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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: SH. ANIL CHATURVEDI & SH. CHANDRA MOHAN GARG
This appeal filed by the assessee is directed against the order dated 16.01.2018 passed by the Commissioner of Income Tax (Appeals) – 27, New Delhi for Assessment Year 2013-14.
Brief facts of the case as culled out from the material on record are as under :-
Assessee is a company stated to be engaged in the business of development and construction of real estate projects. Assessee electronically filed its return of income for A.Y. 2013-14 on 31.03.2014 declaring income of Rs.2,94,24,560/-. The case of the assessee was selected for scrutiny and thereafter assessment was Saamag Developers Pvt. Ltd. vs. DCIT 2 framed u/s 143(3) of the Act determining the total income at Rs.3,02,89,560/- inter alia by making addition of Rs.8,65,000/- u/s 2(22)(e) of the Act.
Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 16.01.2018 in Appeal No.327/16-17 dismissed the appeal of the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal before the Tribunal and has raised the following grounds:
1. “The Learned Commissioner of Income Tax (Appeals) has erred in holding that sum of Rs.8,65,000/- is covered by provisions of Section 2(22)(e) of the Act. Such findings are opposed to evidences on record.
2. The Learned Commissioner of Income Tax (Appeals) has erred in holding that the payer company possessed accumulated profits out of which deemed dividend is considered in the hands of the appellant company.
3. It is contended that the provisions of Sec 2(22)(e) of the Act are not applicable to the impugned sum of Rs.8,65,000/-.
4. It is contended that the provisions of Sec 2(22)(e) of the Act cannot apply to business advances extended during the course of carrying on of business.”
5. Before us, at the outset, Learned AR submitted that though the assessee has raised various grounds but the sole controversy is with respect to the addition of Rs.8,65,000/- u/s 2(22)(e) of the Act.
During the course of assessment proceedings and on perusing the details of loans and advances received during the year, AO noticed that assessee had received advances from various parties including Rs.8,65,000/- from Saga Developers Pvt. Ltd. AO noted that Mr. Dinesh Panday had common and substantial shareholding of 35% in Saamag Developers Pvt. Ltd. vs. DCIT 3 assessee company as well as 35% in Saga Developers Pvt. Ltd. He also noted that the accumulated profits of Saga Developers Pvt. Ltd. was Rs.70,13,581/-. AO, therefore, asked the assessee to explain as to why the addition not be made u/s 2(22)(e) of the Act. Assessee inter alia submitted that assessee was a part of the Saamag Group and it was developing a residential integrated township. The development of the Integrated Township envisaged acquisition of substantial area of land and many business activities. It was submitted that assessee had received the advances from other group companies for the acquisition of lands and other business purposes. It was further submitted that amount received by assessee from group companies was used for the purpose of business and shareholders have not benefited from the transaction in any manner. It was therefore submitted that since the advances was received in the normal course of business and was in the nature of trade advances, the provision of Section 2(22)(e) of the Act were not applicable to such advances. The submissions of the assessee were not found acceptable to AO. AO held that the amount of advances of Rs.8,65,000/- that was received by the Assessee from Saga Developers P. Ltd. to be in the nature of deemed dividend within the meaning of s. 2(22)(e) of the Act and made its addition.
Aggrieved by the order of AO, assessee carried the matter before CIT(A) who upheld the order of AO. Aggrieved by the order of CIT(A), assessee is now before us.
