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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ NEW DELHI
Before: SHRI PRAMOD KUMAR & SHRI SUDHANSHU SRIVASTAVA
This appeal has been preferred by the assessee against order dated 30th September, 2014 passed by the Ld. Commissioner of Income Tax (Appeals) – XV, New Delhi for assessment year 2007-08 and challenges the order of the Ld. Commissioner of Income Tax (A) in upholding the disallowance amounting to Rs. 10 lakh u/s 2(22)(e) of the Income Tax Act, 1961 (hereinafter called 'the Act').
The brief facts of the case are that the assessee is the Managing Director of M/s Globus Infocom Ltd. During the course of assessment proceedings of this company for assessment year 2007-08, it was observed that this company had given a loan of Rs. 10 lakh to the assessee who was the Managing Director of the company and also had a substantial interest in the company. The Assessing Officer reopened the case by holding that income had escaped assessment as this amount had to be treated as deemed dividend u/s 2(22)(e) of the Act. Thereafter, after providing an opportunity to the assessee and considering the submissions made in this regard, the Assessing Officer held that the assessee’s case was squarely covered under the provisions of section 2(22)(e) and, accordingly, the impugned amount of Rs. 10 lakh was held to be taxable as deemed dividend.
2.1 Aggrieved, the assessee approached the Ld. Commissioner of Income Tax (A) who also upheld the disallowance and now the assessee is before the ITAT and has challenged upholding of disallowance by the Ld. Commissioner of Income Tax (A).
The Ld. AR submitted that the impugned loan was given as a housing loan by M/s Globus Infocom Ltd. and there was a relationship of employer and employee between the company and the assessee. It was further submitted that a Board resolution had been passed approving the loan and further the Memorandum of the company also allowed providing loans to the employees.
It was submitted that this loan was given in the normal course of business and further that the loan was utilized for purchase of house at C-189, Sarvodaya Enclave, New Delhi and the house was pledged by the assessee with State Bank of India for loans taken by M/s Globus Infocom Ltd. It was also submitted that the loan had been duly squared up by the assessee in subsequent assessment year. Reliance was placed on the judgment of the Hon’ble Madras High Court in the case of CIT vs. F. Praveen reported in 220 CTR 639(Madras) and also on the order of ITAT Chennai Bench in the case of ACIT vs. Smt. G. Sreevidya in ITA 1270/Mds/2011 and it was pleaded that the disallowance made u/s 2(22)(e) of the Act be deleted.
In response, the Ld. Sr. DR placed extensive reliance on the concurrent findings of both the lower authorities. It was argued by the Ld. Sr. DR that the amount of loan had not been given in the ordinary course of business as was being claimed by the assessee and reliance was also placed on the order of the Ld. Commissioner of Income Tax (A) wherein the Ld. Commissioner of Income Tax (A) had adjudicated the issue against the assessee after analysing the factual matrix of the case.
We have heard the rival submissions and perused the material available on record. It is undisputed that the assessee is having a substantial interest in M/s Globus Infocom Ltd. which has given the loan to the assessee. It is also undisputed that the assessee is the Managing Director of M/s Globus Infocom Ltd. It is also undisputed that the advancing of loan is duly supported by resolution of the Board through which the company had sanctioned the loan of Rs. 10 lakh to the assessee for 5 years subject to payment of interest @12% per annum. However, the assessee has failed to demonstrate that this loan was advanced to him in the ordinary course of business. The Ld. Commissioner of Income Tax(A) had discussed the factual matrix in Para 6.2 of the impugned order and it has been noted by the Ld. Commissioner of Income Tax (A) that the impugned amount of loan was advanced to the assessee on different dates between 3.5.2006 and 28.06.2006 whereas the first instalment towards purchase of house property amounting to Rs. 20 lakh was given on 12.07.2006 to M/s Rajeev Associates Pvt. Ltd. and that the assessee had mobilised a further amount in cash amounting to Rs. 9.49 lakh, Rs. 2,93,266/- by cheque and another amount of Rs. 7 lakh from Mrs. Kirandeep Dham. The Ld. Commissioner of Income Tax (A) has made an important observation that evidently the assessee was in possession of funds from other sources amounting to Rs. 19.5 lakh as aforementioned as on the date of giving the first instalment of advance of Rs. 20 lakh. The Ld. AR has not able to negate this finding of the Ld. Commissioner of Income Tax (A) by leading any cogent evidence to the contrary. We further find that the assessee’s reliance on the judgment of the Hon’ble High Court of Madras in the case of Commissioner of Income Tax vs. F. Praveen (supra) is misplaced because in that case, the Tribunal had returned a finding that there was no loan to the assessee from the company and that it was 4 only a business transaction and, therefore, the loan in question was not a deemed dividend u/s 2(22)(e) of the Act. However, in this case the facts are different and the assessee has not been able to prove that the loan was given to him in the normal course of business of the company. The order in the case of ACIT vs. Smt. G. Sreevidya (supra) rendered by ITAT Chennai Bench is also distinguishable on facts and relief was given to the assessee entirely on the facts of that particular case.
We further find that the case of the assessee is covered against the assessee by the judgment of the Hon’ble Apex Court in the case of Ms P. Sarda vs. CIT reported in 229 ITR 444 wherein the Hon’ble Apex Court had held that the loan or advance taken from the company may have been ultimately repaid or adjusted but that will not alter the fact that the assessee in the eyes of law had received dividend from the company during the relevant accounting year. This judgment of the Hon’ble Apex Court was also followed by the Hon’ble Madras High Court in the case of CIT vs. P.K. Aboobaker reported in 259 ITR 507 (Madras) wherein the Hon’ble Madras High Court was adjudicating the applicability of provisions of section 2(22)(e) with respect to advance given to a shareholder for purchase of property and the Hon’ble Madras High Court went on to hold that the loan given for purchase of property was taxable u/s 2(22)(e) of the Act . In the present case also, it is our considered opinion that although the loan might have been paid back in subsequent assessment year, this fact Assessment year 2007-08 does not change the nature of the loan in the year in which it was disbursed so as to take it out of the mischief of section 2(22)(e) of the Act. Further, the assessee has not been able to demonstrate by leading cogent evidence that the loan was advanced in the normal course of business and was based on consideration of employer-employee relationship. Accordingly, on facts of the case, we find no reason to interfere with the findings of the lower authorities on this issue and we dismiss the grounds raised by the assessee.
In the result, the appeal of the assessee stands dismissed.