TaxTMI 
TaxTMI 
2023 (8) TMI 418
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....house property and income from other sources. During the assessment proceedings Assessing Officer observed that assessee has claimed long term capital gain on sale of shares of the scrip Sharp Trade and the details are as under: - Sr. No. Number of Shares Sale of Shares Date Total Sale Price Rs. 27,99,270/- 1 25000 shares purchased, Omnitech Petroleum Ltd. /Sharp Trading Co, now known as Trinity Tradelink Ltd., 07.03.2014 & 19.03.2014 1,500 shares for Rs. 14,74,650/ - & 1350 shares for Rs. 13,24,620/- 4. Assessing Officer observed that assessee earned long term capital gain during this year and claimed it as exemption u/s. 10(38) of the Act. The quantum of huge long term capital gain was found to be suspicious and detailed investigation was undertaken by the Kolkata Investigation wing into 84 Penny Stocks (Trinity Tradelink Ltd., {in short "TTL"}) and has given detailed findings indicating bogus LTCG/STCG entries claimed by large number of beneficiaries. He has discussed the modus operandi involving operators, intermediaries and the beneficiaries has been detailed in the above said investigation report. He has discussed in detail the various aspects of ....
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....es has been declared as related Party Transaction in the financial statement. In view of the above, assesse was show caused as to why the amount of Rs.. 1.5 Crores should not be added to the total income attracting section 2(22)(e) of the Act. 7. In response assessee filed reply dated 19.12.2016 as under: "........B. Taxability of ICD received from Group Company as Deemed Dividend in the hands of the assessee. Your honor has requested us to show cause as to why the Inter Corporate Deposit of Rs. 1,50,00,000/- given by Madhu Mattor Private Limited (MMPL) [Lender] to Madhu India Decc Limited (MIDL) [Borrower) should not be treated as Deemed Dividend in the hands of the beneficiary shareholders of MIDL within the meaning of Sec. 2(22)(e) of the Income Tax Act, 1961 based on the assessment order for A.Y 2014-15 made in the case of MIDL by ACIT 15(2X2)dated November 02, 2016. The assessee and his wife are common shareholders in MMPL & MIDL. The ICD has been advanced by MMPL to MIDL MIDL does not hold any shares in MMPL. We would like to submit that provision of Section 2(22)(e) of the Act cannot be invoked merely on the premise that the common shareholders having more than 10% of sha....
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....iven to Non-Shareholder cannot be treated as Deemed Dividend within the meaning of Section 2(22)(e)..... Assessee also relied on various case laws in his reply. AR of the assessee also submitted as under:- We would like to respectfully submit that this alleged deemed dividend of Rs. 1,50,00,000/- has already been added to the income of the recipient of ICD, MIDL in the assessment order and set off against the loss for the year. We attach herewith in Annexure 10 a copy of the assessment order highlighting the addition to the income. Under these circumstances taxing the same income in the hands of the assessee will amount to double taxation of same income once in the hands of MIDL & second time in hands of the assessee. This double taxation of same income is not tenable and justified.....". 8. After considering the submissions of the assessee, Assessing Officer rejected the same and observed that it is undisputed fact that the assessee is holding more than 10% in both the companies. Further, assessee holds more than 20% of shares holding pattern, in the company wherein the loan is received. Accordingly, provisions of section 2(22)(e) are attracted and hence an amount of Rs.. 1.5....
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....pon, I am of the considerate view that the addition made by the Ld. AO of Rs. 27,99,270 is justified and does not call for any interference. Accordingly, these grounds of appeal are dismissed." 11. With regard to the addition u/s. 2(22)(e) of the Act assessee has filed detailed submissions before the Ld.CIT(A) and for the sake of clarity it is reproduced below:- 3) Addition of Deemed Dividend u/s. 2(22)(e) of the Income Tax Act, 1961 "The learned AO has erred in addition of Rs. 1,50,00,000/- as Deemed Dividend u/s. 2(22)(e) of the Income Tax Act, 1961 under the head Income from Other Sources on the ground that the assessee holds more than 10% in both the Companies and more than 20% of the share holding pattern in the company in which the loan is received. The learned A.O also erred in adding 100% of the deemed dividend in the hands of the assessee even though his shareholding in the beneficiary company was 50.84%" 3.1) Facts The Inter Corporate Deposit of Rs. 1,50,00,000/- was given by Madhu Mattor Private Limited (MMPL) [Lender) to Madhu India Décor Limited (MIOL). The appellant is a director of M/s Madhu India Deco Ltd and M/s Madhu Mattor Pvt. Ltd. holding substa....