Before us, Learned AR reiterated the submissions made before lower authorities and further submitted that Saga Developers P. Ltd, from whom the assessee had received the advances had not advanced
Saamag Developers Pvt. Ltd. vs. DCIT 4 the amount out of its accumulated profits because it was not physically available with them for advancing and the amounts that was advanced by Saga Developers P. Ltd to the assessee was out of the funds raised from 3rd parties. He further submitted that the transactions between the assessee and Saga Developers P. Ltd. was during the course of business and for the purpose of business and therefore, it could not be added u/s 2(22)(e) of the Act. In support of his aforesaid contention, he placed reliance on the decisions in the case of CIT vs. Creative Dye & Printing Works reported in 318 ITR 476 (Del), Bombay Oil Industry vs. DCIT reported in 28 SOT 383 (Mumbai), Ravindra R. Fotedar vs. ACIT reported in 167 ITD 100 (Mumbai) & Saamag Developers Pvt. Ltd. dated 12.01.2010. In support of his contentions that the transactions between the assessee and Saga Developers P. Ltd. was in the nature of current account, he pointed to copy of ledger account of Saga Developers P. Ltd. as appearing in the books of assessee, which is placed at Page 20 of the paper book. From the copy of the ledger account, he pointed to the various transactions wherein the monies have been received and repaid by assessee on various occasions. He therefore submitted that since the nature of account is of current account nature, no addition could be made by treating the amount received as deemed dividend. He further submitted that identical issue arose in the group company of the assessee in the case of Saamag Developers Pvt. Ltd. before the Co-ordinate Bench of Tribunal and Tribunal vide order dated 12.01.2010 in ITA No.3618/Del/2014 and others had decided the issue in favour of the assessee. He also placed reliance on the decision in the case of CIT vs. Creative Dye & Printing Works 318 ITR 476 (Del), Bombay Oil Industry vs. DCIT 28 SOT 383 (Mumbai). He further submitted that in the case of Creative
Saamag Developers Pvt. Ltd. vs. DCIT 5 Dye & Printing Works, SLP filed by the Department was dismissed by Hon’ble Apex Court. He also placed reliance on the decision in the case of CIT vs. Gayatri Chakraborty 94 taxmann.com 244 (Cal) for the proposition that when the amount was received from the sister concern with whom the assessee was having transactions in the nature of current account, no addition could be made u/s 2(22)(e) of the Act. He therefore submitted that addition made by AO and upheld by CIT(A) be deleted.
Learned DR on the other hand supported the order of lower authorities.
We have heard the rival submissions and perused the material on record. The issue in the present grounds is with respect to the addition made u/s 2(22)(e) of the Act. Sub-clause (e) of Section 2(22) of the Act, seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner that they assist the shareholders in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan.
It is an undisputed fact that during the year assessee has received Rs.8,65,000/- from Saga Developers Pvt. Ltd. which is a company wherein Mr. Dinesh Panday has common and substantial shareholding. The mere holding of shareholding in excess of 20% in the two companies involved, will not make a commercial transaction
Saamag Developers Pvt. Ltd. vs. DCIT 6 or a business transaction between the two companies (a loan and advance) so as to be covered by Section 2(22)(e) of the Act and for the aforesaid proposition we place reliance on the decision of H’ble Bombay High Court in the case of PCIT vs. Dina Shah reported in [2020] 117 taxmann.com 100 (Bom).
We further find that H’ble Delhi High Court in the case of CIT vs. Raj Kumar [(2009) 318 ITR 462 Delhi] has held that, to attract Section 2(22)(e) of the Income Tax Act, thereby making a payment to have the attributes of a 'dividend' within the meaning of the provision, it has to satisfy: (i) The Company making the payment is one in which public are not substantially interested. (ii) Money should be paid by the Company to a shareholder holding not less than ten percent (10%) of the voting power of the said Company. It would make no difference if the payment was out of the assets of the Company or otherwise. (iii) The money should be paid either by way of an advance or loan or it may be "any payment" which the Company may make on behalf of or for the individual benefit of any shareholder or also to any concern in which such shareholder is a member or a partner and in which he is substantially interested. (iv) And lastly, the limiting factor being that these payments must be, to the extent of accumulated profits, possessed by such a Company. It was held by the H’ble High Court that the word 'advance' which appears in the Company of the word 'loan' could only mean such advance which carries with it an obligation of repayment and that the trade advances which are in the nature of money transacted to give effect to a commercial transaction would not fall within the ambit of the provision under Section 2(22)(e) of the Act.
Saamag Developers Pvt. Ltd. vs. DCIT 7 13. In the present case, it is the contention of the assessee that there have been various transactions of receipt and payment between the assessee and Saga Developers P. Ltd. for the transfer of fund as and when required for the purpose of business, the money that was advanced was in the nature of trade advance and the copy of the ledger account placed at page 20 of the paper book also supports the contention of Learned AR. In such a situation, relying on the ratio of the aforesaid decision rendered by H’ble Delhi High court in the case of Raj Kumar (supra), we are of the view that the amount received by the assessee cannot be termed as deemed dividend within the meaning of s. 2(22)(e) of the Act and therefore its addition cannot be made.
We also find that identical issue arose in assessee’s group company Saga Developers wherein the addition was made in the case of assessee in earlier year when the identical addition was deleted by Co-ordinate Bench of Tribunal. Considering the totality of the aforesaid findings, we are of the view that no addition u/s 2(22)(e) of the Act of the Act could be made in the present case. We therefore direct that the addition made by AO and upheld by CIT(A) deserves to be deleted and accordingly direct the deletion of the addition made. Thus the grounds of assessee are allowed.