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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI AMIT SHUKLA, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld. CIT(A)”] dated 11.8.2023 for the A.Y. 2012-13.
(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., 2. Brief facts of the case are, assessee filed its return of income for A.Y.2012-13 on 30.09.2012 declaring total income of ₹.27,21,010/-. The above return was processed under section 143(1) of Income-tax Act, 1961 (in short “Act”). The case was selected for scrutiny and notices under section 143(2) and 142(1) of the Act along with the questionnaire were issued and served on the assessee. In response, Authorised Representative of the assessee attended and submitted the relevant information as called for.
The assessee is Managing Director of M/s. Muchhala Magic Land Pvt. Ltd., (in short “MMLPL”). During the year under consideration, the assessee declared remuneration from MMLPL, rental income, share of profit from partnership firms and interest from bank etc.
During the course of the assessment proceedings, Assessing Officer observed that assessee has received a loan of ₹.60,18,566/- from MMLPL during the year under consideration, wherein the assessee is holding 32.83% equity shares in the company. The company MMLPL has advanced loan has accumulated profits to the tune of ₹.5,25,64,264/- as per its Balance Sheet on at 31.03.2012. The Assessing Officer observed that Section 2(22)(e) of the Act provides that Page No. 2
(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares holding not less than ten percent of the voting power, to the extent to which the company in either case possesses accumulated profits is to be treated as deemed dividend. Accordingly, Assessing Officer observed that assessee has received payment from MMLPL which is squarely covered by the deeming provision of Section 2(22)(e) of the Act. Therefore, the sum of ₹.60,18,566/- is held as deemed dividend under Section 2(22)(e) r.w.s. 56(2) of the Act in the hands of the assessee and added to the assessee’s income. Further, he observed that, it is pertinent to mention here, similar issue arose in the case of the assessee for A.Y.2008-09 and an addition of ₹.32,60,446/- was made in the hands of the assessee. The same was confirmed by the Ld.CIT(A).
Further, the Assessing Officer observed that MMLPL has given loan to M/s Ritika Hotels Pvt. Ltd. (in short “RHPL”), the assessee, who is holding 32.83% equity shares in the company, i.e., MMLPL is also holding 24.35% share in the company RHPL. Assessing Officer observed that the company who has advanced loan has accumulated profits to the tune of ₹.5,25,64,264/- as per its Balance Sheet as on 31.03.2012. The Page No. 3
(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., provisions of section 2(22)(e) of the Act provides that any payment by a company, not being a company in which the public are substantially Interested, of any sum by way of advance or loan to any concern in which such shareholder is a member or a partner and in which he has a substantial interest, to the extent to which the company in either case possesses accumulated profits is to be treated as deemed dividend. Since the above said criteria are fulfilled in the case of RHPL and relying on the decision of Hon’ble Delhi High Court in the case of CIT v. Ankitech (P) Ltd & Others (2011) 242 CTR (Del) 129 and ACIT v. Bhaumik Colour Pvt. Ltd., (2009) 313 ITR (AT) 146 (Mumbai) (S.B.), Assessing Officer treated an amount of ₹.26,00,000/- as deemed dividend in the hands of the assessee.
Similar to the case of RHPL; MMLPL has also given loan of ₹.1,50,000/- to M/s. Sai Shiva Property Developers Pvt. Ltd. (in short “SSPDPL” in which assessee also having 82.05% shareholding in SSPDPL. In view of the discussion similar to the case of RHPL, the Assessing Officer held that the loan of ₹.1,50,000/- paid to SSPDPL as deemed dividend.
Page No. 4
(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., 7. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) and filed the detailed submissions. After considering the detailed submissions of the assessee, Ld. CIT(A) dismissed the appeal filed by the assessee.
Aggrieved, assessee is in appeal before us raising following grounds in its appeal: -
“1. The grounds of appeal mentioned hereunder are without prejudice to one another.
2. The learned commissioner of Income Tax (Appeals). National Faceless Appeal Centre [CIT(A)] erred on facts as also in law in partly deleting the deemed dividend addition and confirming the balance addition of Rs. 50,77,000/-. The addition has been made on the alleged ground of deemed Dividend u/s. 2(22)(e) on the alleged loan and advances given by Muchhala Magic Land Pvt. Ltd. to the appellant and two other companies in which appellant has substantial interest. The addition confirmed by CIT(A) is bad in law as also on facts and therefore the same may kindly be deleted.
3. The learned Commissioner of income-tax (Appeals). National Faceless Appeal Centre [CIT(A)] erred on facts as also in law in partly allowing any one property at the option of the appellant to be treated as SOP and confirming the addition of remaining property as deemed rent of Rs. 2,64,242/- (after computing one property as SOP as per appellant option). The addition has been made on the alleged ground of Deemed Let Out Property u/s. 23(1) on the alleged vacant premises. The addition confirmed by CIT(A) is bad in law as also on facts and therefore the same may kindly be deleted.
