therefore,

there is no reason to disallow interest expenditure u/s 36(1)(iii) of the Act.

9 We have heard both parties, perused the material available on record and gone

through the orders of authorities below. The AO has discussed the issue threadbare in

its assessment order at para 3.8 and 3.9 before coming to the conclusion that the

assessee has failed to make out a case of business expediency in advancing loans to

its sister concern. The facts brought out by the AO indicate that the assessee has

given huge interest free loans and advances to its sister concern through a

partnership firm M/s AKBG Investment. The said loans and advances have been in

turn given to Associated hospitality Pvt. Ltd., another sister concern of the assessee

for purchased land and building for construction of hotel. The said land has been

purchases for a consideration of Rs.36.50 crores by an auction done by Kotak

13 ITA No.1348/Mum/2017 Mahindra Bank. The ledger accounts and the payment schedules of the assessee

company shows that the assessee has paid till 27/06/2012 an amount of Rs.27.37

cores from its own bank accounts which means the source of investment is from the

funds available from the assessee. The assessee vide its letter dated 08/02/2016 has

submitted the details of payment made towards purchase of land wherein, the source

of these payments have been tabulated, which indicates that the source have been

received from the cash credit facilities availed from State Bank of India loan and also

loans taken from Directors. It is also clearly evident from the above details that the

assessee has used interest bearing funds to give loans and advances to its associate

concern without charging any interest. The AO has brought out above facts in its

assessment order by linking each payments made by the assessee to its

associate/sister concern. On perusal of facts brought out by the AO, it is abundantly

clear that the assessee had given loans and advances to its sister concerns through

another partnership firm. We further noted that the assessee has routed its funds to

sister concerns through a partnership firm in order to camouflage that the gains from

this adventure shall be business income, but in real terms any gain from the firm or

from its subsidiary company shall be income exempt u/s 10(14) and 10(2A) of the Act,

in the form of dividend income and share of profit partnership firm. In none of the case,

the assessee company can have any income which is chargeable to tax under head

‘income from business or profession’. Thus, the assessee may earn exempt income

or capital gains, but correspondingly interest paid towards investment in the firm and

the subsidiary company has been claimed as deduction under the guise of business

14 ITA No.1348/Mum/2017 expenditure. We further noted that the AO has discussed another aspect of the issue

as per which the group entities i.e. Associated hospitality Pvt. Ltd. under whose name,

the Andheri flat has been finally registered has ceased to be the subsidiary of the

assessee company within few months of incorporation and the assessee company is

holding only 16.40 %. Therefore, on the basis of above facts it is evidently clear that it

is ceased to be subsidiary and hence, cannot be to get covered by the decision of the

Hon’ble Supreme Court in the case of S.A. Builders Ltd.(supra) and Hero Cycles Pvt.

Ltd.(supra), therefore, there is no logic in the argument of the assessee that there is

business expediency in advancing loans to its sister concern. We further noted that

even though the AO has discussed applicability of accounting standard-16, the Ld.

CIT(A) has failed to give any finding on this aspect and went on to discuss issue in

light of the decision of Hon’ble Supreme Court in the case of S.A. Builders Ltd.

(supra), even though the facts brought out in the assessment order clearly says that

facts of the present case is not applicable to the facts considered by the Hon’ble

Supreme Court in the case of S.A. Builders (supra). Therefore, we are of the

considered view that the Ld. CIT(A) completely went wrong in deciding the issue in the

light of decision of Hon’ble Supreme Court without establishing the fact that how loans

and advances given by the assessee to its associate enterprises/sister concern is

comes within the ambit of business expediency.

for the assessee has advanced an alternative arguments in the light of decision of the

15 ITA No.1348/Mum/2017 Hon’ble Bombay High Court in the case of HDFC Bank Ltd. vs DCIT (2016) 383 ITR

529(Bom.) as per which, if own fund are in excess of loans and advances or there are

mixed funds then a general presumption goes in favour of the assessee that

investments or loans and advances is out of own funds, consequently interest

expenditure cannot be disallowed u/s 36(1)(iii) of the Act. We find that although the Ld.

