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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI N.K. BILLAIYA & SHRI SANJAY GARG
आदेश / O R D E R PER N.K. BILLAIYA, AM: These two appeals by the assessee are preferred against two separate orders of the Ld. CIT(A)-13, Mumbai dated 28.03.2011 and 16.1.2012 pertaining to assessment years 2007-08 and 2008-09. As common grievances are involved in both these appeals, they were heard together and disposed of by this consolidated order for the sake of convenience.
We will first take ITA No. 6148/M/2011. The assessee has raised three substantive grounds of appeal. At the very outset, the Ld. Counsel for the assessee stated that he is not pressing ground No.1, Ground No. 1 is accordingly dismissed as not pressed.
3. Ground No. 2 relates to the addition of Rs. 15,79,441/- being interest expenses on debit balance of M/s. Deogiri transport.
3.1. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee is having a debit balance of Rs. 1,01,08,263/-. The AO further noticed that the assessee has claimed interest expenses of Rs. 27,38,709/-. The AO found that the assessee is extensively engaged in investment in shares and properties. The AO was of the firm belief that the claim of entire expenses are not attributable to the business of the assessee. The AO therefore computed the disallowance on proportionate basis at Rs. 15,79,441/-.
Aggrieved by this, the assessee carried the matter before the Ld. CIT(A) but failed to convince the claim of interest.
Before us, the Ld. Counsel for the assessee straightaway drew our attention to the order of the Ld. CIT(A) for assessment year 2008-09 (which is also under appeal). The Ld. Counsel drew our attention to the tabulated chart at para-2.2 on page-2 of CIT(A)’s order. It is the say of the Ld. Counsel that for the year under consideration, the disallowance should be made as per the computation made by the Ld. CIT(A) for A.Y. 2008-09.
The Ld. Departmental Representative fairly conceded to this.
We have carefully perused the orders of the authorities below. We have also gone through the order of the First Appellate Authority for A.Y. 2008-09. We find that in that year also, there is a similar disallowance which has been reduced by the Ld. CIT(A) as per the computation given at para-2.5 of his order. We, therefore, restore this issue to the file of the Ld. CIT(A). The Ld. CIT(A) is directed to compute the disallowance as computed in A.Y. 2008-09. Ground No. 2 is treated as allowed for statistical purpose.
Ground No. 3 relates to the addition of Rs. 1,02,03,366/- made u/s. 2(22)(e) of the Act.
8.1. While scrutinizing the return of income, the AO found that the assessee is showing a debit balance of Rs. 3,07,72,977/- in respect of M/s. SAP Holdings & Leasings Pvt. Ltd. The AO further noticed that during the year under consideration, the assessee has also received loans amounting to Rs. 10,35,97,585/- from the same company. On further probe, the AO learnt that assessee is holding 85% shares in the same company. The AO was convinced that provisions of Sec. 2(22)(e) squarely apply on the loan received from SAP Holdings & Leasing Pvt. Ltd. The assessee was asked to show cause why addition should not be made u/s. 2(22)(e) of the Act. In his reply dated 19.11.2009, the assessee claimed that the company was basically formed with its main objective of Leasing and Advancing of finance. It was explained that the company lended money as loans/advances to earn interest, therefore, provisions of Sec. 2(22)(e) are not applicable. This submission of the assessee was dismissed by the AO. The AO found that SAP Holdings & Leasing Pvt. Ltd. is into the business of Car agency and is providing automobile services to its clients and lending of money is not the business of the company. The AO further found that the reserves and surplus of the company were at Rs. 1,02,03,366/-. The AO accordingly made the addition of Rs. 1,02,03,366/- u/s. 2(22)(e) of the Act.
The assessee carried the matter before the Ld. CIT(A) but without any success.
Before us, the Ld. Counsel for the assessee reiterated what has been stated before the lower authorities. The Ld. Counsel strongly submitted that the assessee has provided personal guarantee to SAP Holding & Leasing Pvt. Ltd., for the loans taken by the said company from ICICI Bank. The Ld. Counsel further stated that because of the personal guarantee undertaken by the assessee, assessee’s funds got depleted and therefore the assessee had to borrow money from the said company. In support of this contention, the Ld. Counsel relied upon the decision of the Tribunal, Chennai Bench in the case of ACIT Vs Smt. G. Sreevidya 138 ITD 427.
