THE DCIT, CENTRAL CIRCLE-2, VADODARA vs. SHRI KETAN REALITIES PVT. LTD, VADODARA

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IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “ C ” BENCH Before: Smt. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member

ITA No:1383/Ahd/2019 Assessment Year: 2011-12 The D.C.I.T, Shri Ketan Realities Central Circle-2, Private Limited, Vadodara Vs 306, Payal Tower, Sayajigunj, Vadodara-390005. PAN: AADCK6708P (Appellant) (Respondent) Revenue Represented: Smt.Malarkodi R,, SR-DR Assessee Represented: Shri Hemant Suthar, AR

Date of hearing : 26-03-2024 Date of pronouncement : 20-05-2024 आदेश/ORDER PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER This appeal is filed by the Revenue as against the appellate order dated 27.06.2019 passed by the Commissioner of Income Tax (Appeals)-12, Ahmedabad, arising out of the re-assessment order passed under section 147 r.w.s 143(3) of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’ ] relating to the Asst. Year 2011-12.

ITA No.1383/Ahd/2019 Ketan Realities Pvt. Ltd. vs. DCIT Asst.Year 2011-2012 2 declaring total loss of Rs.2,54,989/-. The return was re-opened by issuing notice u/s.148 of the Act on 27.04.2015. After recording the reason and going through the balance-sheet it was noticed that the assessee company had taken unsecured loan of Rs.6,80,00,000/- for the Asstt. Year 2011-12, from M/s.Aarav Realty Pvt. Ltd. and Shri Ketan Bhailal Shah whose is Director with the assessee company holding more than 50% shares and 69.25% shares in M/s.Aarav Realty Pvt Ltd. Accordingly, the provisions of section 2(22)(e) of the Act will be applicable, which has escaped from assessment to tax. In-response, the assessee filed a letter to treat the original return, in response to the 148 notice. Thereafter, the assessee was issued show-cause notice why not to make addition the unsecured loan transaction taxable u/s.2(22)(e) of the Act. The assessee replied that it had entered into business transaction with M/s.Aarav Realty Pvt. Ltd. for purchase of land and submitted the copy of the agreement (MoU) dated 07.03.2011 for a consideration of Rs.27,00,00,000/-

ITA No.1383/Ahd/2019 Ketan Realities Pvt. Ltd. vs. DCIT Asst.Year 2011-2012 3 4. Aggrieved against the assessment order, the assessee filed an appeal before the Ld.CIT(A), who allowed the appeal of the assessee by observing as follows: “…5.5 Apart from making out of the case that the appellant being not a share holder of M/s Aarav Realty Pvt. Ltd., the loan taken from it cannot be treated as deemed income u/s 2(22)(e) in the hands of the appellant, it has been submitted that the amount taken was an advance for commercial transaction which was in the nature of current account transaction and not in the nature of loans and advances and that interest has been paid by the appellant on that amount. In this regard it has been submitted that the appellant was desirous of purchasing land (RS No.54P and City Survey No. 382 & 383 Paiki in village - Vadiwadi) for which the balance payment was to be made after obtaining the title clearance from the purchaser's side, however, such title clearance could not be obtained and therefore the appellant treated the amount as interest bearing deposits. It is submitted by the appellant that it paid interest of Rs.74,70,000/- to M / s Aarav Realty Pvt. Ltd. in the F.Y. 2011-12. The claim of transactions between the appellant and M/s. Aarav Realty Pvt. Ltd. is echoed by the AO who notes in A.Y.2013-13 that there were various debit and credit entries in the ledger account. 5.6 In this regard the judgments of relied upon cases Bombay Oil Industries Ltd. Vs DCIT, IFB Agro Industries Ltd. Vs Jt.CIT, CIT Vs Schutz Disman Biotech Pvt. Ltd., Dinesh Jain (in IT(SS)A No. 427 to 429/Ahd/2011} and Mohan Bhagwat Prasad Agrawal (in ITA No. 29 /Ahd /2019 ) have been gone through. In Mohan Bhagwat Prasad Agrawal it has been held by the jurisdictional ITAT that if the interest has been paid and in the real sense the appellant had not derived any benefit in terms of section 2(22)(e) of the Act, the provisions of section 2(22)(e) cannot be invoked. It is the case of the appellant under consideration that it has paid substantial interest and therefore it is squarely covered by the said order of the jurisdictional ITAT. The appellant is found to be protected by the said decision which is binding on CIT(A). 5.7 On over all legal pronouncements and the facts related to the amount involved in the case, I am of the considered view that the amount of Rs.5,56,12,400/- cannot be treated as deemed income in the hands of the appellant. The AO is directed to delete the addition of Rs.5,56,12,400/- for A.Y. 2011-12. 5.8 The appeal for A.Y. 2011-12 is allowed…”