AR has made an alternative argument in light of the above judgment, but failed to file

necessary evidences to prove that it has sufficient own funds which is over and above

loans and advances given to sister concern and also interest bearing funds have been

fully utilized for the purpose for which such funds has been borrowed, therefore, the

alternative argument of the assessee is held to be devoid at merits.

decision of United Breweries Ltd. vs ACIT (2015) 229 taxman 113 (kar.) where the

Court held that if the arguments of the assessee is accepted whenever a holding

company lends money to subsidiary company, then the holding company would be

entitled to the benefit of deduction u/s 36(1)(iii) is incorrect because i.e. not the

intention of the law. Though there is no provision in law for supporting the subsidiary

company to get benefit of deduction u/s 36(1)(iii) or 37(1), the money lent should be

laid out and extended to only for the purposes of business of the assessee. There

should be a direct nexus between the loan and advances and the business for which

the money is lent. If that connection is not there, merely because the money was lent

to a sister-concern or to a subsidiary company would not enable the assessee to claim

16 ITA No.1348/Mum/2017 such deduction. Similarly, the Hon’ble Allahabad High Court in the case of Punjab

Auto Industries (P.) Ltd. (2008) 306 ITR 149 (All.) held that where borrowed funds

were diverted by the assessee for purchase of land and building then the Department

was justified in disallowing interest on same.

sides, we are of the considered view that the AO was right in disallowing interest

expenditure u/s 36(1)(iii) r.w.s. 37(1), because the assessee has failed to make out a

case of availablity of own funds in order to apply the decision of the Hon’ble Bombay

High Court in the case of HDFC Bank Ltd. (supra) and also judgement of the Hon’ble

Supreme Court in the case of S. A. Builders (supra) to hold that there is nexus

between the loan and advances and business expediency. The Ld. CIT(A) without

appreciating the fact has simply deleted additions made by the AO, hence, we reverse

the findings of the Ld. CIT(A) and upheld the additions made by the AO towards

disallowance of interest u/s 36(1)(iii) of the Act.

made towards deemed dividend of Rs.15 crores u/s 2(22)(e) of the Act in respect of

loans and advances received from group companies. The factual matrix of the

impugned disputes are that the assessee has received a sum of Rs.15 crores from

M/s Balwas Realty & Infrastructure Pvt. Ltd. ((BRIPL) in the form of loans and

advances. The AO observed that there are common shareholders holding more than

10% beneficial holding in both companies. The AO further observed that accumulated

17 ITA No.1348/Mum/2017 profits under the head reserve and surplus as on 31/03/2012 in the balance sheet of

Balwas Realty & Infrastructure Pvt. Ltd. is Rs.16,98,06,252/-. In order to examine the

loans and advances received by the assessee from Balwas Realty & Infrastructure

Pvt. Ltd. in light of provision of section 2(22)(e), a show-cause notice was issued and

called up on the assessee to explain as to why the provisions of section 2(22)(e) shall

not be applied to treat loans and advances as deemed dividend. In response, the

assessee vide its letter dated 08/02/2016 submitted that provisions of section 2(22)(e)

can be applied to a case where loans and advances has been given to a registered

owner, but not in the hands of beneficial owners who is holding more than 10% of

share holding in company which gives loans and advances. The AO after considering

the submissions of the assessee and also relied upon various judicial precedence,

including the decision of the Hon’ble Supreme Court in the case of CIT vs Impact

Containers Pvt. Ltd. and also the decision of the Hon’ble Bombay High Court in the

case of N.S. N. Jewellers (P.) Ltd. (2015) 57 taxmann.com 113(Bom.) held that

provisions of section 2(22)(e) are clearly applicable where beneficial interest is more

than 10% in a company which gives loans and advances and also reserve and surplus

and accumulated profits is over and above loans and advances. The relevant findings

of the AO are as under:-

4.4 Going through the submissions dated 08.02.2016, the assessee summarily projected that in order to avoid the forfeiture of the amounts paid towards the purchase of the land, the assessee out of commercial expediency received an amount of Rs.15 crores from its sister concern, BRIPL. The assessee in this regard has also placed reliance in cases of Commissioner of Income-tax v. Universal Medicare (P.) Ltd. [2010] 324 ITR 263 (supra) and CtT, Central-IV v. Jignesh P. Shah [2015] 372 ITR 392 (supra).