Per contra, the Ld. DR strongly supported the orders of the Revenue authorities.
We have given a thoughtful consideration to the facts in issue and the decision relied upon by the Ld. Counsel. There is no dispute that the SAP Holding & Leasing Pvt. Ltd., has lended money to the assessee. There is also no dispute that the said company is having reserves and surplus to the tune of Rs. 1,02,03,366/-. Thus the provisions of Sec. 2(22)(e) of the Act squarely apply. We do not find any justification for reliance on the decision of the Co-ordinate Bench in the case of Smt. G. Sreevidya (supra) because even if the assessee has undertaken personal guarantee but the assessee has failed to demonstrate by taking personal guarantee, the funds of the assessee got depleted. Therefore, the decision of the Chennai Bench (supra)would not do any good to the assessee. To this extent, we do not find any reason to interfere with the findings of the Ld. CIT(A).
However, we find force in the alternative claim of the assessee that if at all the additions has to be made, it should be made in respect of the opening balance of reserves and surplus. Meaning thereby, the current year’s profit should not be added to determine the addition u/s. 2(22)(e) of the Act. We find support from the decision of the Tribunal, Ahmedabad Bench in the case of M.B. Stock Holding (P) Ltd Vs ACIT 84 ITD 542 wherein it has been held that “ Dividend—Deemed dividend under s.2(22)(e)— Accumulated profits—For the purpose of s. 2(22)(e), the accumulated profits are to be worked out upto the date of each payment/advancement of the loan—There is a distinction between the "accumulated profits" of business and the current year's profits of business—Explanation 2 to s. 2 (22)(e) does not have the effect of inclusion of current year's business profits—Since the business profits of the company accrue only at the end of the year, the current year's business profits are not to be included—Loan or advance treated as deemed income upto the date of fresh loan is to be reduced from accumulated proffts and the repayment of loan during the same year is not to be deducted from the accumulated profits—Sec. 2(22)(e) is applicabe even in cases where the company has declared dividend—There is no evidence on record to establish that the amount of loan advanced to the assessee by the lending company was in the course of carrying on of its business of the money-lending—Matter remanded to the AO for the purpose of working out accumulated profits.”
Respectfully following the decision of the Co-ordinate bench, we restore this issue to the file of the AO. The AO is directed to re- work the accumulated profit as directed in the decision of the Co- ordinate Bench mentioned hereinabove. Ground No. 3 is treated as allowed for statistical purpose.
In the result, the appeal filed by the assessee is partly allowed for statistical purpose.
ITA No. 3746/Mum/2012 – A.Y 2008-09
Ground No. 1 is not pressed and the same is dismissed as not pressed.
Ground No. 2 relates to the addition on account of deemed dividend u/s. 2(22)(e) of the Act.
16.1. At the very outset, the Ld. Counsel for the assessee drew our attention to the decision of the Tribunal Pune Bench in the case of Kewalkumar Jain Vs ACIT 144 ITD 672. It is the say of the Ld. Counsel that loans/advances given in earlier years which have been assessed as deemed dividend should be reduced from the surplus while determining the accumulated profit.
We have carefully gone through the decision of the Tribunal Pune Bench (supra). We find that the Tribunal at para-17 of its order has accepted the claim of the assessee that loans/advances given in earlier years and which have been assessed as deemed dividend should be reduced from the computation of accumulated profit. While accepting this claime of the assessee, we find that the Co-ordinate Bench has followed the decision of the Tribunal, Cochin Bench in the case of ITO Vs Gordhandas Khimji (1985) 11 IRS 158 and also s the decision of Viskhapatname Bench in the case of P. Satya Prasad Vs ITO dated 16.11.2012 and Delhi Bench in the case of A.R. Chadha & Co. India (P) Ltd Vs DCIT 133 TTJ 490 (Del). Respectfully following the decision of the Co- ordinate benches, we restore this issue to the file of the AO. The AO is directed to recompute the accumulated profit after reducing the amount of loan already treated as deemed dividend in earlier assessment years and decide the issue afresh. This ground of the assessee is treated as allowed for statistical purpose.
In the result, both the appeals filed by the assessee are partly allowed for statistical purpose.
Order pronounced in the open court on 16th October 2015