4. The appellant craves leave to add to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.”
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(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., 9. At the time of hearing, Ld. AR brought to our notice statement of confirmation of accounts from MMLPL dated 01.04.2012 in which transactions with the assessee are listed for the whole of the assessment year. He submitted that the assessee owes to the company as on 01.04.2011 is at ₹.2,07,75,186/- as per which assessee owes above said amount to the company and at the same time he also submitted that the above said opening balance was subject matter of deemed dividend in the earlier assessment years.
Further, he submitted that during the year assessee has sold motor car for the value of ₹.53,95,566/- and also paid ₹.10,00,000/- and ₹.50,000/- on 06.04.2011 and 15.04.2011 respectively. Further, he submitted that remuneration for the assessee were credited at the end of every month and submitted that the account of the assessee in the above said company are nothing but a running account maintained by the company. Therefore, he submitted that during the year assessee has withdrawn ₹.5,00,000/- on 20.06.2011, ₹.3,00,000/- on 26.06.2011 which is nothing but withdrawal of remuneration from the company. ₹.1,02,000/- on 29.09.2011, ₹. 6,25,000/- on 01.11.2011, ₹.5,50,000/- on 09.03.2012 and finally the company has deducted TDS on salary of ₹.2,50,000/- on 31.03.2012.
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(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., 11. Broadly speaking, he submitted that to the extent of salary withdrawn by the assessee may be excluded from the deemed dividend and also the TDS nothing but the deduction from the remuneration. Therefore, he prayed that to the extent of salary withdrawn by the assessee may be allowed as not loan for the purpose of deemed dividend.
With regard to loan given to RHPL, Ld.AR of the assessee brought to our notice Page No. 9 of the Paper Book which is the confirmation of accounts submitted by the assessee to MMLPL in which the transaction during the year are confirmed by the company as per which RHPL owes to the company to the extent of ₹.27,76,000/- as opening balance and received further during the year to the extent of ₹.26,00,000/- and repaid ₹.21,50,000/- during the year. In this regard, Ld. AR has filed the additional evidences which is ledger account in the books of RHPL and statement of bank account of RHPL. By referring to the above ledger account and bank statements, he submitted that the RHPL has utilized the above funds for its own business purpose and no funds were diverted to any other purpose. He brought to our notice the relevant transactions and relevant utilization on the same day or subsequent day by referring to the bank statements of RHPL. He submitted that the Page No. 7
(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., funds received from the sister concerns were utilized for the business purposes and none of the funds were utilized for the benefit of the shareholder or director. Therefore, the provisions of section 2(22)(e) of the Act will get attracted only when the funds received from the company in which sufficient accumulated funds are available are indirect benefit are passed on to the shareholders of such company are to be considered as a deemed dividend. In the given case there is nothing on record to suggest that assessee has directly benefited by such payment to the RHPL and he prayed that no addition is called for in the case of RHPL.
Similarly, he brought to our notice Page No. 95 of the Paper Book to show that the funds received from MMLPL of ₹.1,50,000/- is utilized by SSPDPL for the business purpose. Similar to the case of RHPL, he submitted that the addition is unwarranted.
On the other hand, Ld. DR submitted that with regard to remuneration received by the assessee, this issue was never discussed before the lower authorities. The assessee has taken up this issue only now. Further, he brought to our notice Page No. 8 of the Paper Book
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(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., and submitted that all the payments received are adhoc payments and explanation provided by the Ld. AR are not proper explanation.
With regard to second issue of payment of RHPL and SSPDPL, he submitted that there is no such requirement in Section 2(22)(e) of the Act that the benefit of the above payment be necessity condition to invoke the provisions of deemed dividend. It is enough that the loan is given to a related concern in which there are common shareholders and the company which gives the loan to the other related concerns having accumulated profits is enough ground to invoke the provisions of Section 2(22)(e) of the Act. Ld. DR relied on the decision of the Coordinate Bench in the case of Apeejay Surrendra Management Services Pvt., Ltd., v. DCIT in & 988/Kol/2023 dated 19.02.2024.