18 ITA No.1348/Mum/2017

The facts decided in these case laws are distinguishable from the facts of the assessee's case. Further, to gain strength in the similar facts of the case, it is pertinent to mention the case law CIT v. N.S.N. Jewellers (P.) Ltd. [2015] 57 taxmann.com 113 (Bombay) [SLP admitted.] in Special Leave to Appeal (C) No. 5558 of 2015 dated July 7, 2015. The gist of the case is as follows: "Section 2(22) of the Income-tax Act, 1961-Deemed dividend (Loans or advances to share-holders/Shareholder)- Assessment year 2006-07 – Assessee company had received a sum by way of loan or advance from S1PL - As two shareholders of S1PL had a beneficial ownership of shares of assessee, Assessing Officer held that payment by way of loan or advance was a dividend under section 2(22)(e) - High Court by impugned order held that since recipient of loan, namely, assessee, was not a shareholder of SIPL, provisions of section 2(22)(e) would not apply - Whether Special Leave Petition filed against impugned order was to be granted - Held, yes [In favour of revenue]" 4.5 The provisions of Section 2(22) (e) Act reads as under:- " dividend includes (a) xxx xxx xxx (b) xxx xxx xxx (c) xxx xxx xxx (d) xxx xxx xxx

(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 315t 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 rote 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; 4.5.1 This provision creates a fiction providing certain circumstances under which certain kinds of payments made to the persons specified therein are to be treated as deemed dividend income. As per this provision, the following conditions are to be satisfied: (1) The payer company must be a closely held company.

19 ITA No.1348/Mum/2017

(2) It applies to any sum paid by way of loan or advance during the year to the following persons: (a) A shareholder holding at least 10 of voting power in the payer company. (b) A company in which such shareholder has at least 20% of the voting power. (c) A concern (other than company) in which such shareholder has at least 20% interest. (3) The payer company has accumulated profits on the date of any such payment and the payment is out of accumulated profits. (4) The payment of loan or advance is not in course of ordinary business activities. 4.5.2 In Commissioner of Income Tax Vs. C.P. Sarathy Mudaliar [1972] 83 ITR 170, the Supreme Court analysed the provision and pointed out that in so far as payment by a company by way of advance or loan is concerned, it can be made to any of the three persons mentioned therein i.e. it had three limbs and explained the same as under:- -Any payment by a company, not being a company in which the public are substantially interest, of any sum (whether as representing a part of the assets of the company or otherwise) made after 31.05.1987 by way of advance or loan. First limb a) 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 percent of the voting power, Second limb b) 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) Third limb c) or any payment by any such company on behalf, or for the individual benefit, or any such shareholder, to the extent to which the company in either case possesses accumulated profits. 4.5.3 If the contention of the assessee is accepted, in no case a closely held company receiving loans from another closely held company would come

