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Income Tax Appellate Tribunal, KOLKATA BENCHES : SMC
Before: SHRI J.SUDHAKAR REDDY
ORDER This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-XX, Kolakata dt.24.07.2014 relating to A.Y.2010-11 on the following grounds :- “
1. On the facts and in the circumstances of the case the Ld. C.IT.(A) has erred in confirming the disallowance u/s. 14A of the 1. T. Act, 1961 read with rule 8D amounting to Rs. 8,17,003/- on account of interest paid on borrowed fund invested in exempt assets.
2. On the facts and in the circumstances of the case the Ld. C.I.T.(A) has erred in confirming the deemed dividend income u/s. 2(22)(e) of the 1. T. Act, 1961 amounting to Rs.21,13,676/-.
3. On the facts and in the circumstances of the case the Ld. C.I.T.(A) has erred in confirming the disallowance of Rs. 6,42,436/- on account of interest on loans not for the purpose of business.
4. On the facts and in the circumstances of the case the Ld. C.I.T.(A) has erred in confirming the estimated income of House Property at Rs.63,000/- by the Ld. A.O.
5. Other grounds of Appeal may be argued before or at the time of hearing of this appeal.”
-M/s. CMG Agro (P)Ltd. A.Y.2009-10
After hearing the rival contentions I find that ground no.1 should be restored to the file of AO, as he has not examined the disallowance u/s 14A of the Income Tax Act, 1961 (Act) with respect to share of profit received by the assessee from partnership firms which are also not includible in the total income liable to tax of the assessee. The ld. DR has rightly relied on the judgement of ITAT Ahmedabad Bench in the case of Vishnu Anant Mahajan vs ACIT (2012) 22 taxmann.com 88 (Ahd.)(SB).
In the result ground no.1 is allowed for statistical purposes.
Ground no.2 is against the addition u/s 2(22)(e) of the Act. The ld. Counsel for the assessee relied on the decision of the Jurisdictional High Court in the case of Pradip Kumar Malhotra vs CIT (2011) 203 Taxman 110/15 taxmann.com 66 (Calcutta) and submitted that the assessee pledged his properties to the bank by way of equitable mortgage and also stood as a guarantor for the credit facilities taken by the company and that the company had reciprocally passed a resolution to provide interest free funds to the assessee upto a maximum limit of Rs.1 crore in lieu of his pledging his properties and standing as guarantor for the loan. The ld.DR opposed this contention by submitting that the assessee is not the sole guarantor and that there are other guarantors and that in the case of Pradip Kumar Malhotra, the Hon’ble Calcutta High Court has considered a case where Mr. Pradip Kumar Malhotra wanted to sell his property and that this was not possible without the company releasing equitable mortgage and under such circumstances the assessee was in that case allowed to take loan from the company. In the case in hand the ld. DR submitted that such situation has not arisen.
After hearing the rival submissions I find that the Jurisdictional High Court in the case of Pradip Kumar Malhotra held as follows :- “The phrase ‘by way of advance or loan’ appearing to sub-clause (c) of section 2(22) 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 10 per cent of the voting power; but if ITA No.1645/Kol/2016-M/s. CMG Agro (P)Ltd. A.Y.2009-10
such loan or advance is given to such shareholder as a consequence of any further considerate 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 shareholder. In the instant case the assessee permitted his property to be mortgaged to the bank for enabling the company to take the benefit of loan and in spite of request of the assessee, the company was unable to release the property from the mortgage. In such a situation, for retaining the benefit of loan availed from the bank if decision was taken to give advance to the assessee such decision was not to give gratuitous advance to its shareholder but to protect the business interest of the company. Therefore, the authorities below erred in law in treating the advance given by the company to the assessee by way of compensation for keeping its property as mortgage on behalf of the company to reap the benefit of loan as deemed dividend within the meaning of section 2(22)(e). Consequently, the order of the Tribunal below was to be set aside directing the Assessing Officer not to treat the advance in question as a deemed dividend.”
The proposition laid down by the jurisdictional High Court is that transactions, whether the assessee has permitted his property to be mortgaged to the bank, for the company to take certain benefit by way of loan and when certain facilities granted by such company in lieu of such mortgage and in lieu of the same, the company grants some interest free advance to the assessee, such transaction is not a gratuitous transaction. This principle is fulfilled in the case on hand. Thus respectfully following the same we allow this ground of the assessee as the amount advanced by the company to the assessee is not a gratuitous transaction.
Ground no.3 is against the disallowance of interest paid. The claim of the assessee has to be examined with the help of a cash flow statement. The assessee should demonstrate whether interest bearing funds have gone into taxable income earning activities. It is for the assessee to demonstrate that interest fee funds have been utilised for personal purposes. The issue has to be examined holistically. This has not been done. -M/s. CMG Agro (P)Ltd. A.Y.2009-10 Hence I set aside these grounds to the file of AO for fresh adjudication in accordance with law. Hence this ground is allowed for statistical purpose.
In the result the appeal of the assessee is allowed in part.
Order pronounced in the open court on 12.04.2017.