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Facts
The Revenue filed an appeal against the order of the CIT(A) who deleted an addition made by the AO. The addition was related to an unsecured loan treated as deemed dividend under Section 2(22)(e) of the Income Tax Act. The CIT(A) deleted the addition based on a Supreme Court decision. Another issue involved the disallowance of employees' contribution to PF & ESI.
Held
The Tribunal held that the deletion of the addition of unsecured loan as deemed dividend was justified, as the assessee was not a shareholder in the lender company, and the appeal before the Supreme Court on this issue was withdrawn. However, regarding the employees' contribution to PF & ESI, the Tribunal held that the disallowance was to be confirmed in light of the Supreme Court's decision in Checkmate Services P. Ltd. vs. CIT.
Key Issues
Whether the unsecured loan treated as deemed dividend under Section 2(22)(e) was rightly deleted by the CIT(A)? Whether the disallowance of employees' contribution to PF & ESI was justified?
Sections Cited
2(22)(e), 36(1)(va), 2(24)(x), 43B, 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI SS VISWANETHRA RAVI & SHRI JAGADISH
आयकर अपीलीय अिधकरण, ‘डी’ "ायपीठ, चे"ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI "ी यस यस िव"ने" रिव, "ाियक सद एवं "ी जगदीश, लेखा सद के सम( BEFORE SHRI SS VISWANETHRA RAVI, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.546/Chny/2018 िनधा;रण वष; /Assessment Year: 2013-14 The Asst. Commissioner of Income M/s. Amtex Info Solutions Pvt. Tax, Vs. Ltd., Plot No.54, 27th Street, Corporate Circle-1(1), Chennai. Sri Krishna Nagar, Maduravoyal, Chennai – 600 095. [PAN: AAICA 6676K] (अपीलाथ"/Appellant) (""यथ"/Respondent) अपीलाथH की ओर से/ Assessee by : None JKथH की ओर से /Revenue by : Shri G. Suresh. JCIT सुनवाई की तारीख/Date of Hearing : 02.07.2024 घोषणा की तारीख /Date of Pronouncement : 13.09.2024 आदेश / O R D E R PER JAGADISH, A.M : Aforesaid appeal filed by the Revenue for Assessment Year (AY) 2013-14 arises out of the order of Learned Commissioner of Income Tax (Appeals)-, Chennai [hereinafter “CIT(A)”] dated 12.12.2017 in the matter of assessment framed by the Assessing Officer [A.O] u/s. 143(3) of the Act on 30.03.2016. :- 2 -:
The grounds of appeal raised by the Revenue are as under:
“1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case.
2.1 The learned CIT(A) erred in deleting the addition to the tune of Rs.6.56 crores made by the AO treating the loan received by the assessee as deemed dividend u/s.2(22) (e) of the Act.
2.2 The Learned CIT(A) erred in holding that the provisions of section 2(22)(e)_ of the Act are not applicable to the loan transaction entered between the assessee company and its related concern, without appreciating the fact that the advances can only be treated as deemed dividend.
2.3 The learned CIT(A) failed to appreciate that the Apex Court decision in the case of Madhur Housing & Development Company (Civil Appeal No. 3961 of 2013 dated 05.10.2017) which upheld the decision of the Delhi HC in the case of Ankitech Pvt Ltd 11 TaXmann.com 100 (2011) wherein it was held that provisions of Sec.2(22) (e) could be invoked only if the recipient of the loan was both a beneficial and registered shareholder in the lender company, relied upon upon in the instant case has been subsequently held by the Apex Court as incorrect and requiring reconsideration vide its decision in the case of M/s. National Travel Services (Civil Appeal No.2068-2071 of 2012) dated 18.01.2018. 2.4 The disallowance made by the A0 invoking provisions of Sec.2(22) (e) of the Act in respect of the impugned loan transaction was required to be upheld in view of the Apex Court decision in the case of M/s. National Travel Services cited supra.