20 ITA No.1348/Mum/2017

within the mischief of Section 2(22)(e) of the Act because of the reason that shares would be purchased by the common shareholder/shareholders. This would mean that the loan or advance given by the company would never be treated as deemed dividend either in the hands of the common shareholder or in the hands of recipient company. In this way, the very purpose for which this provision was enacted would get defeated. The object behind this provision is succinctly stated in the Circular No. 495 of 22nd September, 1997 particularly in the Explanatory Notes to Finance Act, 1997 when this provision was amended. It reads as under:- "—With the deletion of Section 104 to 109 there was a likelihood of closely held companies not distributing their profits to shareholders by way of dividends but by way of loans or advances to that these are not taxed in the hands of the shareholders. The forestall this manipulation, sub -clause (3) of clause (22) of Section 2 has been suitably amended. Under the existing provisions, payments by way of loans or advance to shareholders having substantial interest in a company to the extent to which the company possesses a accumulated profits is treated as dividend. The shareholders having substantial interest are those who have a shareholding carrying not less than 20 per cent voting power as per the provisions of clause (32) of Section 2. The amendment of the definition extends its application to payments made (i) to a shareholder holding not less than 10 per cent of the voting power, or (ii) to a concern in which the shareholder has substantial interest. Concern as per the newly inserted Explanation 3(a) to Section 2(22) means a HUF or a firm or an association of persons or a body of individuals or a company. A shareholders having a substantial interest in a concern as per part (b) of Explanation 3 is deemed to be one who is beneficially entitled to not less than 20 per cent of income of such concern. 10.3 The new provisions would, therefore, be applicable in a case where a shareholders has 10 per cent or more of the equality capital. Further, deemed dividend would be taxed in the hands of a concern where all the following conditions are satisfied: (i) where the company makes the payment by way of loans or advances to a concern. (ii) Where a member or a partner of the concern holds 10 per cent of the voting power in the company; and (iii) where the member or partner of the concern is also beneficially entitled to 20 per cent of the income of such concern. With a view to avoid the hardship in cases where advances or loans have already been given, the new provisions have been made applicable only in cases where loons or advances are given after 31st May, 1987."

21 ITA No.1348/Mum/2017

4.5.4 If the contention of the assessee is accepted then the very object for which Section 2(22)(e) of the Act was amended would get frustrated qua the second limb when the recipient. It is a very well established principle of construction that where the plain literal interpretation of a statutory provision produces manifestly absurd and unjust results which could never have been intended by the Legislature, the Court must modify the language used by the Legislature or even "do some violence" to it, so as to achieve obvious intention of the Legislature. Reference is made to decision of the Supreme Court in the Case of K.P.Varghese Vs.ITO 131 ITR 597 (SC). 4.6 The other angle given by the assessee company for the said loan of Rs. 15 crores advanced by the BRIPL in form of commercial expediency because the amount paid to Kotak Bank would have been forfeited, cannot come to rescue of the assessee. The assessee company has bid for the Andheri Plot and after being declared successful, it was aware of the total consideration of the said plot to be paid. There was no major development at the time and subsequent time that had depleted the assessee company of the source of funds it had planned for acquiring the said plot. Actually, it is the fact that provisions of s. 2(22)(e) have been attracted in the said loan transactions which had led to creation of a subsidiary company and subsequent redirecting the loans in form of capital investment of the partnership firm AKBG Investments. It is noteworthy to mention that the said firm came into existence only in the month of September, 2012 while the payment to Kotak Bank was completed before mid of July, 2012. The assessee company has also not reported the said loan transactions with BRIPL even in its Tax Audit Report and has camouflaged the same in form of investment made in partnership firm. In such a scenario, it is highly illogical to accept that how loan transaction already done before any entity came into existence can be attributed as partners' capital contribution. Also one glaring aspect of the said partners' capital contribution is that the majority of funding has been shown by the assessee company and BRIPL, while their profit sharing ratio is only 10% each. 4.7 In view of the facts and circumstances of the case and the position of law admitted by the Hon'ble Apex Court in the case of CIT-9, Mumbai Vs. Impact Containers P. Ltd. and CIT vs. N.S.N. Jewellers (P.) Ltd. [2015] 57 taxmann.com 113 (Bombay) , the provisions of Section 2(22)(e) of the Act are clearly applicable in the instant case and hence, the advances to the tune of Rs.15 crores received by the assessee from BRIPL is brought to tax as per the provisions of Section 2(22)(e) of the Act. The jurisdictional CIT in the case of Impact Containers (P.) Ltd. and the assessee company is common and since the SLP has been admitted against the said judgement before the Hon'ble Supreme Court, this issue has not attained finality.

