DCIT, GURGAON vs. M/S MACHINO POLYMERS LTD., GURGAON

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ITA 348/DEL/2016Status: DisposedITAT Delhi07 November 2017AY 2012-137 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 the provisions of Section 2(22)(e) are not attracted when the assessee is not a shareholder of the company from which it received the loan. The addition made by the AO was deleted.

What were the facts?

The Assessing Officer treated a loan of Rs. 2,35,00,000/- received by the assessee company as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. This was because the individuals holding substantial interest in the lender company also held substantial interest in the assessee company.

What were the issues?

Whether a loan received by a company from another company, where common individuals hold substantial interest, can be treated as deemed dividend under Section 2(22)(e) if the recipient company is not a shareholder of the lending company.

Which sections of the Income-tax Act were involved?

Section 2(22)(e)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, DELHI ‘A’ BENCH,

Before: SHRI B.P. JAIN, & SHRI SUDHANSHU SRIVASTAVA

For Appellant: Shri J.C. Bhalla, CA
Hearing: 06.11.2017Pronounced: 07.11.2017

PER B.P. JAIN, ACCOUNTANT MEMBER,

1.

This appeal filed by the Revenue arises from the order of the CIT(A)- 2, Gurgaon vide order dated 26/11/2015 for A.Y 2012-13.

3.

The Revenue has raised the following grounds of appeal:

“1. Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs.2,35,00,000/- made by the AO as deemed dividend in the hands of the assessee even the case of the assessee is very well covered under section 2(22)(e) of the Income Tax Act, 1961.

2.

Ld CIT(A) has erred on facts and in law in holding that the provisions of section 2(22)(e) are not attracted in this case even all the conditions laid down in section 2(22)(e) of the Income Tax Act, 1961 are satisfied, as explained by CBDT Circular No.495 dated 22.09.1987.

3. The appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal.”

4. Briefly stated, the facts of the case as emanating from the order of the AO as narrated by the CIT(A) are that during the year the assessee company M/s Machino Transport Pvt. Ltd. The assessee was specifically asked that why not the said amount be treated as deemed dividend as per the provisions of section 2(22)(e) of the Income Tax Act, 1961. The assessee vide reply dated 19/02/2015 stated that the assessee company has obtained unsecured loan from M/s Machino Transport Pvt. Ltd. and not given the loan. The submissions given were considered by the Assessing Officer but not accepted. Mr. MD Jindal and Mr. Sanjiv Jindal were the members holding substantial interests in M/s Machino Transport Pvt. Ltd. which had provided loans and advances to the assessee company and they also had substantial interest even in the assessee company. Accordingly, the AO treated the said loan of Rs. 2,35,00,000/- as deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' and added the same to the income of the assessee.

5.

Before the CIT(A), the ld. AR argued that the said loan was taken only for commercial purposes which was explained before the CIT(A). He further submitted that the share holding pattern wherein it was stated that the assessee is not a shareholder in the said company and hence the loan taken by the assessee cannot be taxed in the hands of the assessee since he is not a share holder. He relied upon the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Ankitech Pvt. Ltd. of 2009 in this regard and other decisions of various High Courts of law, as mentioned in the order of the CIT(A). After considering the arguments and submissions of the assessee, the CIT(A) decided the issue in favour of the assessee, relevant part of which reads as under: “I have carefully considered the appellant’s submissions. It is a fact on record the appellant firm is not a share holder of the payer company, M/s Machino transport Pvt. Ltd. In these circumstances the provisions of section 2(22)(e) are not attracted in the hands of the appellant firm. The issue is squarely covered by the decisions relied upon by the appellant. Reference in this regard may also be made to the order of Hon'ble P&H High Court in the case of CIT-1I vs. Sharman Woolen Mills Ltd. 12 204 Taxman 82 (2011) 16 Taxman.Com 171 (P&H). The Hon'ble Punjab & Haryana High Court, the jurisdictional High Court, in the above noted case has held that addition u/s 2(22)(e) on account of deemed dividend can be made in the case of assessee company which is not a shareholder of the paying company. Respectfully following the judgment of the Hon’ble Jurisdictional High Court, I hold that, no addition u/s 2(22)(e) can be made in the case of the appellant as the appellant is not a shareholder the payer company. The addition made by the AO is deleted. This ground of appeal is allowed.

6.

The ld. AR, at the very outset, submitted that the issue involved in this appeal is covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Madhur Housing and Development Company in to which the ld. DR did not raise any objection and he conceded that the issue is covered.

7.

We have heard the rival arguments and perused the orders of the A.O and the ld. CIT(A). The issue in the present case is squarely covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Madhur Housing and Development Company [supra] wherein it has been held as under:

“The impugned judgment and order dated 11.05.2011 has relied upon a judgment of the same date by a Division Bench of the High Court of Delhi in of 2009.

Having perused the judgment and having heard arguments, we are of the view that the judgment is a detailed judgment going into Section 2(22) (e) of the Income Tax Act which arises at the correct construction of the said Section. We do not wish to add anything to the judgment except to say that we agree therewith”.

8.

It is also not in dispute that the assessee is not a share holder in the said company and hence the loan taken by the assessee which has been characterised as deemed dividend u/s 2(22)(e) of the Act cannot be taxed in the hands of the appellant being not a share holder. Reliance is placed on the decision of the Hon'ble Delhi High Court in the case of Ankitech Pvt Ltd. [supra] and Madhur Housing and Development Co. [supra] which support the submissions of the ld. AR. Under the facts and circumstances of the case, we do not find any infirmity in the order of the CIT(A). Thus all the grounds raised by the Revenue are dismissed.

9.

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

The order is pronounced in the open court on 07.11.2017.

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