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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Per Manish Borad, Accountant Member:
This appeal at the instance of the assessee is directed against the order of National Faceless Appeal Centre (NFAC), Delhi [the ld. CIT(A)] Commissioner of Income-tax (Appeals) [learned CIT (A)] dated 16th January, 2023, which is arising out of the assessment order under Section 143(3) of the Income-tax Act, 1961 (the Act) dated 26th December, 2017. 02. The grounds of appeal raised by the assessee read as under: “*1) For that the order passed U/s 250 is bad in law to the extent that the Ld. CIT(A) was unjustified and incorrect in upholding addition of deemed dividend u/s 2(22)(e) of the Income Tax Act. 1961 amounting to Rs.2,99,87,804/-ignoring facts of the case and decided case laws. 2) For that additions confirmed by the Ld. CIT (A) are arbitrary and are not according to the provisions of the Income Tax Act 1961. Ld. AO has erroneously applied the provisions of section 2(22)(e) on the advance received by the assessee against the purchase of a property for the benefit of the company. Provision of section 2(22)(e) is not be applicable on such receipts and as such no addition was called for. 3) For that the lower authorities have failed to consider the facts and documents submitted in support of our above contention while sustaining the additions made. 4) For that the appellant craves leave to add, alter or deduce any ground of appeal raised above at the time of hearing."
3. The sole issue involved in this appeal is regarding the addition of deemed dividend u/s. 2(22)(e) of the Act amounting to Rs.2,99,87,804/- confirmed by ld. CIT (A).
4. Briefly stated facts are that assessee is a doctor by profession and runs his own hospital namely, Genesis Hospital, Ruby, Kolkata. Return of income filed declaring total income of Rs. 1,29,38,170/-. The case of the assessee selected for scrutiny and valid notices u/s 143(2) and 142(1) of the Act were issued which were duly complied with. Ld. AO framed the assessment u/s. 143(3) determining total assessed income of Rs.4,29,25,970/- after making an addition of Rs.2,99,87,804/- u/s. 2(22)(e) of the Act. According to Ld. AO, the addition has been made on the ground that the assessee had taken loan of Rs.3,33,60,000/- from M/s. East India Health Care Pvt. Ltd. in which the assessee is 66.22% shareholder. Since the accumulated profit of the company was Rs.2,99,87,804/-, ld. AO made the impugned addition which has been confirmed by Ld. CIT(A) obtaining as under: -
“6.2 The appellant booked two flats from the promoter and apparent consideration are about Rs. 5.55 Cr. against which at the end of the F.Y. under consideration appellant has received Rs. 3.36 Cr. from his company which has been shown as loan in his accounts. 6.3 It is stated that even such transactions happened in F.Y. 2014-15 but till the date of the completion of the assessee i.e. after December, 2017 appellant has not got possession of the flat due to non-payment of the dues. Therefore, entire money remained with the appellant and used by the appellant for his own purpose. 6.4 If it has been a genuine business transaction there must have been certain condition while providing such loan to the appellant as so-called business advance with a time limit either to repay amount or to make the possession of the flats available to the company to be used as their guest house. 6.5 Appellant has not furnished any evidence or any copy of agreement entered into with the company in this regard. It is unlikely that such a big amount of financial transaction would have been done without any written agreement with appropriate terms and conditions. 6.6 It is not understandable as to why the company wanted to acquire the possession of two high value flats through via-media i.e. through a share holder of a company other than acquiring such property on their own. 6.7 It is also not explained as to why company has not fulfilled the terms of agreement by not realizing the balance amount and not insisting repay of the loan amount with interest. 6.8 In the assessment order the AO rejected the submission of the appellant stating on the issue that possession of the flat is still pending and the company has not paid entire money to the assessee and in the assessee's account entire amount received is shown as unsecured loan. AO observed that appellant has not furnished any explanation as to why provisions of section 2(22)(e) will not be applied, specially when the amount is shown in the account of the appellant as receipt of "unsecured loan". 6.9 Section 2(22)(e) of the IT Act states only of payment by a company to a shareholder any amount by way of "advance or loan" to a shareholder for attracting this section. The only exception is that making any advance or loan to a shareholder by a company given in ordinary course of business, where the lending of money is a substantial part of the business of the company. The company does not come within the exceptional clause. 6.10 In view of the above fact and circumstances it is quite clear that appellant being the majority shareholder of the company apparently influence the company to make such payment to the appellant by giving it a colour of business transaction which is not based on any material on record. The action and behaviour of both the company and appellant also indicates that this transaction is not at all a business transaction but apparently a way to make use the fund of the company for the personal benefit of the appellant. The reasons explained by the appellant is not convincing as appellant also failed to explain as to why the company wanted to get hold two flats in a complex for the intended as their guest house without directly purchasing the same from the developer itself. When fund is being diverted from the company as loan given to the appellant for acquisition of the flat being appellant himself, all the logic of the appellant fails. The case laws relied upon by the appellant are distinguishable. In view of fact and circumstance of the case, the addition made by the AO in the assessment order is upheld. Therefore, the appeal of the appellant is dismissed.”
