DY. COMMISSIONER OF INCOME TAX, CIRCLE1(1)(1),, AHMEDABAD vs. M/S. BIOTECH OOTHALMICS PVT.LTD.,, AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH AHMEDABAD BEFORE, SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER

ITA No. 3478/Ahd/2014 (Assessment Year: 2005-06) DCIT, Circle – 1(1)(1), ‘A’ Wing, Room No.309, 3rd Floor, Pratyaksha Kar Bhavan, Ambawadi, Ahmedabad - 380015 Appellant Vs. M/s. Biotech Opthalmics Pvt. Ltd., Sarthik-II, Opp. Rajpath Club, S.G. Highway, Ahmedabad – 380 051 Respondent PAN: AAACB0328F राज�व क� ओर से/By Revenue : Shri V. K. Singh, Sr. D.R आवेदक क� ओर से/By Assessee : None सुनवाई क� तार�ख/Date of Hearing : 20.12.2017 घोषणा क� तार�ख/Date of : 29.12.2017 Pronouncement

ORDER PER S. S. GODARA, JUDICIAL MEMBER

This Revenue’s appeal for assessment year 2005-06 arises against the CIT(A)-III, Ahmedabad’s order dated 16.10.2014 in case no. CIT(A)- III/375/DCIT.Cir.1/13-14, reversing Assessing Officer’s action making Section 2(22)(e) deemed dividend addition of Rs.41,25,289/-, in proceedings u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961; in short “the Act”.

ITA No. 3478/Ahd/14 [DCIT vs. M/s. Biotech Opthalmics Pvt. Ltd.] - 2 - A.Y. 2005-06

“9. Grounds No. 3 to 5 relate to assessment of impugned deemed dividend of Rs.41,25,289/- u/s. 2(22)(e) of the I.T. Act in the hands of the appellant. 9.1 I have considered the facts of the case, assessment order, appellant's submission and the CIT(A)'s order on the same issue in the case of appellant in A.Y. 2006-07 and in the case of Menul P. Asnani in A.Y 2005-06. 9.2 This issue of deemed dividend has already been decided in the above mentioned cases by the CIT(A)-VI Ahmedabad. In case of Mehul P. Asnani in AY 2005-06 it was held as under- "from the above it is clear that the loan transaction between Biotech vision care Ltd and Biotech ophthalmic Ltd was held to be deemed dividend within the meaning of section 2(22) (e) of the IJ Act. In view of the reason mentioned therein the loan transaction is to be treated as deemed dividend but the addition has to be made in the hands of shareholder as per the provision of Bombay special bench and Bombay High Court. Accordingly the addition of deemed dividend is to be made in the hands of the appellant who held more than 90% share of lending company. Assessing officer discuss the judicial decision relied upon by the appellant and distinguish the same on facts, I agree with the assessing officer or this considering the facts of the case and relevant judicial decision including Bombay ITAT and high courts, the transaction of loan are treated as deemed dividend." 9.3 In the AY 2006-07, the CIT(A)-VI deleted the addition of deemed dividend in the hands of the appellant company after observing as under- "The undisputed facts are that appellant took loan from Biotech vision care private Ltd. Shri Mehul P Asnani was having 90% shareholding in the lending concern and 40% shareholding the appellant company therefore the shareholder Shri Mehul P Asnani was having substantial interest in both the companies and accordingly the loan advanced by Biotech vision care to the appellant company is taxable as deemed dividend under section 2(22) (e) of the I.T Act. The appellant said that it was business advance for commercial consideration but the said advance cannot be treated as given in normal course

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of business since the lender company is not in money lending business, in view there of the provisions of section 2(22) is clearly applicable and loan amount has to be treated as deemed dividend. Considering the facts of the case, the transaction of loan is treated as deemed dividend. Appellant is not a shareholder in the lender company however assessing officer treated the same as deemed dividend in hands of appellant company. Appellant's main objection was that in view of the various decisions including special bench of ITAT Mumbai and Bombay High Court referred in appellant's submission, the addition of deemed dividend can be made only in the hands of shareholder. If the recipient of the loan is not a shareholder and transaction is covered by this provision, the addition is to be made in hands of shareholder. Considering the decision of ITAT special bench and Bombay High Court, I agree with the appellant's contention that addition for deemed dividend has to be made in hands of shareholder only. Accordingly, assessing officer is directed to delete the addition in respect of deemed dividend in the hands of appellant and make the said addition in hands of shareholder Shri Mehul P Asnan in view of the decisions of Hon’ble ITAT Special Bench and Hon’ble High Court of Bombay.” 9.4 The facts in the appeal under consideration are exactly same as discussed above therefore respectfully following the decision in the case of appellant in A.Y. 2006-07 and in the case of Shri Mehul P Asnani in A.Y 2005-06, the AO is directed to delete the addition in respect of deemed dividend in the hands of appellant in A.Y. 2005-06.

“6. We find that there is no controversy or dispute about the fundamental legal position that unless the assesse is a shareholder in the company from which the amounts are received, such amounts cannot be taxed in his hands as deemed dividend under section 2(22)(e) of the Act. In the case of CIT Vs Daisy Packers Pvt Ltd (judgment dated 18th July 2012 in Tax Appeal No. 212 of 2010), Hon'ble jurisdictional High Court has, inter alia, noted that it is not necessary to go into other legal issues once it is an undisputed position that the assesse was not shareholder in Amigo Brushes Pvt Ltd, and that "if the assesse company does not hold a share in other company from which it had received deposit, it cannot be treated to be a deemed dividend under section 2(22)(e) of the Act". The same was the position in the case of ACIT vs Bhaumik Colours Pvt Ltd [(2009) 118 ITD 1 SB (Mum)] wherein a special bench of this Tribunal concluded that, "Deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder" and

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that "The expression 'shareholder' referred to in s. 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder then the provisions of s. 2(22)(e) will not apply. Similarly, if a person is a beneficial shareholder but not a registered shareholder then also the provisions of s. 2(22)(e) will not apply". 7. It is thus clear that being a registered shareholder is a condition precedent for invoking Section 2(22)(e) of the Act, and that condition is admittedly not satisfied. For this short reason alone, the impugned additions should have been deleted by the CIT(A). We approve the conclusions arrived at by the CIT(A) in this respect and decline to interfere in the matter so far as the relief given by the CIT(A) is concerned. 8. In the result, the appeal is dismissed.”

We accordingly adopt judicial consistency herein as well to affirm CIT(A)’s findings deleting the impugned deemed dividend addition in question. The Revenue’s sole substantive ground is therefore rejected.

[Pronounced in the open Court on this the 29th day of December, 2017.]

Sd/- Sd/- (PRAMOD KUMAR) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 29/12/2017