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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI R. C. SHARMA, AM & SHRI MAHAVIR SINGH, JM
Per Mahavir Singh, JM: This appeal by revenue is arising out of order of CIT(A)-17, Mumbai in Appeal No. CIT(A)-17/IT/113/13-14 dated 04.6.2014. Assessment was framed by ITO u/s. 143 r/w. 147 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2009-10 vide his order dated 26.03.2013. 2. At the outset, it is noticed that the Registry has noted that this appeal is time barred by 33 days, but subsequently the Revenue filed a letter dated 17.9.2014
2
The only issue in this appeal of the Revenue is against the order of CIT(A) deleting the addition made by the AO on account of deemed dividend u/s. 2(22)(e) of the Act amounting to Rs.57,75,431/-. For this, Revenue has raised following grounds: ‘1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.57,75,431/- u/s. 2(22)(e) of the Act ignoring the fact that the provisions of section 2(22)(e) are squarely applicable to the assessee’s case?
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.57,75,431/- u/s. 2(22)(e) of the Act holding that deemed dividend is taxable only in the hands of shareholders by placing reliance upon the decision of Special Bench in the case of ACIT vs. Bhaumik Colours (2009) SOT (Mum-SB) ignoring the intent of Legislature as clarified in CBDT Circular No. 495 dated 22.09.1987?’
Briefly stated facts are that the A.O. during the course of assessment proceedings noticed that the assessee has received a loan of Rs.57,75,431/- from Laxmi Dental Export Private Limited. According to AO, two shareholders namely Shri Rajesh Khakahar and Shri Sameer Merchant were holding share capital of 42% and 25% in the assessee company respectively and also 30% and 20% respectively in Laxmi Dental Export Private Limited. According to AO, the later company was having accumulated profit of Rs.2,97,15,305/- and Rs.6,49,29,108/- as on 31.3.2008 ITO vs. Illusion Dental Laboratory Private Limited eventually confirmed by the Hon’ble Bombay High Court in the case of CIT Vs. M/s. Universal Medicare Private Limited (2010) 324 ITR 262 (Bom). Aggrieved against the action of CIT(A), the Revenue is in second appeal before the tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the assessee has obtained loan of Rs.57,75,431/- from Laxmi Dental Export Private Limited, but it is neither a shareholder in that company, nor beneficial owner to the extent of 10% or more in that company. No doubt, there are the other shareholders who may be inter- exchangeable shareholders in the companies. It is the settled position of law that any loan or advance received by the assessee from entity in a situation having common shareholders between the assessee and the entity giving loan or advance is to be treated as taxable as deemed dividend in view of section 2(22)(e) of the Act only in case that party is a registered shareholder of the lending entity and not in the hands of the assessee who is not a registered shareholder of the lending entity. We find that the Hon’ble Bombay High Court in the case of Universal Medicare Pvt. Ltd. supra held that as a matter of fact, no loan or advance was granted to the assessee and since the amount in question had actually been deflected and not reflected in the books of account of the assessee. Hence, the first requirement of section 2(22)(e) is that a payment made by company in which the public is not substantially interested by way of advance or loan to a shareholder or to any concern to which such shareholder is a member or partner subject to the fulfillment of requirement of the provision of section 2(22)(e) of the Act. Section 2(22)(e) of the Act is to broaden the ambit of the expression dividend by including certain payments which the company has made by way of loan or advance or payments made on behalf of or for individual benefit of the shareholder. In the present case, none of the conditions are fulfilled reason being that the assessee is neither shareholder, nor beneficial owner in the company who has provided loan to assessee, i.e., Laxmi Dental Export Private Limited. In view of the 4 ITO vs. Illusion Dental Laboratory Private Limited above, and respectfully following the decision of the Hon’ble Bombay High Court, we decide the issue against the Revenue and in favour of the assessee.
In the result, the Revenue’s appeal is dismissed. Order pronounced in the open court on April, 07th, 2016 (R. C. Sharma) (Mahavir Singh) लेखा सद"य / Accountant Member "या"यक सद"य / Judicial Member
मुंबई Mumbai; "दनांक Dated : 07.04.2016
व."न.स./Roshani, Sr. PS
आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent 3. आयकर आयु"त(अपील) / The CIT(A) 4. आयकर आयु"त / CIT – concerned
"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard File आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.