ASHIYANA HOLDINGS PVT.LTD,,PUNE vs. INCOME-TAX OFFICER, WARD - 1(1),, PUNE

This appeal by the assessee against the order dated 05-04-2017 passed by the Commissioner of Income Tax (Appeals)-1, Pune [„CIT(A)‟] for assessment year 2014-15.

We find no representation on behalf of the assessee nor any application filed seeking adjournment. The assessee called absent and set ex-parte. Therefore, we proceed to hear the ld. DR and pass order basing on the material available on record.

The assessee raised 3 grounds of appeal amongst which the only issue emanates for our consideration is as to whether the CIT(A) justified in confirming the addition made by the AO u/s. 2(22)(e) of the Act in the facts and circumstances of the case.

During the year under consideration, the AO found Pandit Automotive Pvt. Ltd. (in short “PAPL”) had advanced loans and advances for a sum of Rs.4,11,42,307/- to Ashok Automotive Sales and Services Pvt. Ltd. (in short “AASSPL”). The AO asked the assessee why the provisions of section 2(22)(e) of the Act invoked as the assessee company being common significant and beneficiary share holder in Pandit Automotive Pvt. Ltd. and Ashok Automotive Sales and Services Pvt. Ltd. The assessee filed its submissions which are reproduced by the AO from Page Nos. 3 to 7. The AO found such submissions as not acceptable and treated the above said amount as deemed dividend in terms of provisions of section 2(22)(e) of the Act and added the said sum to the total income of the assessee u/s. 143(3) of the Act vide its order dated 30-11-2016. The CIT(A) confirmed the order of AO.

Before us, the ld. DR, Shri Vitthal Bhosale submits that the assessee company is a holding company of Pandit Automotive Ltd. and Ashok Automotive Sales and Services Pvt. Ltd. The assessee has share holding of 50% in Pandit Automotive Ltd. and 92.16% in Ashok Automotive Sales and Services Pvt. Ltd. and argued that the assessee is a common significant and beneficiary share holder in Pandit Automotive Ltd. and Ashok Automotive Sales and Services Pvt. Ltd. Further, he submits that the assessee vide its submissions dated 11-11-2016 stated that the Pandit Automotive Ltd. is an authorized Tata Vehicles Dealer and as per conditions put in by Tata Motors Ltd. a dealer is bound to have adequate facilities for vehicle servicing. The said service facilities were made available to Pandit Automotive Pvt. Ltd. by Ashok Automotive Sales and Services Pvt. Ltd. There was a formal business agreement between the PAPL and AASSPL. The AASSPL was running into loss from A.Ys. 2009-10 to 2013-14. The PAPL had to extend some financial support to AASSPL to keep it going in order to continue its Tata Dealership business smooth. He argued the PAPL is a Pvt. Ltd. company in which public are not substantially interested and PAPL has given loan to AASSPL in which the assessee is a common significant and beneficiary shareholder in both the companies. He submits that as per Balance sheet as on 31-03-2014 of PAPL is having Reserve and Surplus of Rs.40,36,82,371/- and is a significant and beneficiary company and any benefits which were passed by PAPL to AASSPL is going to give benefits to the assessee company. The advancement of loan Rs.4,11,42,307/- is amply clear to benefit to the assessee company and the AO rightly held the same as deemed dividend in terms of section 2(22)(e) of the Act. The CIT(A) also considered the issue in detail and held that the said amount cannot be treated as commercial transaction and support itself is in the nature of loan. The ld. DR argued that benefit of passing of loan from PAPL to AASSPL ultimately reached the assessee company by virtue of being common significant and beneficiary shareholder and supported the order of CIT(A).

Heard ld. DR and perused the material available on record. We note that as facts emanating from the records that the assessee company has 50% shareholding in PAPL and 92.16% in AASSPL. It is also not disputed during the year under consideration the PAPL made loan of Rs.4,11,42,307/- to AASSPL. It is also not disputed that the assessee is a common significant and beneficiary shareholder in both the above entities. As per submissions made by the assessee before the AO, we note that the PAPL is the authorized dealer to Tata Vehicles and having service facilities is essential for the business of PAPL. To avail such service facilities PAPL has entered into formal business agreement with AASSPL. It is also noted the said amount was advanced to AASSPL on the basis of its losses from F.Y. 2008-09 (A.Y. 2009-10) onwards. It was contended by the assessee that the PAPL had to extend sum financial support to AASSPL to keep the business going and in order to continue PAPL dealership business smoothly with the Tata Motors. The case of the AO was that the assessee is a common significant and beneficiary shareholder in both the entities i.e. PAPL and AASSPL, therefore, the said loan was reached the hands of the assessee being a virtue of common shareholder. The CIT(A) also confirmed that the benefit of passing of loan from PAPL with ultimately reached the hands of assessee and rejected the claim of assessee has no role in independent commercial role of two subsidiaries. We note that admittedly there is no dispute as the facts emanating from records the PAPL advanced to AASSPL and in which the assessee is a common significant and beneficiary shareholder. It is amply clear the loan of above said amount has been reached to the AASSPL but not the assessee company. The assessee company being major shareholder we cannot say the loan advanced to PAPL reached the hands of the assessee. Therefore, in our opinion, the addition made by the AO as confirmed by the CIT(A) is not justified, if at all any addition to be made u/s. 2(22)(e) of the Act it should be in the hands of AASSPL as loan amount reached the hands of said entity but not the assessee. Therefore, the invocation of provisions u/s. 2(22)(e) of the Act treating an amount of Rs.4,11,42,307/- as deemed dividend in the hands of the assessee is not justifiable. Hence, the grounds raised by the assessee are allowed.

In the result, the appeal of assessee is allowed.