22 ITA No.1348/Mum/2017 14. The Ld. DR, submitted that the Ld. CIT(A) was erred in deleting the additions

on account of deemed dividend of Rs.15 crores u/s 2(22)(e) of the Act, without

appreciating the fact that provisions of section 2(22)(e) are clearly applicable where

loans and advances given to a company in which shareholders are holding more than

10% beneficial interest.

squarely covered in favour of the assessee by the decision of the ITAT, Mumbai in the

case of M/s Perfect Engineering Associates Pvt. Ltd. in ITA NO.5019/Mum/2017,

where the Tribunal after considering the provisions of section 2(22)(e) of the Act and

also by following latest decision of Hon’ble Supreme Court in the case of Gopal &

Sons (HUF) (2017) 77 taxmann.com 71(SC) held that since, the assessee was neither

beneficial nor registered shareholders of the company, the amount so received is not

liable to tax as deemed dividend u/s 2(22)(e) of the Act.

issue of taxability on loans and advances as deemed dividend u/s 2(22)(e) of the Act

in the hands of the beneficial owners has been considered by the Hon’ble Bombay

High Court in the case of Universal Medicare Pvt. Ltd. 324 ITR 263 and held that

when the recipient of loan was not a shareholders in any of the entities which have

advanced loans and advances, then the additions made in the hands of the recipient

company of loan u/s 2(22)(e) of the Act is not in accordance with provisions of section

2(22)(e) of the Act. The ITAT, Mumbai C Bench in case of Perfect Engineering Pvt.

23 ITA No.1348/Mum/2017 Ltd. (Supra) had considered an identical issue in light of the arguments of the Ld. DR

on the basis of decision of Hon’ble Supreme Court in the case of Gopal & Sons (HUF)

(supra) and after considering the relevant facts held that when the assessee is neither

beneficial or registered owner in the lending company then loans and advances

received from said company cannot be brought to tax within the ambit of provisions of

section 2(22)(e) of the Act in the hands of the recipient company. The relevant findings

of the Tribunal are as under:-

“6. We have heard both the parties, perused the material available on record and gone through the order of the authorities below. We have also considered the provisions of section 2(22)(e) of the Act, in the light of various judicial precedence cited by both parties. It is an admitted fact that the assessee has taken loan from another company where two common directors held more than 46% equity shares. The AO has considered loan taken from M/s Shivsmruti Investment & Services Pvt. Ltd. within the provisions of section 2(22)(e) of the Act on the ground that as per provisions of section 2(22)(e) of the Act, any loans and advances from a company where a person held more than 20% beneficial ownership in the said company, then the loans and advanced received from that company shall be treated as deemed dividend to the extent of reserves and surplus of the lending company. In this case, there is no dispute with regard to the fact that as on date of loan, the company i.e. M/s Shivsmruti Investment & Services Pvt. Ltd. is having reserves and surplus in excess of loans and advances given to the assessee company. The only dispute is whether the said loans and advances shall be treated as deemed dividend within the meaning of section 2(22)(e) of the Act, when recipient company was neither beneficial nor registered owner of shares in other company. Admittedly, the assessee is not the beneficial ownership in the lending company, but two common shareholders are owned more than 40% equity shares in the above company. When the assessee is neither beneficial nor registered in lending company, then loans and advances received from the said company cannot be brought to tax within the ambit of provisions of section 2(22)(e) of the Act. This legal proposition has been laid down by the Hon’ble Bombay Court in the case of CIT vs Impact Containers Pvt. Ltd. (Bom.), where the Hon’ble High Court by