Aggrieved assessee is now in appeal before this Tribunal. The ld. Counsel for the assessee referring by the written submissions and ledger account stated that there are continuous transactions of payment and receipt between the assessee and the company namely M/s. East India Health Care Pvt. Ltd. and these transactions are for commercial expediency and are not in the nature of loans and advances. Reliance placed on the judgement of Hon'ble Kolkata High Court in case of Pradip Kumar Malhotra V. CIT (2011) 15 taxmann.com 66/203 Taxman 10/338 ITR 538 (Cal) and the decision of co-ordinate bench Amritsar in the case of G.G. Continental Trades Pvt. Ltd. Vs. DCIT 106 ITR (T) 356, ld. AR also referred to the CBDT Circular no. 19 dated 12th June, 2017.
On the other hand, the ld. Departmental Representative (DR) vehemently argued supporting the order of the lower authorities.
We have heard the rival contentions and perused the records available on record. The point in dispute before us is the addition for deemed dividend u/s 2(22)(e) of the Act and for necessary reference Sec 2(22)(e) of the Act read as under: - 4 “Section 2(22) in The Income Tax Act, 1961 (22)"dividend" includes— (a) ……….. (b) …………. (c) ………………. (d)………………. (e)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;”
We observe that assessee who is 62.22% shareholder in M/s. East India Health Care Pvt. Ltd. The accumulated profit of the company is Rs.2,99,87,804/-. The ld. Ao observing that there is a debit balance in the name of assessee in the books of M/s. East India Health Care Pvt. Ltd. (EIHCPL), came to a conclusion that the assessee has taken unsecured loan from EIHCPL. The ld. CIT (A) affirmed the finding of the ld. AO and his finding is abstracted (supra).
We note that the assessee is a doctor and runs hospital under the name EIHCPL. Copies of ledger account of EIHCPL in the books of the assessee for A.Y. 2013-14 and 2015-16 has been placed before us. On Perusal of the ledger account, it reveals that there are continuous transactions of outflow inflow of funds between the assessee and EIHCPL. Sometimes the balance of EIHCPL is debit and sometimes it is credit and there are, almost around 72 transactions each year. Neither any interest is charged by EIHCPL nor charged by the assessee. In short it is regular running account between the two for the year under consideration. The sum received by the assessee from the company was towards purchase of two flats in Urbana Complex, Kolkata, to be used as a guest house for the vising doctors of the hospital. The funds so received could not utilized for some unavoidable reason during the year but transferred back in succeeding period. It prima facie indicates that the transactions between the assessee and the EIHCPL are not in the nature of loans or advances but are regular business transactions entered for commercial expediency. The CBDT vide circular no.19 dated 12th June, 2017, taking note of the judgements of the Hon'ble Courts, stated that the trade advances in the nature of commercial expediency could not fall within the ambit of Section 2(22)(e) of the Act.
Similarly, Hon'ble Jurisdictional High Court in case of Pradip Kumar Malhotra (supra), adjudicating similar type of issue regarding applicability of Section 2(22)(e) of the Act on the trade advances held as under: - “........we are of the opinion that the phrase "by way of advance or loan
appearing in sub-el. (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 shareholder 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 6 shareholders would come within the purview of s. 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.
That the co-ordinate bench of ITAT Amritsar in the case of G.G. Continental Trades Pvt. Ltd. (supra), held as under: - “Where assessee-company held a 17.20 per cent share in a group concern and funds were regularly exchanged between assessee and said concern to meet their respective business requirements, with interest charged on these transactions, since payments made were not for anybody's individual benefit but were provided due to business exigencies and funds so provided was for sole benefit of company and not to individual benefit of a shareholder, question of applicability of provisions of section 2(22)(e) did not arise.”
On examining the facts of the instant case in the light of the above decision and CBDT Circular, we find that the transactions between the assessee and the EIHCPL are not in the nature of loans and advances but are transactions of commercial expediency and business exigencies. Since, the assessee is the key person looking after the day- to-day affairs of the hospital and considering the need of funds required by the hospital for day-to-day business, sometimes the funds are made available by the assessee to the hospital and sometimes hospital provides funds to the assessee for carrying out certain transactions on behalf of the hospital. Further, we find that these transactions have been consistently carried out for past many years and have been accepted by the Revenue Authorities. We thus respectfully following the ratio laid down by the Hon'ble Court and co- ordinate Bench referred supra are of the considered view that Section 2(22)(e) of the Act cannot be invoked on the given set of transactions in the instant appeal. We therefore, reverse the findings of the ld. CIT (A) and delete the impugned addition of ₹ 2,99,87,804/- and allow the grounds no.1 and 2 raised by the assessee. 7
Ground no. 3 & 4 being general in nature and no specific submission made by the assessee, the same is dismissed. 014. In the result, appeal of the assessee is allowed. Kolkata, the 27th September, 2024