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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HONBLE & SHRI SANDEEP SINGH KARHAIL, HONBLEShri Vijay Mehta Shri Ajay Chandra
O R D E R PER NARENDRA KUMAR BILLAIYA (AM)
This appeal by the revenue is preferred against the order of the Learned Commissioner of Income-Tax (Appeals) – 48, Mumbai [hereinafter in short “Ld. CIT(A)”] dated 20.12.2023 pertaining to A.Y.2014-15. (A.Y: 2017-18) AVINASH CONSTRUCTIONS 2. The grievance of the revenue read as under: -
i. The Ld.CIT(A) erred in deleting Rs.15,26,99,918/- disallowed as deemed dividend under the provisions of section 2(22)(e) of the Income Tax Act, 1961, being an advance received by M/s. Avinash Construction, a partnership firm from M/s. Atmaja Developers Pvt. Ltd., n which Mr. Avinash Nivrutti Bhosale is a Partner in the firm and shareholder in the company. ii. The Ld CIT(A) erred in not appreciating that, information was received from DCIT Central Circle -1(1), Pune, wherein, it is state that, the advance received by M/s. Avinash Construction a partnership Firm from M/s. Atmaja Developers Pvt. Ltd. has been treated as "deemed dividend" u/s. 2(22)(e) of the Income Tax Act, 1961.
Briefly stated the facts of the case are that the, assessee filed its original return of income on 09.10.2014 declaring a total income of ₹.24,25,260/-. The return was selected for scrutiny assessment proceedings and the assessment was framed under section 143(3) of Income-tax Act, 1961 (in short “Act”) vide order dated 30.12.2016 assessing the total income at ₹.34,21,010/-.
Subsequently, the search and seizure action took place on ABIL Group on 21.07.2017 pursuant to which notices under section 153A was issued and served upon the assessee. In response to which the assessee filed return of income declaring total income of ₹.41,84,870/-.
Page No. 2 (A.Y: 2017-18) AVINASH CONSTRUCTIONS The assessment was framed under section 153A r.w.s. 143(3) of the Act vide order dated 27.05.2019 assessing total income at ₹.53,25,870/-.
On the basis of the information received from DCIT – Central Circle - 1(1), Pune the assessment was reopened. The reasons for reopening the assessment was that M/s. Atmaja Developers Pvt Ltd., had advanced ₹.26,66,32,329/- to M/s. Avinash Construction i.e. the assessee, in which Avinash Bhosale was a partner. The said advances was given for the purchase of land. Since Mr. Avinash Bhosale was having substantial interest in M/s. Atmaja Developers Pvt Ltd., and being a partner of the assessee firm, therefore, it was reasonable to conclude that provisions of section 2(22)(e) of the Act squarely apply and the impugned advances of ₹.26,66,32,329/- is deemed dividend in the hands of the assessee. Based on this premise the assessment was completed treating the transaction as deemed dividend and restricting the same to the reserves and surplus of the company M/s. Atmaja Developers Pvt Ltd., addition of ₹.15,26,99,918/- was made.
Assessee carried the matter before Ld. CIT(A) and strongly contended that provisions of section 2(22)(e) of the Act do not apply on the facts of the case as the assessee firm is not a shareholder of the Page No. 3 (A.Y: 2017-18) AVINASH CONSTRUCTIONS said company M/s. Atmaja Developers Pvt Ltd. It was strongly contended that deemed dividend under section 2(22)(e) of the Act can be assessed only in the hands of the beneficiary shareholder of the lender company and not in the hands of the recipient entity in which the shareholder of the lender company is a partner. Strong reliance was placed on the decision of the Hon’ble Bombay High Court in the case of Universal Medicare Pvt. Ltd., [324 ITR 263].
After considering the facts and the submissions and after drawing the support from judicial decisions, the Ld. CIT(A) came to the conclusion that on the given facts provisions of section 2(22)(e) of the Act do not apply and deleted the impugned addition.
Before us, Ld. DR strongly supported the findings of the Assessing Officer but could not pointed out any factual error or infirmity in the findings of the Ld. CIT(A).
We have carefully considered the orders of the authorities below. The undisputed fact is that the assessee is not a shareholder in the impugned company. The Hon’ble Delhi High Court in the case of Ankitech Private Limited [340 ITR 14] has clearly held that legal fiction
Page No. 4 (A.Y: 2017-18) AVINASH CONSTRUCTIONS created under section 2(22)(e) of the Act enlarges definition of dividend only and legal fiction is not to be extended further broadening concept of shareholders. This has been affirmed by the Hon’ble Supreme Court in the case of Madhur Housing and Development Company [401 ITR 152]. The relevant findings of the Hon’ble Bombay High Court in the case of Universal Medicare Pvt., Ltd., (supra) read as under: -
“9. …... However, even on the second aspect which has weighed with the Tribunal, we are of the view that the construction which has been placed on the provisions of s. 2(22)(e) is correct. Sec. 2(22)(e) defines the ambit of the expression 'dividend'. All payments by way of dividend have to be taxed in the hands of the recipient of the dividend namely the shareholder. The effect of s. 2(22) is to provide an inclusive definition of the expression dividend. Clause (e) expands the nature of payments which can be classified as a dividend. Clause (e) of s. 2(22) includes a payment made by the company in which the public is not substantially interested by way of an advance or loan to a shareholder or to any concern to which such shareholder is a member or partner, subject to the fulfilment of the requirements which are spelt out in the provision. Similarly, a payment made by a company on behalf, or for the individual benefit, of any such shareholder is treated by cl. (e) to be included in the expression 'dividend'. Consequently, the effect of cl. (e) of s. 2(22) is to broaden the ambit of the expression 'dividend' by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently, in the present case, the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal was, in the circumstances, justified in coming to the conclusion that, in any event, the payment could not be taxed in the hands of the assessee”.
Page No. 5 (A.Y: 2017-18) AVINASH CONSTRUCTIONS 10. Similar view was taken by the Hon’ble Bombay High Court in the case of Sunjewels International Ltd., [411 ITR 613], the relevant findings read as under: -
“Held, dismissing the appeal, that the appellate authorities were justified in holding that the provisions of section 2(22)(e) were not applicable. The asses-see was not a beneficial owner of any shares in the creditor companies which had advanced the loans. No loan had been given by the creditor companies to any concern in which the assessee had a substantial interest. What was contemplated by the second limb of section 2(22)(e) was that the creditor companies gave a loan not directly to its shareholder but to any concern in which such shareholder had substantial interest. The common shareholder having a substantial interest in the assessee as well as in the creditor companies was only SIPL which held 86 per cent. of the shareholding in the assessee and 99 per cent. in the creditor companies. Hence the transaction between the asses-see and the creditor companies did not fall within the second limb of section 2(22)(e).”
Respectfully following the binding decision (supra), we decline to interfere with the findings of the Ld. CIT(A).
In the result, appeal filed by the revenue is dismissed.
Order pronounced in the open court on 28th May, 2024.