TaxTMI 
TaxTMI 
2023 (7) TMI 230
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.... 2. ITA 108/Kol/2022 - The Revenue in this appeal has taken the following grounds of appeal: "1. That on the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition on account of deemed dividend u/s 2(22)(e) of the Income Tax Act 1961. 2. That on the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition u/s 14A of the I.T. Act, 1961. 3. That on the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition u/s 24(i) of the I.T. Act 1961. 4. That the Revenue reserves its right to substantiate, modify, delete, supplement and/or alter the grounds at any time of the appeal proceedings." 3. Ground No.1 - Vide this ground, the revenue has contested the action of the CIT(A) in deleting the addition made by the Assessing Officer on account of deemed dividend u/s 2(22)(e) of the Act. The brief facts of the case are that the assessee company has been in the business of development and construction of real estate projects. During the assessment proceedings, the Assessing Officer noted that the assessee had received substantia....
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....n gratuitously to the assessee only by virtue of its company beneficial shareholder. The relevant observations made by the CIT(A) are reproduced as under: "Ground No.2 and 3: These grounds, being interrelated, are being disposed as one. Having gone through the material on record I find that the facts in brief in this ground are that the AO has observed that the appellant company was in the business of development and construction of real estate projects. During the year, the AO has noted that the appellant received substantial advances from various parties against which interest was due paid after due deduction of TDS. One of the entities from whom such advance was received was Safari Retreats Pvt. Ltd, amounting to Rs 17,15,00,000/-, which was, as noted by the AO, a group company. The AO, in another place of his order has also called these advances loans. Be that as it may, it is undisputed that during the impugned period, the other conditions applicable for inviting the mischief of section 2(22)e were undisputedly satisfied including the percentage shareholding required as well as the presence of accumulated profits. The AO did not accept the appellant&....
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....to the company received from such a shareholder, in such case, such advance or loan cannot be said to be a deemed dividend within the meaning of the Act. Thus, for gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not to the cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder." I find that in the instant case the loan was not a gratuitous loan or advance but it was given in return to an advantage conferred upon the company by such share holders. This advantage is accepted by the AO in the form of huge payments of interest upon such loans. These loans/advances were given against an interest rate of 12% per annum, which is a reasonably high commercial rate of interest. The fact that these loans were given in the ordinary course of business of the loan advancing company just adds further Credence to the already accepted fact that this loan was not gratuitous and given only by Virtue of the fact that the appellant held a beneficial interest in the loan advancing company. The AO has not suspected that these loans were in any way bogus or ....
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....f the Act. It was held that gratuitous loan or advance given by a Company to those classes of shareholders thus would come within the purview of section 2/22)(e) but not the cases where the loan or advance is given in return to an advantage conferred upon the Company by such shareholder. In the case of ACIT -Vs. - M/s. Zenon (India) Pvt. Limited, a loan taken by the assessee was treated by the Assessing Officer as deemed dividend under section 2(22)(e), but the ld. CIT(Appeals) did not approve the action of the Assessing Officer after having noticed that interest at the rate of 9% per annum was paid by the assessee on such loan, which, according to him, was a consideration received from her shareholders, which was beneficial to the Company and the order of the ld. CIT(Appeals) giving relief to the assessee was upheld by the Tribunal vide its order dated 29.06.2015 passed in ITA No. 1124/KOL/2012 by relying on the decision of the Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra (supra). Keeping in view the said decision of the Hon'ble Calcutta High which has been followed by the Co-ordinate Bench of this Tribunal in the case of M/s. Zenon (India) Pvt. Limited....
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....ootage rate specified in the said agreement in a project 2 acres at Eastern Metropolitan Bye Pass adjacent to Science City. For this purpose the said company has given the said advance to M/s. Forum Projects Put Ltd. Therefore, this was a business deal between M/s. Forum Venture Pvt. Ltd. and M/s. Forum Projects Pvt. Ltd. The appellant has provided a copy of the said agreement dated 24.01.2010 contained in the paper book pages-75 to 79. The appellant has gone on to state that after a few days M/s. Forum Venture Pvt. Ltd. thought it wise not to invest in M/s. Forum Projects Pvt. Ltd., therefore, the said agreement dated 24.01.2010 was cancelled by an exit agreement dated 29.01.2010. This agreement has also been provided by the appellant and is contained on pages- 71 to 74 in the paper book. The said amount of Rs. 44 62,00,000/ was accordingly refunded by M/s. Forum Projects Pvt. Ltd. to M/s. Forum Venture Pvt. Ltd, as a measure of full and final settlement between the two parties. The appellant as stated that the AO despite being fully aware of all the facts and ignoring the Fact this was a purely business Venture or which all the facts were present on record, went....
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....d dividend under section 2(22)(e) by the authorities below was taken by the assessee from M/s. Surya Business Pvt. Limited on interest and since the said Company was compensated by way of interest paid by the assessee on loan, the assessee in real sense did not derive any benefit from the funds of the Company so as to attract the provisions of section 2(22)(e). Although the ld. D.R. has vehemently opposed this contention of the ld. counsel for the assessee by submitting that the payment of interest alone cannot be considered from the benefit angle as envisaged under section 2(22)(e), it is observed that the judicial pronouncements cited by the ld. counsel for the assessee clearly support the case of the assessee. 6. In the case of Pradip Kumar Malhotra reported in 338 ITR 538 cited by the ld. counsel for the assessee, I was held by the Hon'ble Calcutta High Court that the phrase "by way of advance or loan" appearing in section 2(22)(e) must be construed to mean those advances or loans which a shareholder enjoys for simply on account of being a partner, who is the beneficial owner of shares, but if such loan or advance is given to such shareholder as a consequence of an....
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.... arrangement was a business and commercial arrangement duly supported not only by agreements but also by the conduct of the parties involved. It has not been doubted by the AO that the said amounts were given in order to procure a set of flats in a luxurious real estate project not the Case of the AO that the said amounts were given gratuitously to the appellant only by the virtue of its being a beneficial shareholder in Forum Venture Pvt. Ltd. When no aspect of the total transaction is doubted or countered by the AO with any reasoning or evidence I cannot see how the transaction itself can be construed to be anything other than the sum total of its individual parts. Respectfully following the propositions and tests laid down in the aforementioned citations I cannot agree with the AO in his action in this regard. The impugned transaction is clearly a commercial transaction in which two parties entered into a sale purchase agreement for the sale purchase of flats. This is a standard agreement between an investor and a developer for the future purchase of property that was to be developed by the developer. The contractual agreement was binding on both parties. The moneys advanced by ....
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..../s 14A of the Act. The ld. CIT(A) taking note of the aforesaid fact, while relying upon the various decisions of the Hon'ble High Courts including the decision of the Hon'ble Madras High Court in the case of Marg Ltd. vs. CIT reported in [2020] 120 taxmann.com 84 (Madras) and further of the Hon'ble Bombay High Court in the case of PCIT v. Bajaj Finance Ltd reported in (2019) 178 DTR 219 and of the Hon'ble Delhi High Court in the case of PCIT vs. Vedanta Ltd. (2019) 261 Taxman 179 (Delhi HC) observed that as per the settled law, the disallowance u/s 14A cannot exceed the exempt income. Without prejudice to the above observation, the ld. CIT(A) further held that since this was a case of reassessment proceedings u/s 153A pursuant to the search action u/s 132 of the Act, therefore, the addition if any could have been based on the basis of incriminating material found during the search action. He observed that the aforesaid addition u/s 14A was not based on any incriminating material found during the search action. He therefore deleted the impugned addition. After hearing the ld. representatives of the parties, we do not find any reason to interfere with the above findings of the CIT....
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....nd u/s 2(22)(e) of the Act. The assessee during the year has taken advances of Rs. 70,00,000/- from Technopolis Infrastructure Pvt. Ltd. The Assessing Officer added the same as deemed income of the assessee u/s 2(22)(e) of the Act. The ld. CIT(A) deleted the addition on this issue on two counts. Firstly that the assessee was not a substantial shareholder in the Technopolis Infrastructure Pvt. Ltd. from whom the advances were taken. Secondly, the same was purely business transaction and the assessee has also paid interest @12% on the loan amount which was a reasonable high interest amount as compared to the market rate. The ld. counsel for the assessee has invited our attention to the paper-book page 65, to show that the assessee did not have any share holding in the said concern i.e. Technopolis Infrastructure Pvt. Ltd. The Assessing Officer perhaps has mistaken the assessee with the another concern namely "Forum Project Holding Pvt. Ltd. Therefore, the provisions of section 2(22)(e) of the Act were not attracted in this case. Even otherwise, this addition was not made by the Assessing Officer on account of any incriminating material found during the search action. Therefo....