MR. MANISH MIMANI,KOLKATA vs. CIT, CENTRAL - I, KOLKATA, KOLKATA

Per Shri M.Balaganesh, AM

Mr.Manish Mimani A.Y.2007-08 requested the learned AO to treat the original returned filed earlier as return in response to notice u/s 153A of the Act. In the said assessment , the learned AO added back an amount of Rs.15,36,337/- representing advances received by the assessee from M/s. Ganesh Wheat Product Pvt. Ltd as deemed dividend u/s 2(22)(e) of the Act. This issue was subjected to appeal and when the matter was pending in the tribunal the learned CIT initiated proceedings u/s 263 of the Act for enhancement of the additional amount towards deemed dividend by Rs.27,68,646/- and passed an order u/s 263 of the Act treating the original order passed u/s 153A of the Act by the learned AO as erroneous and prejudicial to the interest of the re venue. Against this 263 order the assessee has preferred appeal before us on the following grounds : “

1. The Order passed by the CIT U/S 263 of the Income tax Act, 1961, on 22.11.2011, is arbitrary, erroneous, invalid and bad in law.

2. On the facts and in the circumstances of the case, the learned CIT erred in holding that the appellant was further liable to be assessed on 'Deemed Dividend' U/S 2(22)(e) of the Income-tax Act, 1961, by an amount of Rs.27,68,646/- being the debit balance of the appellant with M/s Ganesh Wheat Products Pvt. Ltd. during the period from 01.11.2006 to 05.03.2007, which was required to be added in the hands of the. appellant.

3. On the facts and in the circumstances of the case, the learned CIT erred in holding that the assessment order passed by the A.O. u/s 143(3) of the Act, had been erroneous and prejudicial to the interest of revenue and also further erred in setting aside the aforesaid order, U/S 263 of the Act with a direction to the A.O. to complete it as per law.

4. The appellant craves leave to amend, alter, modify, add to, abridge and or rescind any or all of the above grounds.”

Mr.Manish Mimani A.Y.2007-08 power in M/s. Ganesh Wheat Product (P)Ltd. It is not in dispute that the said company is having accumulated profits of Rs.81,57,815/-. We find that the assessee had frequently drawn moneys from the said company and has also repaid moneys to the said company on several dates. Both the transactions are interest free and we also find that on several occasions that the balance outstanding is in favour of the assessee and also in favour of the said company. Hence it is in the nature of running account or current account. We find that this tribunal in the case of the assessee in IT(SS)A.No.57&58/Kol/2011 dated 17.10.2014 had held as under :- “4. We have heard rival submissions and gone through facts and circumstances of the case. We find from the facts narrated above as well as argued by both the sides, that the facts are exactly identical to the case of Mr. Purushottam Das Mimani in IT(SS)A No. 60 to 62/Ko112011, which we have now adjudicated (which is a group case). The issue being exactly identical and we have considered the issue in para 4 and 5 of our order of even date in the case of Mr. Purushottam Das Mimani, which reads as under:

"4. We have heard rival submissions and gone through facts and circumstances of the case. We have gone through the facts of the case and found from the perusal of ledger account of assessee in the books of account of Ganesh Wheat Products (P) Ltd., the lender company, it is seen that as on the first day of the relevant accounting year 2005- 06 (A.Y. 2006-07) opening balance is at Rs.28,07, 5841-. Thereafter, on several dates during the entire financial year there were several transactions through cheques and some in cash by either parties, i.e. the assessee and the loan giving company, resulting in shifting balances. On many occasions the balance was in favour of the assessee and on some other occasions the balance was ill favour of Ganesh Wheat Products (P) Ltd. The ledger of the assessee further reveals that no payment by loan creditor is followed by a repayment by the loan debtor and, in fact, the payments by the assessee and Ganesh Wheat Products (P) Ltd. are independent of one another. No interest was charged by either side for advancing money on mutuality inasmuch as the loan account was a current account in nature. It is thus evident that there were reciprocal demands between the parties and thus mutual in characteristic. At the close of accounting year as on 31-03-2006, debit balance stood at a sum of Rs.18,87,522/- which was duly reflected in the balance sheet under the head Loans & Advances. Similarly, in respect of Mima Flour Mills opening balance was Nil and there were several shifting of balance and the resultant debit balance was Rs.5,00,833/-. For A.Y. 2007-08, in respect of Mima Flour Mills, opening balance was Rs.5,00,833/- and after shifting balance, the debit balance came to nil. In respect of Ganesh Wheat Products, opening balance was Rs.18,87,522/- and after shifting balance the credit balance came to.Rs.9 lakhs. On perusal of the ledger account of the assessee in the books of M/s. Mima Flour Mills (P) Ltd. it is seen that on several dates there were shifting balances. On many occasions the balance was in favour of the assessee and on some other occasions the balance was in favour of Ganesh Wheat Products (P) Ltd. It is thus evident that there were reciprocal demands between the parties and thus mutual in characteristic. The account so maintained in respect of such mutual transfer of amount by way of giving and taking financial assistance is, Mr.Manish Mimani A.Y.2007-08 therefore, a current account and this current account is different from a loan account for the sole reason that feature of mutuality is not present in a loan transaction.

5. Here in the present case, from the facts narrated above, it is clear that both the parties are beneficiary of the transaction being current account of the above transactions i.e. shifting balances. This issue has been answered by Hon 'ble Calcutta High Court in the case of Pradip Kumar Malhatra v, CIT 338 ITR 538 (Cal) wherein Hon'ble High Court held as under: "The phrase "by way of advance or loan" appearing in sub-clause (e) of section 2(22) of the Income-tax Act, 1961, must be construed to mean those advances or loans which a shareholder enjoys 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 share-holder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. " From the above facts and legal proposition decided by Hon 'ble jurisdictional High Court, it is clear that section 2(22)(e) of the Act was inserted to bring within the purview of taxation those amounts which are actually a distribution of profits but are disbursed as a loan so that tax thereon can be avoided. It is pertinent to note here that when dividends are declared by a company, it is solely the shareholders who benefit from the transaction. No benefits accrue to the company by way of dividend distribution. Thus. section 2(22)(e) of the Act covers only such situations, where the shareholder alone benefits from the loan transaction, because if the company also benefits from the said transaction, it will take the character of a commercial transaction and hence will not qualify to be dividend. In the case of the assessee, by giving and taking financial assistance from each other, both the assessee and the company were benefited and such transactions between them were nothing but commercial transactions and dividend attributable to the shareholder is nothing to do with such business transaction, From the above discussions it can be said that sec. 2(22)( e) of the Act covers only those transactions which benefit the shareholder alone and results in no benefit to the company. On the other hand, if the transaction is mutual by which both sides are benefited, it is undoubtedly outside the purview of provisions of sec. 2(22)( e) of the Act. From the above, it is clear that the loan account differs from current account and the provisions of section 2(22)( e) of the Act, being a deeming section, cannot be applied to current account. In such circumstances, we delete the addition and this common issue of assessee's appeals is allowed. "

Mr.Manish Mimani A.Y.2007-08 not be construed as loan or advances within the meaning of section 2(22)(e) of the Act. Accordingly grounds raised by the asessee are allowed and order of the ld.CIT u/s 263 of the Act is quashed.

Order pronounced in the court on 04.05.2016.