TaxTMI 
TaxTMI 
TaxTMI 
2012 (9) TMI 729
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....ng this addition the A.O. observed as under:- "a. In this case Mahavir Rolling Mill Pvt. Ltd. has made payments by way of advances to the assessee company in which Shri K.K. Bansal has substantial interest under the provisions of section 2(22) and Shri K.K. Bansal is holding more than 10% voting power in Mahavir Rolling Mill Pvt. Ltd. A plain reading of the provisions of section 2(22)(e) makes it clear that the assessee company is in receipt of dividend income from Mahavir Rolling Mill Pvt. Ltd.. Mahavir Rolling Mill Pvt. Ltd. has accumulated profits of Rs.3,09,94,043/- as reflected in Scheudle-2 (Reserves & Surplus) of its balance sheet. Total advances received by the assessee company is Rs.3,32,95,000/- . Therefore, advances to the extent of increase in accumulated profits or accumulated profit not taxed during earlier are in the nature of deemed dividend in the hands of the assessee company. b. Therefore, the assessee was asked to show cause why addition should not be made in regard to this issue. The submission of the assessee in this regard dated 29-11-10 is reproduced here: i. At the outset it is clarified that the assessee company is a private limited company in which the....
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....s of the assessee Company. Penalty proceeding u/s 271(1)(c) is initiated for furnishing inaccurate Particulars of income." 4. The assessee went in first appeal before ld. CIT(A) who deleted this addition by following the decision of Hon'ble ITAT in assessee's own case for the assessment year 2005-06. Further aggrieved, now the Revenue is in appeal before us. 5. After hearing both the parties and perusing the record we find that the issue is now covered in favour of the assessee and against the Revenue by the order of the Tribunal in assessee's own case for the assessment year 2005-06 dated 10th December, 2010 in ITA No.2349/Ahd/2008 wherein following was held:- "We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the similar issue in assessee's sister concern in the case of ITO v. Mahavir Rolling Mills Ltd. in ITA No.2337/Ahd/2008 dated 19.11.2010 for assessmentyear 2005-06, wherein clear finding is given in para- 14 that the assessee-company in which public is not substantially interest and one of the Director, Shri K.K. Bansal holds more than 20% share both in assessee- company and MMRML that assessee-company is not holdin....
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....red by the decision of Special Bench of ITAT Mumbai in the case of ACIT v. Bhaumik Colour (P) Ltd. (2009) 118 ITD 1 (Mum)(SB), wherein the Hon'ble Special Bench has held as under:- "33. We may also touch upon certain other aspects of the Issue n the light of the submissions made before us. The Tribunal in the case of Nikko Technologies (supra), while holding that the payment made by a company even to a nonshareholder can be brought to tax in the hands of the nonshareholder has made the following observations. "Section 2(22)(e) only specifies the circumstances under which a payment by way of loan/advance is to be treated as deemed dividend. Once it is determined that any payment by way of loan/advance falls within the ambit of section 2(22)(e), then, it has to be treated as dividend even though such payment in the ordinary circumstances may not be considered as dividend. At this point of time, the role of section 2(22)(e) ends. It nowhere provides as to who is to be taxed in inspect of such income. It is to be borne in mind that the tax can only be assessed in the hands of right person as held by the apex court in the case of ITO v. Ch. Atchalah (1996) 218 ITR 239, at pages 243-2....
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....pril 1, 1998, is to ensure that persons who control the affairs of a company as well as that of a firm can have the payment made to a concern from the company and the person who can control the affairs of the concern can draw the same from the concern instead of the company directly making payment to the shareholder as dividend. The source of power to control the affairs of the company and the concern is the basis on which these provisions have been made. It is therefore proper to construe, those provisions as contemplating a charge to tax in the hands of the shareholder and not in the hands of a nonshareholder viz., concern. A loan or advance received by a concern is not in the nature of income. In other words there is a deemed accrual of income even under section 5(1)(b) in the hands of the shareholder only and not in the hands of the payee, viz., non-shareholder (concern). Section 5(1) (a) contemplates that the receipt or deemed receipt should be in the nature of income. Therefore, the deeming fiction can be applied only in the hands of the shareholder and not the non-shareholder, viz., the concern. 37. The definition of dividend under section 2(22)(e) of the Act is an inclusiv....
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....ion of dividend thus (page 851 of 74 ITR): "The definition is, it is true, an inclusive definition and a receipt by a shareholder which does not fall within the definition may possibly be regarded as dividend within the meaning of the Act unless the context negatives that view." The contention of the Departmental representative that the provisions of section 8(a) of the Act creates a fiction by which even payments to non shareholders canbe construed as dividend cannot be accepted. Those provisions merely fix the year in which dividend has to be taxed. It is therefore clear that the shareholder alone can, if at all, be subjected to tax for having earned dividend. 39. In the decision of the Tribunal in the case of Nikko Technologies Ltd. (supra) reliance has been placed on Circular No.495, dated September 22, 1987 ([1987] 1568 ITR (St.) 87), which states as follows (page 91): "Further, deemed dividend would be taxed in the hands of a concern where all the following conditions are satisfied... ." We are of the view that circular of the Central Board of Direct Taxes to the extent that they do not tone down the rigor of the provisions of the Act in the sense to the extent they are ....
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....see should be a shareholder of the company; (b) the company should be a closely held company in which the public are not substantially interested; (c) there must be payment by way of advance or loan to a shareholder or any payment by the company on behalf of or for the individual benefit of the shareholder and (d) there must be sufficient accumulated profits in the hands of the company up to the date of such payment. 16. We find from the above case law of Mumbai Special Bench of this ITAT, wherein it is categorically held that the deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder. Accordingly, this issue is squarely covered in favour of the assessee and against the Revenue, hence, we confirm the order of CIT(A) deleting the addition of deemed dividend u/s.2(22)(e) of the Act made by Assessing Officer. This issue of the Revenue's appeal is dismissed." We find that issue is squarely covered in favour of assessee and against the Revenue in the present case also. Respectfully, following the decision of this Tribunal in assessee's sister concern in the case of Mahavir Roll....
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....No.8); it is stated that:- "the lease period/or ship breaking from GMB has expired on 30.09.2004. An application for extension of the lease period has been made on which GMB has not taken any action. However in terms of the policy declared by the GMB, further Rs.12,00,000/- became payable in respect of period from 01.04.2007 to 31.03.2008. Lease rentals paid in excess of this amount is shown as advance lease rental (of Rs.6,00,000/-)." c. The assessee is making this payment of acquiring rights to use plot for ship breaking. It is not the rent paid yearly for usage of leased plot but it is the expenses for acquiring rights for usage of plot. The rent is of Rs.3.6 lacs on this plot, which has already been claimed by the assessee in P&L A/c. d) Apart from this in the 3CD report, Annexure-2 which is related to depreciation on assets as per IT Act, the assessee is showing reconciliation figure which is as| follows:- (figures in Rs.) Addition as above 14,42,066 Add.: (i) Sale of mobile instrument 2,700 (ii) Leasehold plot GMB 12.00.000 Addition as per Balance Sheet 12.02.700 26,44,766 e) It clearly st....