3.1 The learned CIT(A) erred in deleting the disallowance made u/s.36(1) (va) read with section 2(24)(x) of the I.T. Act to the tune of Rs.1,05,750/-, towards non-payment of employees part of contribution to EPF and ESI, by the assessee.
3.2 The learned CIT(A) failed to appreciate the fact that unlike the Employers contribution, the employees part of contribution to EPF and ESI are not allowable U/s. 43B of the IT Act, if the said contributions are not paid within the due dates, as specified in the respective Acts, and such unpaid employees contributions are liable for disallowance U/s. 36(1)(va) read with section 2(24) (x) of the Act?.
3.3 The learned CIT(A) erred in not appreciating the fact that the decision of the Hon'ble Supreme Court in the case of M/s. Alom employers part of EPF and ESI relates to the employers Extrusions relates to the Contribution and not with regard to :- 3 -:
Employees Contribution to ESI and EPF, and this is further evidenced by the Boards communication in circular No. 22 of 2015 dated 17.12. 2015. 3.4 The learned CIT(A) erred in allowing the employees part of contribution to ESI and EPF u/s. 43B of the Act, which is actually applicable to employers part of contribution, then the provisions of section 36(1) (va) and 2(24)(x) of the Act, which governs the situation arising out of non-payment of employees contribution to EPF and ESI, Would not have any applicability and become redundant? 4.1 For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.”
Ground No.1 & 4 are general in nature hence, no adjudication is required.
Ground No.2 relates to deletion of addition on account of deemed dividend amounting to Rs. 6,56,54,278/- by the Ld. CIT(A).
The A.O has made the addition of unsecured loan from Amtex
Software Solutions Pvt. Ltd amounting to Rs. 6,56,54,278/- invoking
the provisions of section 2(22)(e) of the Act as there is a common
shareholder, Shri Sai Nadh Pokala, holding more than 20% shares in both the companies. The A.O has held that the unsecured loan is deemed dividend invoking the provisions of Section 2(22)(e) of the Act.
The Ld. CIT(A) relying upon the decision of Hon’ble Supreme Court in the case of CIT vs. Madhur Housing and Development Company Ltd. in Civil Appeal No.3961 of 2013 dated 5th October, 2017 has deleted :- 4 -:
the addition as the Hon’ble Supreme Court has held that the provisions
of Section 2(2)(e) of the Act would be applicable only in the hands of registered shareholder and in the present case, the assessee is not a shareholder of M/s. Amtex Software Solutions Pvt. Ltd. Now, the Department is in appeal on the ground that the Hon’ble Supreme Court
in the case of M/s. National Travel Services in Civil Appeal No.2068-
2071 of 2012 dated 18.01.2018 (SC) has held that the decision in the case of CIT vs. Madhur Housing and Development Company Ltd.,
supra, is not correct and requires re-consideration.
The Ld. DR reiterated the ground and stated that reliance of Ld.
CIT(A) in the case of CIT vs. Madhur Housing and Development
Company Ltd., supra, was not correct in view of the observation made
by Hon’ble Apex Court in the case of M/s. National Travel Services,
supra.
The Ld. AR, on the other hand, has submitted that in the case of M/s. National Travel Services, supra, has referred the matter to the Hon’ble Chief Justice of India in order to constitute larger Bench for re-
consideration of the issue whether the shareholder should be both
registered and beneficiary. The Ld. Counsel invited our attention to :- 5 -:
the fact that the assessee in the above case has withdrawn the appeal
referred by the Hon’ble Supreme Court to the Hon’ble Chief Justice of India for constitution of larger Bench by opting under direct taxes
VSVS, 2020. 7. We have heard the rival submissions, and perused the materials
available on record. The A.O has invoked the provisions of Section 2(22)(e) of the Act as there is a common shareholder having
share more than 20% in assessee’s company and M/s. Amtex
Software Solutions Pvt. Ltd. from which unsecured loan of Rs.6,56,54,278/- was taken. The Ld. CIT(A) has allowed the relief
relying on the decision of Hon’ble Supreme Court in the case of CIT
vs. Madhur Housing and Development Company Ltd., supra. The Department is in appeal as the Hon’ble Apex Court in the case of M/s.