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....er in MMPL. iv) During the previous year relevant to the assessment year under consideration MMPL has utilized its surplus funds to deploy in ICD with MIDL as a part of its financing activity during the normal course of business. This is evident from the attached Cash Flow Statement of MMPL for the relevant period v) Furthermore, from the perusal of the details of utilization of the ICD placed by MMPL in MIDL,it can be seen that the entire ICD amount has been utilized by MIDL for retirement of the trade dues. No part of the ICD has been diverted, utilized or accrued to the ultimate common shareholders being the Promoters/Directors of MIDL & MMPL. Thus it is clearly established that no part of the ICD has directly or indirectly accrued to the eventual shareholder who is entitled to receive the dividend, 3.5) LD. AO made the addition u/s 2(22)(e) holding that the appellant is holding more than 10 % in both the companies. Further, the assessee holds more than 20% of shares holding pattern, in the company wherein the loan is received. As per LD. AO conditions as stipulated in section 2(22) (e) are satisfied. Hence, amount of Rs. 1,50,00,000/- is income of the assessee under the h....
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....to the extent to which the company in either case possesses accumulated profits; but "dividend" does not include- i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; (ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965; (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off 3.6.6) On perusal of section 2(22)(e), payment made by way of loan or advance shall be t....
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..... 2(22)(e) "deemed dividend" not assessable if recipient is not shareholder. This is confirmed by the honourable Supreme Court. * Delhi High Court in case of CIT vs. Mcc Marketing Pvt. Ltd, ITA No. 599/2011 has held that provision of section cannot be invoked in case of amount advance by one company to another, who is not a shareholder of the company; shareholding of common director cannot be taken into consideration for that purpose. * Bombay High Court in CIT vs. Impact Containers Pvt. Ltd [2014- ITRV-HC-MUM-112] has held that the law laid down in Universal Medicare 324 ITR 263 (Bom) (approving Bhaumik Color 313 ITR 146 (SB)), that s 2(22)(e) does not apply to a non-shareholder, is a good law. * Bombay High Court in CIT vs. Universal Medicare 324 ITR 263 (Bom) has held that the provisions of Section 2(22)(e) of the Income Tax Act, 1961 (for short "I.T. Act) cannot be invoked as the assessee company was not a shareholder in the lending company. The argument in all these Appeals on behalf of the Revenue is that, though the assessee is a common shareholder with controlling stake in the lending company, the Tribunal found that Section 2(22)(e) of the I.T. Act, is not attracted ....
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....the depositee receives money at the instance of the depositor. In the case of a deposit, the requirement of the depositee is neither relevant nor material. The depositor has to go to the depositee for depositing the amount or the depositee may go and collect the amount. But in case of a loan, the debtor has to request the creditor to advance certain amount for meeting his requirement for using the amount. However, the question in a given case whether the debit is deposit or a loan will be one of fact which will have to be decided on the facts and circumstances of each case. The use of the term 'loan' or 'deposit' may not itself be conclusive, though, of course, it is a circumstance which would be taken into account. What should be regarded is the cumulative effect of the evidence which bears on the character of the debt as a loan or a deposit. Where certain amount are paid or given by a particular person to other without there being a requirement of the person receiving the same, without applying the above test, it would certainly be a deposit. This is the only distinction." * Madras High Court in the case of Abdul Hamid Sahib vs Rahmat Bi (AIR 1965 Mad 427) obser....
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....9SS of the Act where both the terms are used. In section 269T of the Act, the term 'deposit' has been explained vide various circular issued by CBDT. Thus, the view taken by the Ld. CIT (A) that the Inter-corporate deposit is similar to the loan would no longer have legs to stand. In Housing & Urban Development Corporation Ltd. 102 TTJ (Del.) (SB) 936, it was held that that loans and deposits are to be taken different and distinct. Following the decision of the coordinate bench of this Tribunal in the case of Bombay Oil Industries Ltd. referred supra, to the addition representing inter-corporate deposits treated as loan by the AO and as confirmed by the Ld. CIT (A) stands deleted. In the case of ACIT v. Source Hub India (P) Ltd. (2014) 61 SOT 111 (Bang)(Trib) it was held that: "the assessee company was engaged in the business of providing computer services. Its shares were held by a company 'V and Three individuals by name 'K' 'R' and 'S' to the extent of 64% 32% 2% and 2% respectively. Further the entire shares of company V were held by 'R' & 'S' During the previous year, the assessee had received a loan from company &#....