24 ITA No.1348/Mum/2017

following its earlier decision in the case of Universal Medicare 324 ITR 263 (Bom.) (324 ITR 263)(Bom) and Bhaumik Colours (313 ITR 146)(Bom.) held that when the recipient of the loan was not a shareholder in any of the entities which have advanced loans and advance, then the addition is required to be deleted. This legal proposition is further supported by the decision of the jurisdictional ITAT, Mumbai, “B” Bench in the case of M/s Neha Home Builders Pvt. Ltd. vs DCIT (ITA No.3157/Mum/2018), where the Co-ordinate Bench, after considering the various case laws, including the decision of the Hon’ble Supreme Court in the case of Gopal & Sons (HUF) (2017) 77 taxmann.com 71(SC) held that since assessee was neither the beneficial nor the registered shareholder of the company, the amount so received is not liable to be taxed as deemed dividend. The relevant observation of the Tribunal is as under:- “18. Now we deal with the decisions relied by the CIT(A) for holding that amount received by the assessee is liable to be taxed as deemed dividend. 19. In the case of Gopal And Sons (HUF) v/s CIT [2017] 77 taxmann.com 71 SC, the assessee is a Hindu Undivided Family (HUF). During the previous year, the assessee had received certain advances from one M/s. G.S. Fertilizers (P) Ltd. (hereinafter referred to as the 'Company'). The Company is the manufacturer and distributor of various grades of NPK Fertilizers and other agricultural inputs. In the audit report and annual return for the relevant period, which was filed by it before the Registrar of Companies (ROC), it was found that the subscribed share capital of the said Company was Rs. 1,05,75,000/- (le., 10,57,500 shares of Rs. 10/- each). Out of this, 3,92,500 number of shares were subscribed by the assessee which represented 37.12% of the total shareholding of the Company. From this fact, the AO concluded that the assessee was both the registered shareholder of the Company and also the beneficial owner of shares, as it was holding more than 10% of voting power. On this basis, after noticing that the audited accounts of the Company was showing a balance of Rs. 1,20,10,988/- as "Reserve & Surplus" as on 31st March, 2006, this amount was included in the income of the assessee as deemed dividend. 20. It is also found as a fact, from the audited annual return of the Company filed with ROC that the money towards share holding in the company was given by the assessee / HUF. Though, the share certificates were issued in the name of the Karta, Shri Gopal Kumar Sanei, but in the annual returns, it is the HUF which was shown as registered and beneficial shareholder. In any case, it cannot be doubted that it is the beneficial shareholder. Even if we presume that it is not a registered shareholder, as per the provisions of Section 2(22)(e) of the Act, once the payment is received by the HUF and shareholder (Mr. Sanei, karta, in this case) is a member of the said HUF and he has substantial interest in the HUF, the

25 ITA No.1348/Mum/2017

payment made to the HUF shall constitute deemed dividend within the meaning of clause (e) of Section 2(22) of the Act. 21. It is clear from the above order that all the parties have clearly held that HUF was real beneficial owner of the company, accordingly amount so received was correctly held to be deemed dividend. However, in the present case assessee neither a registered nor beneficial share holder of EIPL which is not disputed by the revenue authority. Hence, decision of Gopal and Sons HUF will not apply in present case. But it supports the contention of assessee that .addition cannot be made in assessee’s hand because NHBPL is not a beneficial shareholder of EIPL. 22. In the case of National Travel Services [2018] 89 taxmann.com 332 (SC), the assesses is a partnership firm consisting of three partners, namely, Mr. Naresh Goyal, Mr. Surinder Goyal and M/s Jet Enterprises Private Limited having a profit sharing ratio of 35%, 15% and 50% respectively. The Assessee firm had taken a loan of Rs.28,52,41,516/- from M/s Jetair Private Limited, New Delhi. In this Company, the Assessee subscribed to the equity capital of the aforesaid Company in the name of two of its partners, namely, Mr. Naresh Goyal and Mr. Surinder Goyal totaling 48.19 per cent of the total shareholding. Thus Mr. Naresh Goyal and Mr. Surinder Goyal are shareholders on the Company's register as members of the Company. They hold the aforesaid shares for and on behalf of the firm, which happens to be the beneficial shareholder. 23. However, in the present case assessee is neither registered shareholder nor beneficial shareholder of EIPL. 24. National Travel case neither any decision was rendered nor was any stay on applicability of decision of Hon'ble Supreme Court in case of CIT Vs. Ankitech P. Ltd. in Civil Appeal No.3961 of 2013 given. In that case matter was only referred to larger bench for reconsideration and nothing has been decided yet. Hence, till date Larger Bench not decided the case, the earlier law will hold good and be in operation and binding on all courts and tribunal throughout; the territory of India. As per Article 141 of the Constitution of India which lays down that the \ law declared by the Supreme Court shall be binding on all courts throughout the territory of India. Earlier in case of CIT Vs. Ankitech P. Ltd. in Civil Appeal No.3961 of 2013 Hon'ble Supreme Court lay down the Law that for attracting section 2(22)(e) shareholder needs to be registered and beneficial share holder. In the present case it is a settled fact that the assessee is neither a registered nor a beneficial shareholder. Thus with no stretch of imagination the assessee can be covered under the definition of Section 2(22)(2) i.e., deemed dividend. 25. The similar issue was come before the Hon’ble Kerala High Court in case of CIT v/s Settlement Commission (IT & WT) (2009) 176 Taxman 421 (Kerala) where the Hon’ble High Court held as under:- “In this case, the Settlement Commission has rejected Ext. P2 on the ground that the issue raised is a debatable issue. But, I feel that when there is a decision of the Apex Court, no Inferior Court or Tribunal can say

