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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
आदेश / O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 07.02.2018 passed by learned Commissioner of Income-Tax (Appeals)-Ujjain [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 26.12.2016 passed by ACIT, Ratlam [“Ld. AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment- Year [“AY”] 2014-15, the revenue has filed this appeal on following grounds:
“(i) Whether on the facts and in the circumstances of the case, Ld. CIT(A) was justified in deleting the addition of Rs. 4,36,96,180/- made on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961. (ii) Whether on the facts and in the circumstances of the case, Ld. CIT(A) was justified in deleting the addition of Rs. 2,80,800/- made on account of undisclosed rental income.
M/s Shirani Automotives Pvt. Ltd. Assessment year 2014-15 (iii) Whether on the facts and in the circumstances of the case, Ld. CIT(A) was justified in deleting the disallowance of interest expenses of Rs. 13,57,354/- u/s. 36(l)(iii) of the I.T. Act, 1961.”
When the case is called, none appeared on behalf of assessee though Shri P.K. Mishra, Ld. DR was ready to argue the case on behalf of revenue. On perusal of case-file, it is found that the assessee has filed a Written- Submission running over 9 pages and a Paper-Book containing 49 Pages on 09.06.2019. Therefore, it is thought appropriate to proceed with the hearing and dispose of present matter after considering the material held on record and hearing the Ld. DR.
Briefly stated the facts are such that the assessee-company filed its return of income of relevant AY 2014-15 declaring a total income of Rs. 74,80,130/- which was subjected to scrutiny-assessment. Finally, Ld. AO completed assessment at a total income of Rs. 5,42,33,421/- after making certain additions. Aggrieved, the assessee filed first-appeal to Ld. CIT(A) and succeeded partly. Now, the revenue has filed this appeal assailing the order of Ld. CIT(A).
We will discuss all grounds one by one in seriatim.
Ground No. (i):
In this ground, the revenue claims that the Ld. CIT(A) has erred in deleting the addition of Rs. 4,36,96,180/- made by AO on account of deemed dividend u/s 2(22)(e).
Apropos to this ground, facts are such that during the course of assessment-proceeding, Ld. AO observed that the assessee-company has taken loan from M/s Sagar Automobiles Pvt. Ltd. [“Sagar Ltd.”] On further examination, Ld. AO observed that the following persons were having more than 10% shareholding in Sagar Ltd. and at the same time holding more than 20% shareholding in assessee-company:
M/s Shirani Automotives Pvt. Ltd. Assessment year 2014-15
Person Shareholding Shareholding in Sagar Ltd. in assessee- company Shri Gulam Gaus Khan Shirani 45.69% 32.00% Shri Yahya Khan Shirani 46.32% 40.00% Thus, the Ld. AO found that the persons who were holding more than 10% shareholding in Sagar Ltd. were having substantial interest (minimum 20% shareholding) in assessee-company; therefore the loan taken by assessee from Sagar Ltd. falls within the meaning of “dividend” u/s 2(22)(e) and consequently taxable in the hands of assessee to the extent of “accumulated profit” in possession of Sagar Ltd. Ld. AO further observed that the quantum of “accumulated profit” available to Sagar Ltd. was Rs. 4,36,96,180/-; therefore the impugned loan of Rs. 4,54,75,935/- constituted dividend upto accumulated profit i.e. Rs. 4,36,96,180/-; accordingly made an addition of Rs. 4,36,96,180/- in the hands of assessee.
During first-appeal, Ld. CIT(A) deleted the addition by observing that the two companies, namely Sagar Ltd. and assessee-company are group companies having common shareholders and engaged in the same line of activities i.e. automobile dealerships. He further observed that the nature of transactions entered among these companies are not in the nature of loans or advances; they are inter-corporate deposits for business exigency and do not extend any individual benefit to any of the shareholders of company. More importantly, he further observed that though there are common shareholders in both companies but the assessee-company is neither a shareholder nor a beneficial owner in Sagar Ltd. Ld. CIT(A) has observed that the deemed dividend u/s 2(22)(e) is assessable only in the hands of shareholder and in the present case, the assessee is not shareholder at all in Sagar Ltd; therefore legally the dividend cannot be assessed in the hands of assessee. Ld. CIT(A) placed reliance on CIT vs. Jignesh P. Shah (2013) (Bombay HC) and CIT Vs. Mcc Marketing (P) Ltd. (2011) (Delhi HC)
M/s Shirani Automotives Pvt. Ltd. Assessment year 2014-15 where it was held that that the provision of section 2(22)(e) cannot be invoked unless the assessee itself is the shareholder of the company who was lending money to it. Further reliance was placed on following decisions of ITAT, Indore:
(a) Makhija Construction Company vs. Asst. CIT (2011) 18 ITJ 783 (Trib.- Indore): (2012) 49 SOT 27:
Assessee firm’s partner was holding 69% shares in a closely held company-Loan advanced by closely held company to assessee-firm-AO treated the loan as deemed dividend in hands of assessee-firm-HELD- Dividend is taxable in hands of shareholder being registered and beneficial shareholder-Dividend is not taxable in hands of assessee as assessee-firm is no shareholder.
(b) Manish Karwa v. Asst. CIT (2014) 24 ITJ 454 (Trib-Indore)/ (2014) 65 SOT 105 (URO):
Assessee had 9.68% shares in the closely held company - AO added the shares held by HUF of assessee and minor child to contend the holding of the assessee was more than 10% - AO treated the dividend - HELD - The assessee should be the registered and beneficial owner of the shares- A minor child can be member of the company, if the shares are fully paid up - In the present case, assesses in not the registered or a beneficial owner of the shares held by the HUF and the minor child - No addition is called for.
(c) Dy. CIT v. Apex Multitrade Pvt. Ltd. (2013) 21 ITJ 105 (Trib- Nagpur):
Assessee-company engaged in money lending business-AO held that loan given to another company, which had common shareholding in terms of section 2(22)(e)-AO therefore treated the amount as dividend- HELD-Assessee was not shareholder in that company therefore in M/s Shirani Automotives Pvt. Ltd. Assessment year 2014-15 view of ACIT v. Bhaumik Colour Pvt. Ltd. (2009) (2009) 120 ITJ 865 (Mum), dividend cannot be added in hands of assessee- Also assessee was engaged in business of money lending, loan was given in ordinary course of business of money lending-Dividend cannot be added.
(d) Asst. CIT v. Venkatesh Beverages Ltd. (2011) 18 ITJ 851 (Trib- Indore):
Assessee-Company received loan from other company-AO noted that shareholder of assessee-company and that of lender company was same holding more than requisite shares u/s 2(22)(e). AO therefore held that it was deemed dividend-HELD- Dividend is taxable in the hands of shareholder, who shall be both a registered and a beneficial shareholder. Dividend is not taxable in hands of assessee-borrower, who does not hold shares in lender-company.
(e) Asst. CIT v Pragya Equipments Pvt. Ltd. (2011) 18 ITJ 579 (Trib.- Indore):
Assessee-company took a loan from company where the director held substantial interest-AO treated the loan as deemed dividend- Assessee contended that loan was in ordinary course of business -AO-treated the same was in ordinary course of business-HELD-Loan was not given in ordinary course of business of money lending-Also, same is payment for sale of goods as the loan was given at beginning of the year whereas goods were sold at year-end-However, since assessee is not a registered or beneficial owner of shares; dividend cannot be added in hands of assessee in view of ACIT v. Bhaumik Colour (P) Ltd. (2009) 120 TTJ 865 (AT) SB(Mumbai)-Matter is remanded back to CIT(A) to decide afresh.