Considered the rival submissions and material placed on record, we observe from the record that no doubt assessee owes substantial amount to the MMLPL as a pending balance of ₹.2,07,75,186.27/- which is not an issue before us. During the year assessee has received several payments from the company to the extent of ₹.20.77 lakhs on various dates and on 31.03.2012 the company recovered TDS on Salary of ₹.2,50,000/-. On a careful consideration of the statement of accounts
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(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., submitted before us, we observe that during the year assessee also made payment of ₹.10,50,000/- to the company on 06.04.2011 and 15.04.2011 and also paid ₹.7,00,000/- on 12.10.2011. Further, assessee accounts was credited with remuneration of ₹.12,00,000/- i.e., ₹.1,00,000/- per month at the end of every month. On a careful evaluation of ledger on date wise, closing balance which is as under: -
Respective Amount Closing date Date Particulars in ₹. balance (₹.) 6.4.2011 Payment to the MMLPL 10,00,000 10,00,000 15.4.2011 Payment to the MMLPL 50,000 10,50,000 30.4.2011 Remuneration to Directors 1,00,000 11,50,000 31.5.2011 Remuneration to Directors 1,00,000 12,50,000 20.6.2011 Withdrawal from MMLPL (5,00,000) 7,50,000 28.6.2011 Withdrawal from MMLPL (3,00,000) 4,50,000 30.6.2011 Remuneration to Directors 1,00,000 5,50,000 31.7.2011 Remuneration to Directors 1,00,000 6,50,000 31.8.2011 Remuneration to Directors 1,00,000 7,50,000 29.9.2011 Withdrawal from MMLPL (1,02,000) 6,48,000 30.9.2011 Remuneration to Directors 1,00,000 7,48,000 12.10.2011 Payment to the MMLPL 7,00,000 14,48,000 1.11.2011 Remuneration to Directors 1,00,000 15,48,000 16.11.2011 Withdrawal from MMLPL (6,25,000) 9,23,000 30.11.2011 Remuneration to Directors 1,00,000 10,23,000 31.12.2011 Remuneration to Directors 1,00,000 11,23,000 31.1.2012 Remuneration to Directors 1,00,000 12,23,000 29.2.2012 Remuneration to Directors 1,00,000 13,23,000 9.3.2012 Withdrawal from MMLPL (5,50,000) 7,72,000 31.3.2012 Remuneration to Directors 1,00,000 8,72,000 31.3.2012 T.D.S. (2,50,000) 6,22,000
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(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., 17. From the above we notice that assessee has not withdrawn any loan during the year under consideration and the outstanding balance on each closing day is credit balance during the year. Since there is no debit balance in any closing day of the year under consideration, we deem it fit and proper to delete the additions proposed by the Assessing Officer under Section 2(22)(e) of the Act.
Coming to the next issue of payment to RHPL and SSPDPL, there is no doubt that the assessee hold substantial interest in RHPL and SSPDPL and also hold a substantial shares in MMLPL and also MMLPL has accumulated profits during the close of the assessment year. In this regard we observe that in the Assessment Years 2006-07 and 2009-10 similar payments were given to RHPL and SSPDPL, the Coordinate Bench has remitted this issue back to the file of the Assessing Officer for verification considering the fact that these are all the regular business transactions.
Be that as may be, from the submissions made before us, we observe that the MMLPL has made several payments to RHPL and SSPDPL during the year for the purpose of requirement in the business of RHPL and SSPDPL. After considering the detailed bank statements
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(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., and ledger accounts submitted by the assessee, we observe that the RHPL and SSPDPL has utilized the funds received from MMLPL for their own business purposes and none of the funds are utilized other than business purpose as per the bank statement submitted before us. We observe that no funds were utilized for directly or indirectly for the benefit of the assessee.
As per the provisions of Section 2(22)(e) of the Act “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 31st 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 rate 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;”
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(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., 21. From the above definition we observe that any payment directly to the shareholder, to any concern in which such shareholder is a member or a partner and in which he has substantial interest or any payment by any such company on behalf of or for the individual benefit of any such shareholder. Therefore, from the above definition it is clear that the provisions of Section 2(22)(e) of the Act is attracted if any advances or loan given directly to the shareholder or to a concern in which the shareholder is having a substantial interest or any payment by such company in which assessee is having a substantial interest on behalf of or for the individual benefit of any such shareholder. From the above definition we infer that the payment made to the concern in which the assessee is having a substantial interest and in turn above such concerns makes a payment to the assessee direct / indirect benefit of the assessee the provisions of Section 2(22)(e) of the Act are attracted.
In the given case, the assessee has demonstrated that no doubt the concern in which assessee is having substantial interest has received certain funds from the company and it was utilized by them for their own business purposes and none of the funds received by those companies in which the assessee is having substantial interest has made any payments directly or indirectly to the benefit of the assessee.
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(A.Y: 2012-13) Arunkumar Jayantilal Muchhala., Therefore, the payment received by RHPL and SSPDPL are utilized by them for the purpose of their own business. Therefore, provisions of Section 2(22)(e) of the Act cannot be invoked in this case. Accordingly, Ground No.2 raised by the assessee is allowed.
With regard to Ground No. 3, at the time of hearing, Ld.AR of the assessee submitted that this ground is not pressed, accordingly, the same is dismissed as such.
In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 05th April, 2024.