TaxTMI 
TaxTMI 
2023 (6) TMI 347
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.... facts in deleting the addition made u/s. 2(22)(e) under section 68 of the Act. iii) The ld.CIT(A) has erred in law and on facts in deleting the addition made at Rs. 1,52,10,011/- being 25% of labour and transportation charges. iv) The ld.CIT(A) has erred in law and on facts in partly deleting the addition made at Rs. 10,00,000/- on account of short term capital gains. While the assessee in the CO has raised the following grounds: i) The learned Commissioner of Income Tax (Appeals) has erred in holding that the addition made u/s. 2(22)(e) of the I. T. Act, 1961 should have been of Rs. 37,78,000/- while deleting the addition made by the Assessing Officer of Rs. 130264245/- and allowing the appeal for statistical purpose. ii) The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of 10,00,000/- out of disallowance made by the Assessing Officer of Rs. 1,52,10,011/- for labour charges and transportation charges. 3. As transpires from the orders of the authority below, during the assessment proceedings, the AO made addition to the income of the assessee on account of the following: i) Short term capital g....
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....lder of the concerns making the loans/advance. 5. Aggrieved by the same, the Department has come in appeal before us while the assessee has filed CO in the Department's appeal as noted above. 6. Taking up first the Revenue's appeal in ITA No.2105/Ahd/2015, ground(i) raised relates to the deletion of addition made under section 68 of the Act of Rs. 1,31,50,000/-. 8 The facts relating to the issue and finding of the ld.CIT(A) are at para-(B) of the order, as under: "(B) Ground No. 2 is against the addition of Rs. 1,31,50,000/- u/s. 6.8 of the Act for unsecured loan from M/s Pushparaj Corporation. The A.O in the impugned order called for the details with contra account and confirmation in respect of unsecured loan accepted by appellant. The appellant furnished such details for most of the parties as recorded by A.O. in the impugned order. In reference to M/s Pusparaj Corporation and Chandraben S. Gandhi, A.O. observed that as per tax audit report, at Ann.4 of the report where detail about name, address, PAN, amount etc. are mentioned of the parties from whom loans were accepted by appellant during previous year, these two names are not there. Further it was observed ....
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....account and confirmation of M/s Pashparaj Corporation when such details were called by A.O.. This detaifclearly reflect that an amount of Rs. 1,01,50,000/- was accepted by appellant during previous year on different dates from M/s Pushparaj Corporation. This contra account and confirmation was having the addreass of the party as 501/Agarwal Complex, Nr. Choice Restaurant, Swastik Char Rasta, Navrangpura, Ahmedabad. This confirmation also has the details of date, cheque no., amount through which appellant received money. These cheques (excluding the cheque no. 448546 of Rs. 30,00,000/- dt. 29.03.10 which got cancelled) were found credited in the bank statement of appellant. It is therefore, the only deficiency was that of non availability of PAN. As against this when appellant submitted such details in appeal proceedings, the A.O. has not done any inquiry about whether M/s Pushparaj corporation file the return of income or not and neither M/s Pushparaj Corporation summoned or inquiry made. It is in this) regard, I am inclined with appellant that once contra account with confirmation of any party including address & PAN is filed from whom any money is accepted through cheque then it ....
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....other details like status of latest return of income, Bank statement etc. Then there is no case for addition u/s 68 of the Act. As per established legal proposition the borrower need not to prove source of the source or credit worthiness of sub creditor. The appellant sufficiently explained about the difference of final balance in the form of plot maintenance charge of Rs. 3,09,000/-. It is therefore A.O. is justified in making addition of Rs. 1,31,50,000/- which is factually notice. the same should have been of Rs. 10,15,000/- and also not sustainable as per legal proposition of law. The AO is directed to delete the addition so made of Rs. 1,31,50,000/-. The appellant gets relief accordingly. This ground is allowed." 9. As is evident from the above, addition of Rs. 1,31,50,000/- made by the AO under section 68 of the Act pertained to unsecured loans taken from one M/s.Pushparaj Corporation, the addition being made for the reason that the assessee was unable to discharge the onus of proving the genuineness of the transactions interms of section 68 of the Act. 10. On going through order of the ld.CIT(A), we find that he had deleted the addition, noting the fact that, the asses....
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.... appeal by the ld.CIT(A). 13. The finding of the ld.CIT(A) relating to the issue at para-C of the order is as under: "(C) Ground No. 3 is against the addition of Rs. 130264245/- u/s 2(22)(e)of the Act on account of loan taken from Aryavart Commodities of Rs. 1428000/- and from M/s Anmol Tradeline P. Ltd. of Rs. 128836245/- . The A.O. in the impugned order noted that as per tax audit report in form 3CD at Ann. 4 (detailed, in impugned order), the appellant received loan of Rs. 1428000/- from M/s Aryavart Commodities P. Ltd. arid of Rs. 12,88,36,245/- from M/s Anmol Tradeline Pvt. Ltd.. It was also observed that share holders of appellant company has substantial interest in these two company. The A.O. invoked provision' of section 2(22)(e) of the Act, rejecting appellant's contention that appellant company is not share holder in any of these two company. The details of share holding of Shri Shailesh J. Bhatt and Shri Suresh U. Gadhecha if considered in appellant company as well as in these two companies, then both of them independently has substantial interest in appellant company i.e. more than 20% share holding, while Siri Shailesh J. Bhatt has more than 20% int....
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....ed the companies Act (1 of 1956) schedule V - Part II out of total shares of 450000, Shri Sureshbhai U. Gadhecha holds 249000 i.e. 55.33% as on 31.09.2010. The appellant submitted a contra account which reflect an opening debit balance of Rs. 54876971/'-. This is a mixed account which has transaction of purchase as well as of loans and advances. The closing balance of Rs. 12605009. The Tax Auditor in Form No.3CD segregated he transaction f taken and repaid by this party to appellant. (ii) M/s.Aryavart commodities P. Ltd. (PAN : AAECA7330G) for A.Y.2010- 11 filed its return of income on 24.09.2010 with ITO, wd 1(1) Ahmedabad As per audited financial accounts, at schedule 'C' under the head unsecured loans, there is no amount or loan from appellant. At sch. H under the head loan of advanes& deposits given there is no name featuring of appellant i.e. No advanes or loans given to appellant. As per tax audit report by M/s. A.K. Shah & Associates in form 3CD dt.06/09/2010 at cl. 18 for the details of payment to parties covered u/s. 40A(2)(b) of the Act, appellant's name is not appearing. At cl. 24(a) for the details of loan accepted during previous *Ann. 2, there is no name ....
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.... on 31/03/2010 It is therefore, if A.O's contentions are accepted, addition u/s. 2(22)(e) the Act of Rs. 1428000 being less than surplus & reserve accumulated profit available can be made irrespective of fact that same loan is repaid. (ii) Loan accepted of Rs. 128836245 and repaid of Rs. 81701245 during previous year from M/s. Anmol Tradeline Pvt.Ltd. (ATPL) with tax auditor mentioning that account is not required up. This fact is not supported by the audited financial result of corresponding year, where no such loan & advance if any is reflected by M/s. ATPL. Further loan & advances of Rs. 12605009/- as reflected by appellant being given to M/s. ATPL is reflected by M/s. ATPL as creditor for purchases and not as loan & advances. The financial account of M/s. ATPL reflect that as against the opening balance as on 01/04/2009 of Rs. 54876971/- under the head ICD accepted from appellant, as on 31/03/2010 no such deposit exist. Further, if A.O. contention of acceptance of loan of Rs. 128836245 is taken correct, then the addition u/s. 2(22)(e) of the Act are limited by the reserve & surplus available (accumulated profit available) which is Rs. 2350000 only. I am partly incl....
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.... to a concern." With due regards to various case laws relied on by appellant, this proposition as considered by Hon'ble Delhi high Court is not considered by such appellate authorities. It is true that question before high Court this case of National Travel Services was related to share holding in the name of partners of firm to whom company advanced loan. But when explanatory notes are very clear and unambiguous and At para 20 & 21 of us case, Hon'ble Delhi High Court considered the interpretation of such deeming provision, there is no scope of any relief to appellant. The appellant during the course of appeal proceeding relied on Hon'ble Gujarat high court order in the case of C.I.T.-1 vs Daisy Packeres P. Ltd. in tax appeal 212 of 2010 order dt. 18/03/2012 where in Hon'ble high court considered following facts & held. "This tax appeal has been filed by Revenue challenging the order of the Tribunal and this Court had admitted the appeal on the following question of law. " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in reversing the order of CIT(A) and thereby deleting the addition m....
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.... another legal reason on the admitted facts, we need not send the matter back. 3.0 For the aforesaid reasons, we are of the considered opinion that substantial question of law formulated by the Division Bench is to be answered in affirmative against the assessee in favour of the department. The appellant also relied on Hon'ble Bombay high court in the case of C.I.T. central IV vs. Jignesh P. Shah (IT Appeal No. 197 of 2013 order dtd. 20/01/2015) where in Hon'ble high court following the ratio of CIT vs. Impact containers P. Ltd. 367 ITR 346 wherein it was held that section 2(22)(e) of the Act cannot be applied/invoked where the assessee is not a share holder of the lending company, held in favour of assessee. Hon'ble Bombay High Court following Supreme Court judgment in the case of CIT vs. Vatika Township 2015 (1)SCC 1 held that "Thus on strict interpretation of section 2(22)(e) of the Act, unless the Respondent - Assessee is the share holder of the company lending him money, no occasion to apply it can arise." The appellant also relied on Hon'ble Karnataka high court in the case of Sarva Equity P. Ltd. (2014) 214 taxmann.com 28(Karnataka)....
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....(whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; 15. The fact as per the AO, which lead to this finding, being that two shareholders of the assessee-company having substantial shareholding in the assessee-company i.e. Shailesh J. Bhatt and Shri Sureshbhai U. Gadhecha, held more than 10% shares in the company which had advanced the aforestated loans and advances being 20.77% and 30.20% respectively in Anmol Tradeline P.Ltd. and Aryavrat Commodities P.Ltd resp. 16. Based on the above facts, the AO held th....
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....National Travel Services, (2012) 347 ITR 305, and noted that the said decision took a contrary view. Taking note of the two contrary views on the issue, the ld.CIT(A) noted that the decision of jurisdictional High Court being binding, he accordingly applied the said decision to the present case, and held that the assessee not being shareholder in two companies, giving loans & advances, which qualified as deemed dividend as per section 2(22)(e) of the Act,; the said amount could not be held to be taxable in the hands of the assessee. 18. Before us, the fact of the amount of loans & advances received by the assessee company from two entities i.e. Aryavrat Commodities P.Ltd. and Anmol Tradeline P.Ltd., amounting in all of Rs. 13,02,64,245/-, qualifying as "deemed dividend" in terms of section 2(22)(e) on account of fulfilling the criterion laid down in the second limb of section 2(22)(e) of the Act is not disputed. There is no dispute vis-à-vis the fact that the shareholder of the assessee-company having substantial interest in it, also had sub-stantial interest in the two companies, which in turn advanced the impugned loans & advances to it. Therefore, in terms of section 2....
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....dings of the Hon'ble court at para 24 of the order is as under: "24. The intention behind enacting provisions of section 2(22)(e) is that closely held companies (i.e., companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions, such payment by the company is treated as dividend. The intention behind the provisions of section 2(22)(e) of the Act is to tax dividend in the hands of shareholders. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loans or advances would ultimately be made available to t....
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....hands of shareholder. Thereafter, in the case of CIT Vs. National Travel Services (2012) 347 ITR 305 (Del), the matter which came up before the Hon'ble Delhi High Court for interpretation of the provisions of section 2(22)(e) of the Act was whether the term "shareholder" used in section 2(22)(e) of the Act would mean both a registered and beneficial shareholder.. This issue arose on account of the section referring to "payments made by way of loans and advance to shareholders being person who is beneficial owner of shares". The fact situation leading to the issue cropping up was that in the said case the partners had invested in a company in their individual names on behalf of the partnership firm and partnership firm in turn had received loans from the said company. The assessee had contended that it has been categorically held in the case of CIT Vs. Ankitech P.Ltd. (supra) that the assessee had to fulfill the criteria of being both registered and beneficial shareholder for being hit by the provisions of section 2(22)(e) of the Act. The Hon'ble High Court rejected this contention and held that for the purpose of section 2(22)(e) of the Act it is not necessary that it has to be a r....
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....nd further goes on to state that a person shall be deemed to have a substantial interest in a concern other than a Company if he is, at any time during the previous year, beneficially entitled to not less than 20% of the income of such concern. 13. Shri Ujjwal A. Rana, learned advocate, appearing on behalf of the appellants, has argued before us that a judgment had been delivered by the very Division Bench in another case CIT v. Ankitech (P.) Ltd.[2011] 199 Taxman 341/11 taxmann.com 100/[2012] 340 ITR 14 (Delhi). The same Division Bench had arrived at a conclusion, following other judgments of other Courts and Tribunals, that the expression "shareholder" would continue to mean a registered shareholder even after the amendment, and that, this being the case, it is clear that the impugned judgment has taken an about turn and has sought to distinguish the earlier judgment when it was squarely applicable. He has also placed before us an order dated 05.10.2017 passed in Civil Appeal No. 3961 of 2013 [CIT v. Madhur Housing & Development Co.] in which this Court has expressly affirmed the reasoning of the aforesaid earlier judgment. In his view, therefore, this judgment ought to ....
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....necessary that it has to be a registered shareholder. 17. We are of the view that it is very difficult to accept the reasoning of the Division Bench. It is not enough to say that Ankitech's case refers to the second limb of the amended definition, whereas the present case refers to the first limb, for the simple reason that the word "shareholder" in both limbs would mean exactly the same thing. This is for the reason that the expression "such shareholder" in the second limb would show that it refers to a person who is a "shareholder" in the first limb. 18. This being the case, we are of the view that the whole object of the amended provision would be stultified if the Division Bench judgment were to be followed. Ankitech's case (supra), in stating that no change was made by introducing the deeming fiction insofar as the expression "shareholder" is concerned is, according to us, wrongly decided. The whole object of the provision is clear from the Explanatory memorandum and the literal language of the newly inserted definition clause which is to get over the two judgments of this Court referred to hereinabove. This is why "shareholder" now, post amendment, h....
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....and beneficial shareholders. The issue before the Hon'ble Delhi High Court in the said case was not with respect to the loans received by a concern in which the said shareholder had substantial shareholdings. Therefore, vis-à-vis this issue of taxation of deemed dividend in the hands of the concern, who are not shareholders of the company, giving loans & advances, we hold, it is settled in favour of the assessee to the effect that it could not be subjected to tax in the hands of the concerns which are not shareholders of the company making the loans & advances, which qualify as "deemed dividend". Decision in the case of CIT Vs. National Travel Services (supra) referred by the ld.CIT(A) has no applicability to the issue in hand. 27. In view of the above, applying this proposition of law to the facts of the present case, which are not disputed before us, that the assessee who had received advances from the said two concerns, was not a shareholder of these concerns, therefore, even though the advances qualified as deemed dividend in terms of section 2(22)(e) of the Act, they cannot be taxed in the hands of the assessee. Thus, order of the ld.CIT(A) deleting the addition m....
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....d approved by site engineer and contractor and since accountant and the director are not available on such site, their signature are not there. In most of the cases payments are by cheques after deduction of TDS The appellant contended that even the remand report A.O, has not pointed out any specific discrepancy. I am partly inclined with appellant. The A.O. without pacific verification and without pointing out" any specific defect made such allowances and even in remand report supported such disallowance at rate of 25%. The A.O. has not rejected books of account on one hand, while disallowed such huge expenditure on the other hand. Appellant's books of accounts are audited and such result is accepted by A.O. No adverse remark is there in tax audit report for maintenance of proper bill & vouchers or for deduction of TDS As against this, I am also inclined that for executing civil contract at remote places with local labour, such vouchers are bound to be there and required to be accepted. I have perused such details, bills & vouchers and I am inclined that most of payments are through cheques after deduction of TDS. Some of the observations from such verification are as....
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....et the justice to both hand for leakages through such payments in cash in small denomination, it is therefore, the A.O is directed to- allow the balance expenses and delete the addition of Rs. 14210011 (15210011-1000000). The appellant gets part relief This ground is partly allowed." 30. A perusal of the above reveals that the assessee debited an amount of Rs. 5,92,65,684/- on account of labour charges and Rs. 15,74,362/- on account of transportation charges. In the absence of any details submitted by the assessee, the AO disallowed 25% of such expenses resulting in disallowance of Rs. 1,52,10,011/-. 31. Before the ld.CIT(A) the assessee contended that the ledger accounts of these expenses were produced before the AO and the assessee had undertaken to produce its books also. The same were produced again before the ld.CIT(A) and it was also pointed out to him that the auditors had not pointed out any discrepancy with respect to these expenses claimed by the assessee. Copies of all relevant bills and vouchers were also produced. The evidences so filed by the assessee were sent to the AO for remand report who mentioned that on random checking of the same they were found to be ne....
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....ugned order that since appellant has not submitted sale agreement in respect of transaction of purchase of land at Goraj Village for Rs. 3071380/- on7/10/2009 and sale of such land on 19/3/2010 for Rs. 3000000/- thereby incurring short term capital loss of Rs. 71380/-, the AO without considering and analyzing index-2 as submitted by appellant, based on reasoning of asstt. Order on similar issue for A.Y. 08-09, made adhoc addition of Rs. 10 lcas. The appellant in appeal submitted such sale deed which was subjected to remand report. The A.O. in the remand report put general comments and raised apprehension about why appellant incurred loss in such deals in one month and in the absence of return of income concerned parties, held that such deed is non-genuine. The A.O. has not made any inquiry in this regard. The appellant in rejoinder contended that such addition is on estimate made or assumptions in the nature of conjectures without any basis. Both purchase and sale were claimed to be made on more than Jantri value and it is not that appellant sold the land below stamp duty value. The details of sellers as well as purchasers are available in purchase as well as sale deed whi....
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.... the assessee, which were not doubted by the AO and the disallowance made by the AO was a mere adhoc disallowance. The ld.DR was unable to controvert the factual finding of the ld.CIT(A) as above, before us. 37. In view of the same, we see no reason to interfere in the order of the ld.CIT(A) deleting the addition of Rs. 10,00,000/- on account of short term capital gains. Ground no.(iv) raised by the Revenue is dismissed. 38. In effect the appeal of the Revenue is dismissed. 39. Now we take up cross-objection filed by the assessee in CO No.174/Ahd/2015. 40. By groundno.1, the assessee is aggrieved by order of theld.CIT(A) in restricting the addition made on deemed dividend in terms of provisions of section 2(22)(e) of the Act of Rs. 37,78,000/- allowing appeal for statistical purpose. 41. We have discussed and dealt with in detail the ground raised by the Revenue on the issue of deemed dividend taxed in the hands of the assessee to the tune of Rs. 13.02 crores in the appeal of the Revenue in ITA No.2105/Ahd/2015. Undisputedly, the ld.CIT(A) had deleted the entire addition noting judicial proposition that the amount could not be taxed in the hands of the non-shar....