26 ITA No.1348/Mum/2017

that the issue is a debatable issue for the reason that a Bench of two Judges of the Apex Court has doubted the correctness of the decision of the Constitution Bench. Even assuming there is a final judgment of a two Judges Bench of the Apex Court, the same has to be ignored and Inferior Courts and Tribunals are bound to follow the decision of the Constitution Bench in view of the law relating to precedents and also article 741 of the Constitution of India. So, the rejection of Ext. P2 application is unjustified.” 26. In view of the above, the decision of the Hon’ble Supreme Court as on today established binding. Under Article 141 of the Constitution, ratio of decision of the Hon’ble Supreme Court and principle underlying decision is binding. It is most crucial to note that in that case matter was referred to reconsider the earlier decision with their observation that for applying deemed dividend provision it is sufficient if the shareholder is beneficial shareholder. It need not be necessary that shareholder must be registered shareholder. Because as per earlier decision for applying deemed dividend shareholder must satisfy both character of shareholder i.e. Registered as well as beneficial shareholder. Thus, as per observation of this decision also shareholder needs to be beneficial Shareholder. If the shareholder is not a beneficial shareholder then as per this observation also provisions of deemed dividend will not apply. Hence, all the decision supports the contention of assessee that deemed divided cannot be apply in assessee’s hand as it is neither registered nor beneficial shareholder of EIPL. 27. In view of the above discussion, we can safely conclude that since assessee was neither the beneficial nor the registered shareholder of the company, the amount so received is not liable to be taxed as deemed dividend. Moreover, the transaction between two group concerns were in the nature of current account and inter banking account containing both types of entries i.e., receipts and payments, the same cannot be brought in the purview of loans and advances so as to attract Section 2(22)(e).” 7. In this view of the matter and respectfully following the ratios of the case laws discussed hereinabove, we are of the considered view that there is no error in the reasons recorded by the Ld. CIT(A), while deleting the addition towards the deemed dividend u/s 2(22)(e) of the Act. Hence, we are inclined to uphold the order of the Ld. CIT(A) and dismissed the appeal filed by the Revenue.” 17. In this view of the matter and consistent with view taken by the Co-ordinate

Bench in light of the decision of the Hon’ble Bombay High Court in the case of

Universal Medicare Pvt. Ltd.(supra), we are of the considered view that the AO was

erred in making additions towards loans and advances u/s 2(22)(e) of the Act, in the

hands of the assessee even though the assessee is neither beneficial nor registered

27 ITA No.1348/Mum/2017 owner holding more than 10% share in the company which given loans and advances

to the assessee company. The Ld CIT(A) after considering relevant submissions

deleted the additions made by the AO. Therefore, we do not find any error in the order

of the Ld. CIT(A), and hence, we are inclined to uphold the order of the Ld. CIT(A) and

reject the ground taken by the Revenue.

Order pronounced in the open Court on 17/05/2019.

Sd/- Sd/- (Mahavir Singh) (G. Manjunatha) �या�यक सद�य /JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated : 17/05/2019 f{x~{tÜ? f{x~{tÜ? P.S f{x~{tÜ? f{x~{tÜ? P.S P.S //./././.�न.स. P.S आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai