SHRI ANUJ GUPTA,NOIDA vs. ITO, NEW DELHI

Both the appeals were earlier dismissed by the Tribunal for want of prosecution. Subsequently, the Tribunal, vide order dated 6th August, 2019, in MA No.43/Del/2017 and 44/Del/2017, respectively, recalled its earlier order. Hence, these are recalled matters.

First we take up ITA No.698/Del/2015 in the case of Shri Anuj Gupta.

Facts of the case, in brief, are that the assessee is an individual and was working as Director in M/s Pan Portfolio Pvt. Ltd. and M/s RCMC Share Registry Pvt. Ltd. and was holding 25% and 15.6% shares of each company respectively. He has filed his original return of income declaring the total income at Rs.2,71,980/- which was processed u/s 143(1) of the Act. During the year under consideration, the accumulated profit of M/s RCMC Share Registry Pvt Ltd was Rs 13,59,911/- and out of this available surplus funds, the company advanced the loan to M/s Pan Portfolio Pvt Ltd wherein Shri Anuj Gupta has 25% shareholding. Since all the provisions as contained in section 2(22)(e) were attracted in this case, an addition of Rs 13,59,911/- was made as deemed dividend in the case of M/s Pan Portfolio Pvt Ltd in the assessment order completed u/s 143(3) of the IT Act on 23/12/2008. On filing of appeal by the assesses company, the Ld CIT(A) vide its appeal order No 151/CIT(A)/XVII/Del/08-09 dated 16/11/2009 had deleted the addition directing the AO of Shri Anuj Gupta to take necessary action in his hands as per law. The AO, thereafter, after recording reasons as per the provisions of section 147 of the Act, issued notice u/s 148 of the Act on 22nd March, 2013. In

Before the CIT(A), the assessee challenged the validity of the reassessment proceedings as well as the addition on merit. However, the ld.CIT(A) dismissed the appeal filed by the assessee.

Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:- “On the facts and in the circumstances of the case and in law the following actions of the authorities below being most arbitrary, erroneous and unlawful must be quashed: 1. Initiating proceedings u/s 148 of the Act without there being any valid reason to form the belief of the escapement of income; 2. Passing order u/s 143 (3)/l 47 of the Act at Rs.5,02,340/- against the already determined income of Rs.l,62,260/-; 3. In making an addition in a sum of Rs.3,39,978/- treating the transaction between M/s RCMC Share Registry Pvt. Limited and M/s PAN Portfolios Pvt. Limited as deemed dividend taxable u/s 2 (22) (e) of the Act in the hands of the assessee; 4. In charging interest U/s 234B of the Act in a sum of Rs.86,554/-.”

The ld. Counsel for the assessee, at the time of hearing, did not press grounds No.1 and 2, i.e., regarding the validity of the reassessment proceedings which was not objected to by the ld. DR. Accordingly, the grounds of appeal No.1 and 2 are dismissed as ‘not pressed.’

Ground No.3 relates to the order of the CIT(A) in sustaining the addition of Rs.3,39,978/- by the AO as deemed dividend u/s 2(22)(e) of the Act. The ld. Counsel, at the outset, drew the attention of the Bench to the CBDT Circular No.19/2017 dated 12th June, 2017 and submitted that the Board has clarified that trade advances which are in the nature of commercial transactions would not fall within the ambit of the word ‘advance’ in section 2(22)(e) of the Act. He submitted that inter-company transaction is an essential commercial borrowing and integral profit earning process of both the lending and the borrowing companies for genuine commercial purposes and not loan or advance within the mischief of section 2(22)(e). He submitted that in the instant case, the alleged transaction of loan and advance is a commercial transaction with profit earning element and not loans and advances so as to invite the implication of the deeming fiction u/s 2(22)(e) of the Act. He submitted that the company M/s Pan Portfolio Pvt. Ltd. was incorporated on 30th August, 2005 as a financial and investing company whose very business is to invest in financial instruments including in group companies. The company, during the very first year of operation had raised a capital as loan

He submitted that the interest received by the above parties have been recognized in the Profit & Loss Account of Pan Portfolio on which TDS has been deducted and paid that has been accepted by the Department. The respective interest earned has been offered to tax by the lending company RCMC and the assessee which has been accepted by the Department. Therefore, when the department has recognized well that these loans and advances are revenue earning investment and the income has been accepted under the head ‘Income from other sources’ in the hands of both RCMC as well as the assessee, therefore, in absence of anything on record to show that the loans and advances are in any manner connected to avoidance of payment of dividend, the provisions of section 2(22)(e) of the Act are not applicable. Referring to the following decisions, the ld. Counsel submitted that the ld.CIT(A) is not justified in sustaining the addition made by the AO u/s 2(22)(e) of the Act:- i) CIT vs. Creative Dyeing and Printing Pvt. Ltd., 318 ITR 476 (Del); ii) Pradip Kumar Malhotra vs. CIT, ITA No.219 of 2003 (Kolkata High Court); iii) CIT vs. Hindustan Petroleum Corporation Ltd., 187 ITR 1 (Bom) and iv) CIT vs. C.P. Sarathy Mudaliar, 83 ITR 170 (SC)

The ld. DR, on the other hand, heavily relied on the order of the CIT(A).

I have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find, 6

I find some force in the above argument of the ld. Counsel for the assessee. As demonstrated by the ld. Counsel for the assessee in the paper book, the loans given by the assessee are interest bearing loans on which TDS has duly been deducted and the income has been accepted as ‘Income from other sources’ by the AO. Therefore, in view of the CBDT Circular No.19/2017 where the Board has held that trade advances in the nature of commercial transactions will not fall within the ambit of the provisions of section 2(22)(e) of the IT Act, addition u/s 2(22)(e) in the instant case is not called for.

I find, the Hon’ble Kolkata High Court in the case of Pradip Kumar Malhotra (supra) has observed as under:- "....by way of advance or loan" appearing in sub-section (e) must be construed to mean those advances or loans which a shareholder enjoys for simply on account of 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; but if such loan or advance is given to such share holder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to a deemed dividend within the meaning of the Act. Thus, for gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of Section 2(22) but not to the cases where the loan or advance is given in return to an advantage conferred upon the company by such share holder.” 14. Similar view has been taken in various other decisions filed by the ld. AR where it has been held that provisions of section 2(22)(e) are not applicable in the 8

Ground No.3 is identical to ground No.3 in ITA No.698/Del/2015. We have already decided the issue and the ground raised by the assessee has been allowed. Following same reasonings, the ground raised by the assessee is allowed. 9

In the result, the appeals filed by the respective assessee are partly allowed. The decision was pronounced in the open court on 07.07.2021. Sd/- (R.K. PANDA) ACCOUNTANT MEMBER Dated: 07th July, 2021. dk Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi