TaxTMI 
TaxTMI 
2015 (6) TMI 1119
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..... 90,31,676/- and M/s. Tolly Nirman Pvt. Ltd of Rs. 87,93,372/- without appreciating the facts that the said companies have not got themselves registered and/or obtained license on the business of money lending as per Bengal Money Lenders Act, 1940 read with RBI report for carrying on money lending business. 3. That ld.CIT(A) erred both in facts as well as law restricting disallowance u/s. 14A to 1% of the dividend earned in the current assessment year i.e. 2006-07 whereas in the assessment year 2005-06 it was directed to work out the said disallowance on the basis of Rule-8D of the Income Tax Rules. 4. That the Department craves leave to alter/amend/modify any or the grounds of appeal. 3. Ground nos. 1 &2 relate to deletion of addition made u/s. 2(22)(e) of the I.T Act 1961. 4. Brief facts as emanating from the order of the AO, for the sake of convenience the same are reproduced herein below:- "Through my requisition dated 20.6.08 the assessee was asked to explain, "Please refer details of loans taken & supply copies of TAR & accounts in cases of all sister concerns from whom loans were received during the year. Also submits share holding ratio of 10% & above in each such ....
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.... Clearly, the M/s. Tolly Nirman Pvt. Ltd was not in the lending business and the impugned loan/advance of Rs. 3,39,00,000/- was not to the assessee in the ordinary course of its business. Evidently, the accumulated profit was passed on to the sister concern in the garb of loan. And such devious arrangement was engineered to escape incidence of taxation. Mischief of section 2(22)(e) of the Act is, therefore, clearly attracted. The issue of deemed dividend was raised before the assessee by requisition dated 20.06.08 and also at the time of hearings. The assessee in its replies had never contested the applicability of the said section. Therefore, it appears that loan/advances were squarely covered by the provisions of section 2(22)(e) of the Act. However, in the present case the same is restricted to the amount of reserve & surplus available i.e. Rs. 87,93,372/-. So far as loans/advances received from M/s. Prasad Group Resources P.Ltd is concerned, it was observed that the assessee was holding more than 45% of the shares. Apparently. Provisions of section 2(22) of the Act was directly attracted here. Hence, by requisition dated 20.06.08 and also at the time of hearings the assessee ....
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....IT(A) while allowing the relief to the assessee has relied upon the decision of the Hon'ble Jurisdictional Calcutta High Court in the case of Pradeep Kumar Malhotra Vs. CIT reported in (2011) 338 ITR 538(Cal). 6. The ld.DR has relied on the orders of the AO. On the other hand, the ld. Counsel for the assessee has relied upon the submissions made before the ld.CIT(A) and the order of the ld.CIT(A) in deleting the addition made by the AO on this issue. 7. We have heard the rival submissions and perused the material available on record. The undisputed fact in the present case is that the principal business of M/s. Prasad Group Resource Pvt. Ltd was of granting loans and advances. Similarly in the case of M/s. Tolly Nirman Pvt. Ltd the assessee had also taken loan and given loan at a rate of interest of 9%. This is a fact on record. Such loan has been taken as a consequence of any further consideration, which is beneficial to the company received from such a shareholder, in such a case, such advance or loan cannot be said to be a deemed dividend within the meaning of section 2(22)e of the Act. Our view finds support from the decision of the Hon'ble Jurisdictional High Court in the ca....
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.... for enabling the company to take the benefit of loan and in spite of request of the assessee, the company was unable to release the property from the mortgage. In such a situation, for retaining the benefit of loan availed from the bank if decision was taken to give advance to the assessee such decision was not to give gratuitous advance to its shareholder but to protect the business interest of the company. [Para 11] Therefore, the authorities below erred in law in treating the advance given by the company to the assessee by way of compensation for keeping its property as mortgage on behalf of the company to reap the benefit of loan as deemed dividend within the meaning of section 2(22)e. [ Para 13] Consequently, the order of the Tribunal below was to be set aside directing the Assessing Officer not to treat the advance in question as a deemed dividend. [Para 14]" 7.2 In view of the said decision of the Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra (supra), we find no infirmity in the impugned order of the ld.CIT(A), who has rightly deleted the addition made by the AO. We uphold the same. Ground nos. 1 & 2 s of revenue's appeal are dismissed. 8. Ground no....