(f) Agni Engineers v. Asst. CIT (2011) 17 ITJ 38 (Trib-Indore): Partners of assessee-firm has substantial interest in a closely held
M/s Shirani Automotives Pvt. Ltd. Assessment year 2014-15 Company - Assessee-firm obtained loan from closely held company – AO held the same to be dividend in the hands of assessee-firm – HELD - Deemed dividend u/s 2(22)(e) can be taxed only in hands of shareholder-The assessee must be both registered as well as beneficial shareholder-Assessee-firm is neither registered nor beneficial shareholder-Dividend cannot be taxed in hands of assessee-firm.
(g) Asst. CIT v. Gulmohar Traders (2016) 28 ITJ 302 (Trib.-Indore):
AO made additions of Rs. 22.60 lacs on account of deemed dividend. CIT(A) deleted the additions – HELD - In Makson Nutrition Food India Pvt. Ltd. in the assessee company taken unsecured loans from various companies-AO treated it as deemed dividend-In that case it was held that for bringing an assessee within the purview of section 2(22)(e), both the conditions regarding assessee being registered as well as beneficial shareholder of the lender company are required to be established-In the present case, the assessee is neither a registered nor a beneficial shareholder of the lender company-Therefore, there is no infirmity in order of CIT(A)-ITAT confirmed the order of CIT(A).
We have perused the orders of lower authorities and the facts of case in the light of provisions of section 2(22)(e) and the judicial rulings mentioned above. At the same time, we also find that recently a case of identical facts was decided by Co-ordinate Bench of ITAT, Indore in another group company of assessee titled as ACIT, Ratlam Vs. M/s Shirani Motors Pvt. Ltd., ITA 553 & 554/Ind/2018 order dated 27.02.2023 where the Co-ordinate Bench has upheld the deletion of addition by CIT(A) referring to the decision of Hon’ble Supreme Court in CIT Vs. Madhur Housing & Development Co. [2018] 93 taxmann.com 502. The relevant paragraphs are extracted below:
M/s Shirani Automotives Pvt. Ltd. Assessment year 2014-15 “6. We have given our thoughtful consideration and perused the materials available on record. As stated by the assessee, this issue has been settled by the Special Bench decision of this Tribunal in ACIT vs. Bhaumik Color Pvt. Ltd. (122 TTJ 865 Mum SB) wherein it has been held as follows: “…..Deemed dividend can be assessed only in the hands of a person who is a shareholder of a lender company and not in the hands of the borrowing concern in which such a shareholder is a member or partner having substantial interest. In the instant case the logo was given by a company not to its shareholder holding more that 10% of its equity shares, but to a concern in which such shareholder is member. Therefore respectfully following the decision of the Special Bench, we hold that the loan received by the assessee company in which the assessee does not hold any shares, cannot be assessed as deemed dividend u/s 2(22)(e).” 6.1. The Hon’ble Supreme Court of India has settled down the law on applicability of section 2(22)(e) of the Act, in the case of CIT Vs. Madhur Housing & Development Co. [2018] 93 taxmann.com 502 held as follows: “Section 2(22) of the Income-tax Act, 1961 - Deemed dividend - (Applicability of) - High Court relied upon judgment passed by Judgment of Delhi High Court in Commissioner of Income-tax v. Ankitech (P.) Ltd. [2011] 11 taxmann.com 100 (Delhi) in which it was held that: (i) legal fiction created under section 2(22)(e) enlarges definition of dividend only and it cannot be extended further for broadening concept of shareholders, (ii) a concern in which shareholder of payer company has at least 20 per cent of voting power and loan or advance under this category is given admittedly not to a shareholder/member of payer company, under no circumstances, said concern can be treated as shareholder/member receiving dividend, (iii) in a case where conditions stipulated in section 2(22)(e) treating loan and advance as deemed dividend are established, revenue can treat dividend income at hands of shareholders and tax them accordingly, and (iv) where loans and advances are given in normal 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 High Court was to be agreed with.” 6.2. It is seen from record, though the director and shareholder holding more than 20% shares in the above stated two closely held companies but the said two closely held companies had no cross holding of shares in other companies. These companies had regular business transaction with each other. The transactions were in the nature of inter-corporate deposits made for business M/s Shirani Automotives Pvt. Ltd. Assessment year 2014-15 exigency and not in any way to give individual benefit to any of the shareholders of the Company. Therefore there is no question of invoking section 2(22)(e) in the above transaction. Thus the finding arrived by the Ld. CIT(A) does not require any interference. Thus the ground no. 1 raised by the Revenue is devoid of merits and the same is hereby rejected.”
During hearing before us, Ld. DR representing the revenue, though dutifully supported the assessment-order passed by Ld. AO, but could not rebut the applicability of aforesaid recent order of Co-ordinate Bench in assessee’s group company on identical facts. Therefore, we do not find any reason to deviate from the view taken by Hon’ble Co-ordinate Bench. Respectfully carrying the same view, we too hold that the deletion of addition done by Ld. CIT(A) in present case does not require any interference by us. Thus, the ground No. 1 raised by revenue is hereby dismissed being devoid of any merit.
Ground No. (ii):
In this ground, the revenue claims that the Ld. CIT(A) has erred in deleting the addition of Rs. 2,80,800/- made by AO on account of rental income.
During assessment-proceeding, Ld. AO noticed that as per 26AS statement, the assessee has received rent of Rs. 2,80,800/- but not offered any income under the head “rent”. Accordingly, he made addition. During first-appeal, Ld. CIT(A) deleted addition by observing as under:
“4.3 Ground No. 3: Through this ground of appeal the appellant has challenged the addition of Rs. 2,80,800/- on account of rent. M/s Volkswagon Group Sales India Private Limited has wrongly deposited the TDS on the amount of Rs. 2,80,800/- u/s 194IA instead of section 194C. Section 194IA is applicable for sale of immovable property for a value exceeding Rs. 50 lakhs. The appellant has not sold any immovable property to M/s Volkswagon during the year under consideration. The Appellant has offered the income of Rs. 2,80,800/- for taxation showing the same under the head other income. Since, the appellant has already offered the above income for taxation; the AO is not justified in making further addition. Therefore, the addition made by AO amounting to Rs. 2,80,800/- is deleted. Therefore, the appeal on this ground is Allowed.”
M/s Shirani Automotives Pvt. Ltd. Assessment year 2014-15 12. Clearly therefore, Ld. CIT(A) has found/concluded that the assessee has already offered the impugned income of Rs. 2,80,800/- for taxation. Ld. DR could not contradict the finding and conclusion made by Ld. CIT(A). Being so, we do not find any merit in the ground of revenue; the same is thus dismissed.
Ground No. (iii):
In this ground, the revenue claims that the Ld. CIT(A) has erred in deleting the disallowance of Rs. 13,57,354/- out of interest claimed u/s 36(1)(iii).
Ld. AO observed that the assessee has taken loans from banks and financial institutions and paid interest thereon. He further observed that the assessee has advanced interest-free loans of Rs. 5,39,40,706/- to certain concerns but accepted interest-free unsecured loans of Rs. 4,08,29,421/- only; thus the assessee has advanced excessive interest-free loans of Rs. 1,31,11,285/- to own concerns. Accordingly, Ld. AO made a disallowance of Rs. 13,57,354/- (being 12% of Rs. 1,31,11,285/-) out of interest expenditure claimed by assessee u/s 36(1)(iii). During first-appeal, Ld. CIT(A) deleted addition by making a finding that the assessee has given loans and advances from own fund and interest-free fund. He further observed that the assessee was having sufficient interest-free funds available with it. Ld. DR could not controvert such findings made by Ld. CIT(A); therefore the ground raised by the Revenue has no merit. Hence, we do not make any interference in the decision of Ld. CIT(A); the ground raised by revenue is dismissed.
M/s Shirani Automotives Pvt. Ltd. Assessment year 2014-15 15. Resultantly, this appeal of Revenue is dismissed.
Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 31/03/2023. Order pronounced in the open court on ….../……/2023.