National Travel Services, supra, has referred the matter to the larger
Bench, but as stands now the appeal before Larger Bench of Hon’ble
Supreme Court has been withdrawn by the assessee and therefore,
the decision of Hon’ble Apex Court in CIT vs. Madhur Housing and Development Company Ltd., supra becomes the binding decision.
The Hon’ble Jurisdictional High Court in the case of CIT vs. M/s.
Checkpoint Apparel Labelling Solutions India Ltd., [2020] 120 :- 6 -:
taxmann.com (Mad.) has also held that if recipient of the loan is not a shareholder of a company the loan cannot be assessed as deemed
dividend. In view of the above, we do not find any infirmity in the order
of Ld. CIT(A) and therefore, the ground No.2 of the Revenue is dismissed.
Ground No.3 is against the deletion of disallowance of employees contribution to PF & ESI amounting to Rs. 1,05,750/- not paid before the due date prescribed under the relevant statute, though
has been paid within due date provided for furnishing the return of income u/s.139(1) of the Act. The A.O has made the disallowance of employee contribution to PF and ESI of Rs. 1,05,750/- on the ground
that the same has not been deposited before the due date of prescribed under the relevant statute. The Ld. CIT(A) has relying on the decision of Hon’ble Madras High court CIT vs. Industrial Security
and Intelligence India (P.) Ltd. and the decision of Hon’ble Supreme
Court in the case of CIT vs. Alom Extrusions Ltd. has deleted the addition as the employee contribution has been paid before due date
of filing the return of income. :- 7 -:
The Ld. DR has submitted that the Hon’ble Supreme Court in the case of CIT vs. Alom Extrusions, supra, relevant to employer part of PF & ESI contribution and the issue is now settled by the decision of Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. Vs
CIT in Civil Appeal No.2833 of 2016 dated 12.10.2022 (SC).
The Ld. AR, on the other hand, relied on the order of the Ld.
CIT(A).
We have heard the rival submissions, and perused the materials
available on record. The Ld CIT(A) has allowed the appeal on the basis of decision of Hon’ble Madras High court CIT vs. Industrial
Security and Intelligence India (P.) Ltd. and other judgments where
Honorable courts have held that deduction u/s.36(1)(va) of the employees' share of EPF/ ESIC etc. even if the deposit was made
after the due date under respective Acts but before the time limit
provided for filing the return u/s.139(1) of the Act are allowable.
However this view has since been reversed by the Hon'ble Supreme
Court in the case of Checkmate Services P. Ltd.(SC). In view of the judgment of the Hon'ble Supreme Court, which is binding under Article
141 of the Constitution, this issue is now settled in revenue’s favor by :- 8 -:
the cited decision of Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. Vs CIT, supra, and therefore, the disallowance of employees contribution to PF & ESI amounting to Rs.1,05,750/- stands confirmed. Hence, ground No.3 of the Revenue is allowed.
In the result, the appeal filed by the Revenue is partly allowed.
Order pronounced on 13th September, 2024. (यस यस िव"ने" रिव) (जगदीश) (Jagadish) (SS Viswanethra Ravi) लेखा सद"य लेखा सद"य /Accountant Member लेखा लेखा सद"य सद"य सद"य / Judicial Member "याियक सद"य "याियक "याियक "याियक सद"य सद"य चे"ई/Chennai, "दनांक/Dated: 13th September, 2024. EDN/-
आदेश क" "ितिलिप अ"ेिषत/Copy to: 1. अपीलाथ"/Appellant 2. ""थ"/Respondent 3. आयकर आयु"/CIT, Chennai 4. िवभागीय "ितिनिध/DR 5. गाड" फाईल/GF