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Income Tax Appellate Tribunal, DELHI BENCHES: ‘C’, NEW DELHI
Before: SHRI RS SYAL & SMT. BEENA PILLAI
PER BEENA A PILLAI, JUDICIAL MEMBER
The present appeal has been filed by assessee against the order dated 27.05.2015 passed by the Ld. Commissioner of Income Tax (Appeals)-7, New Delhi pertaining to the Assessment Year (A.Y.) 2011-12 on the following grounds .
1. That the CIT(Appeals) has erred on facts and under law in 2 Oncquest Laboratories Ltd. vs. DCIT applying the provisions of deemed dividend u/s 2(22)(e) on two minority shareholders of the Company holding just 0.01% equity stake. The action of CIT(Appeals) has resulted in erroneous income addition of Rs 3.20 crores in the hands of minority shareholders.
That the CIT (Appeals) has failed to appreciate the loan given by majority shareholder i.e. M/s Puran Associates Pvt Ltd to the assessee of Rs 3.20 crores does not result in any benefit two minority shareholders namely Ashok Chand Burman and Minnie Burman. Thus application of 2(22)(e) under the refuge of colorful device is totally erroneous and deserves to be quashed.
That the CIT(Appeals) failed to appreciate that the loan was not advanced to the shareholder by Puran Associates Pvt Ltd thus there was no question of determining the whether loan was advanced in ordinary course of business or not. The CIT(Appeals) has erroneously held that a loan advanced to a subsidiary company will attract the provisions of section 2(22)(e) of the Income-tax Act 1961.
That the CIT(Appeals) has erred deriving her conclusion purely following the order of his predecessor for the AY 2010-11, in holding that loan of Rs 3.20 crores advanced by majority shareholder i.e. Puran Associates Pvt Ltd to the assessee, will be taxable in the hands of Ashok Chand Burman and Minnie Burman.
That the above grounds of appeal
are independent and without prejudice to one another. Your appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing.”
2. Brief facts of the case are as under. Return of income for the year under consideration was filed on 30.09.2011 declaring loss of Rs.25,40,716/-. The case was 3 Oncquest Laboratories Ltd. vs. DCIT selected for scrutiny and notice u/s 143(3) of the Income Tax Act, 1961 (the Act) was issued. During the assessment proceedings Ld.AO recorded that in the immediately preceding A.Y. an addition of Rs.3,58,95,735/- was made to the income of assessee under S.2(22)(e) of the Act as assessee has received a sum of Rs.3,58,95,735/- from M/s Puran Associates P Ltd. During the course of assessment proceedings Ld.A.O. observed that M/s Puran Associates was deriving income from purchase and sale of shares and was not involved in money lending activities for being an NBFC. Ld.A.O. also observed that two persons namely Ashok Chand Burman and Mrs. Minnie Burman were beneficial owners in both the companies i.e. they were having 99.47% shareholding in assessee jointly and 100% shareholding in M/s Puran Associates. Ld.A.O. thus held that the payment was covered under the provisions of S.2(22)(e) of the Act as deemed dividend to be taxed in hands of assessee before us.
3. Aggrieved by the order of Ld.AO assessee preferred appeal before Ld.CIT(A) who deleted the addition. However, he made certain observations regarding the Directors of the company as well as the present assessee wherein A.O. was directed to forward the copy of the appellate order to the concerned A.O. of Ashok Chand Burman and Minnie Burman.
4. Aggrieved by the order of Ld.CIT(A) assessee preferred appeal before this Tribunal.
4 Oncquest Laboratories Ltd. vs. DCIT 5. At the outset Ld.A.R. submitted that an identical issue had arisen for consideration in the immediately preceding A.Y. before this Tribunal and this issue is squarely covered by the order of this Tribunal in passed on 24/08/2017 for A.Y. 2010-11. He also placed copy of the order before us for perusal.
Ld.Sr.D.R. fairly conceded the issue being squarely covered by the order of this Tribunal in assessee’s own case for the immediately preceding A.Y.
We have perused the submissions advanced by both the sides in the light of the records placed before us.