ITA No.1383/Ahd/2019 Ketan Realities Pvt. Ltd. vs. DCIT Asst.Year 2011-2012 4 deemed dividend for A.Y.2011-12, without appreciation that deemed dividend u/s 2(22)(e) of the I.T. Act is taxable in the hands of assessee's company in this case in light of judgment of the division bench of the Hon'ble Supreme Court in civil application number 2068-2071 of 2012 dated 18.01.2018 in the case of National Travel Services Vs. Commissioner of Income Tax, Delhi-8 and this judgment of Hon'ble Supreme Court has been placed before the Hon'ble Chief Justices of India in order to constitute an appropriate larger bench in order to have a relook at the endre question. 2. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.5,56,12,400/- on account of deemed dividend for A.Y.2011-12, without appreciating that the lending of money is not a part of business of the lender company, hence the transaction between the lender company and borrowing assessee company cannot be treated as transaction in ordinary course of business as per sub clause (ii) of clause (e) of sub section (22) of section 2 of the I.T. Act. Moreover, the assessee company failed to substance that the above advance of Rs.5,56,12,400/- is related to the business transaction with the lender company. 3. It is, therefore, prayed that the order of the Ld. CIT(A)-12, Ahmedabad may be set aside and that of the AO may be restored to the above extent. 4. The appellant craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal…”

ITA No.1383/Ahd/2019 Ketan Realities Pvt. Ltd. vs. DCIT Asst.Year 2011-2012 5 6.1 We also find that this issue has attained finality by the Hon’ble Supreme Court of India in the case of the CIT vs. Madhur Housing Development & Co. reported in (2018) 93 taxmann.com 502 (SC) where it was held as follows: “...where loans and advances are given in notmal course of business and transaction in question benefits both payer and payee companies, provisions of section 2(22)(e) cannot be invoked - whether judgment of Hight Court was to be agreed with -Held, yes [para 10] [In favour of assessee]…’’

6.2 In this regard, we find support and guidance from the judgment of Hon'ble Jurisdictional High court in case of Pr. CIT v. Mahavir Inductomelt (P.) Ltd. [Tax Appeal No. 891 of 2016, dated 12- 1-2017] where in similar facts the Hon'ble court held as under: '50. Identical question came to be considered by the Division Bench of this Court in Tax Appeal No. 253 of 2015. After considering the decision of the Bombay High Court in the case of CIT v. Impact Containers Private Limited & ors rendered in I TA No. 114 of 2012 and the decision of the Delhi High Court in the case of CITv. Ankitech Pvt. Ltd. reported in 340 ITR 14 (Delhi) and on interpreting section 2(22)(e), in para 4 has observed and held as under: "4.Shri Bhatt, learned Counsel appearing on behalf of the revenue has as such tried to justify the decision of the Delhi Court in the case of Ankitech Pvt. Ltd. (supra) and has vehemently submitted that the Delhi High Court has not considered the third category i.e. shareholder in the assessee Company holding not less than 10% of the voting power in the Company from whom the loan or advance is taken.However, on considering section 2(22)(e) of the Act, we are not at all impressed with the aforesaid. If the contention on behalf of the revenue is accepted, in that case, it will be creating the third category/class, which is not permissible. What is provided under section 2(22)(e) of the Act seems to be that the assessee company must be a shareholder in t Company from whom the loan or advance has been taken and should be holding not less than 10% of the voting power. It does not provide that any shareholder in the assessee- company who had taken any loan or advance from another company in which such shareholder is also a shareholder having substantial interest, section 2(22)(e) of the act may be applicable. 5.1 Considering the aforesaid decision of the Division Bench of this Court and the facts narrated herein above, more particularly, considering the fact that the assessee was not shareholder of Mahavir Rolling Mills Pvt. Ltd. to whom loan was given, it cannot be

ITA No.1383/Ahd/2019 Ketan Realities Pvt. Ltd. vs. DCIT Asst.Year 2011-2012 6 said that the learned Tribunal has committed any error in deleting the addition made by the Assessing Officer on deemed dividend."" 7. Coming to the case on hand, admittedly the assessee company is not holding any shares or rights of M/s. Aarav Reality Pvt. Ltd.. Thus considering the above discussion and judgment of Hon'ble jurisdictional court in case of Mahavir Inductomelt (P.) Ltd. (supra), the AO was not justified in invoking the provision of section 2(22)(e) of the Act in its case. The learned CIT(A) rightly deleted the addition made by the AO. Thus the grounds raised by the Revenue are devoid of merits and liable to be dismissed.

Order pronounced in the open court on 20-05-2024 Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER (True Copy) Ahmedabad : Dated 20/05/2024 Manish