On perusal of the order of this Tribunal in assessee’s own case in ITA No.5120/Del/14 (supra), we observe that the facts are similar and identical for the year under consideration. It is observed that this Tribunal has decided the issue as under. “13. There is no dispute in terms of deletion of addition made by Ld. AO in the hands of assessee by Ld. CIT(A) before us.
The only grievances raised by Ld. Counsel is in respect of observations and directions given by Ld. CIT(A) in terms of Ashok Chand Berman and Mrs. Minnie Berman {being the shareholders of assessee). On perusal of provisions relied upon by Ld. Sr. DR, we are of the considered opinion that observations made by Ld. CIT(A) regarding the shareholders of assessee was not called for. It is a settled law that deemed dividend can be assessed only in the hands of a person who is a shareholder of Lender Company and not in the hands of person other than a shareholder. To facts of present case assessee is not shareholder in Lender Company and it is also been submitted by Ld. Counsel that Lender Company is holding company for assessee and had advanced loans for the purposes of business. Ld. CIT(A) on appreciating these facts deleted addition made by Ld. AO. But then Ld. CIT(A) proceeded 5 Oncquest Laboratories Ltd. vs. DCIT to hold that addition is to be made in hands of shareholder without there being any clear finding in terms of any benefit that must have been accrued to such common shareholders of assessee. Ld. CIT(A) has also not even given any finding about satisfaction before invoking deeming fiction in the case of assessee in respect of such shareholders, who were not present before Ld. CIT(A). The observations of decision relied upon by Ld.Counsel passed by coordinate bench of this Tribunal in I'TO vs. Biotech Ophthalmic Pvt. Ltd..(supra.) are reproduced hereinbelow: Let us now, in the above light, revert to the facts of the case before us. The authorities below were dealing with a deeming fiction, i.e. deemed dividend could, not invoked in the present case because the assessee was that this deeming fiction of deemed dividend could not be invoked in the present case because the assessee did not hold, the shareholding in the company which had extended loan to the assessee. This plea has been accepted by the CIT(A), but, for accepting by the CIT(A), but, for accepting such a plea, it is not a condition precedent that this deeming fiction must come into play in the hands of some other assessee other than this assessee. Whether the loan received by the assessee is held to be deemed dividend in the case of some other person or not is wholly irrelevant for deciding whether or not this is deemed dividend in the hands of this assessee or not. Learned CIT(A) holds that since Mehul P Asanai is a shareholder in the said, company, the receipt can be added, as deemed dividend in the hands of Mehul P Asnani, but then what he overlooks is that all the conditions precedent for taxing a receipt as deemed, dividend are to be satisfied qua. the assessee in whose income is to be taxed, and being a shareholder is only one such precondition. Learned CIT(A) has, as noted earlier in this order, observed that "If the recipient of loan is not a shareholder and the transaction is covered by this provision, the addition is to be made in the hands of the shareholder", but then it is 6 Oncquest Laboratories Ltd. vs. DCIT
difficult to comprehend as to how one can come to a conclusion that a transaction is covered by this provision, i.e. deeming fiction of the dividend, without examining the transaction between the shareholder of the company end the company in which such shares are held. Without, even giving a finding about satisfaction of all these conditions, learned CIT(A) proceeds to hold that it is an income to be taxed in the hands of the shareholder i.e. Mehul P Asnaru. It is a classic case of putting cart before the horse and is wholly based on fallacious logic. The direction is thus not only unnecessary but patently incorrect. Viewed thus, the direction given by the CIT(A), for taxability of this deemed, dividend, in the hands of Shri Asnaru, does not constitute "an express direction necessary for disposal of a case". Nothing really turns on his direction, as such. Even if this direction was correct, learned CIT(A) had no business to give such a. direction without affording an opportunity of hearing to the affected party and. that too when it was absolutely necessary to decide the issue in appeal before him. There is a certain degree of restraint that is expected of the appellate authorities in discharge of their judicial functioning.”
Respectfully following the same we allow grounds raised by assessee.
In the result appeal filed by the assessee stands allowed.
Order pronounced in the Open Court on 30th May, 2018.