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....accumulated profits and also had credit balance in the name of the assessee. Therefore, the AO held that there was a loan or advance within the meaning of section 2(22) (e) of the Act and treated the amount of accumulated profit as deemed dividend and disallowed the benefits of deduction u/s. 10B. The CIT(A) deleting the addition made by the AO held that the transactions of the assessee with its sister concern were commercial in nature and that the provisions of section 2(22) (e) of the Act were not applicable. On appeal by the Department, the Tribunal observed that the assessee had filed additional details before the CIT(A) establishing that the transactions were regular business transactions. These evidences were also sent to the AO in the Remand Proceedings who had in his Remand Report conceded that the transactions were regular business transactions. Accordingly, the Tribunal dismissed the departmental appeal. (AY.2006-07). Ishwar Chand Jindal vs. Assistant Commissioner of Income-tax [2015] 61 taxmann.com 428 (Delhi- Trib.) Assessee contended that said transactions between two companies were current account transactions between group companies and therefore, it could not be....
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....ons of Section 2(22)(e) are applicable to the appellant being the shareholder of the concern which has received the loan. 5.3.6 In light of the above facts, I find no infirmity in the addition made by the Ld. AO of Rs.1,50,00,000 u/s 2(22)(e) of the Act and uphold the same. This ground of appeal is dismissed." 13. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - "1. Addition of Rs. 27,99,270 u/s. 69 being sales proceeds of shares a) On the facts and circumstances of the case and in law, Ld.CIT(A) erred in upholding the action of Ld AO in making the addition of Rs. 27,99,270/- being the sale proceeds of shares by treating the transaction as a bogus and accommodation entry. Addition made, merely on suspicion and human probabilities and without any reliable and trustworthy material, is bad in law and needs to be deleted. b) On the facts and circumstances of the case and in law, Ld.CIT(A) erred in upholding the action of Ld AO in making addition of Rs. 27,99,270/- by holding that the shares were sold to Rinam Dealmark Pvt Ltd and Diganta Properties Pvt Ltd known to be exit entry providers. Addition made, without providing the opportunity to ....
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....ced below: - "2. With regard to Ground of appeal no.1 Addition of sale proceeds of shares u/s. 69 of Rs.27,99,270/- assessee submitted as under: - 3. This issue is dealt with by the learned AO at para 5 to 10, pages 2 to 12 of the assessment order. 4. It is adjudicated by the learned CIT(A) at para 5.2 to 5.2.8, pages 35 to 39 of the order of the learned CIT(A). 5. The issue relate to long term capital gains on sale of shares of M/s. Trinity Tradelink Ltd (TTL) of Rs 27,64,103/- claimed as exempt u/s 10(38) being STT paid in the return of income. Working of the LTCG is given on page 63 of the paper book. 6. The Appellant had originally purchased 25,000 shares of Rs 10 each of Omnitech Petroleum Limited physically, earlier known as Sharp Trading Co. Ltd, on 24 February, 2012 under a private placement arrangement. Pursuant to a scheme of merger of M/s. Trinity Tradelink Ltd (TTL) with M/s. Omnitech Petroleum Limited as per Order dated 10.01.2014, the appellant held 60,000 shares of TTL; out of which 2850 shares were sold on March 07, 2014 (1500 shares) & March 19, 2014 (1350 shares) respectively. Sale took place in market through SEBI & BSE registered share broker SKUNG Tra....
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....s who have alleged/investigated that the share trading is in Penny Stock resulting in the bogus capital gain. Observations Of the learned AO: 11. The learned AO disregarded the submissions of the appellant for the reasons not relating to the specific facts of the appellant but stems from the following * Report/information received from the DIT (Inv.) Kolkata dated 27.04.2015 and statements recorded by the Investigation Wing of various operators, entry providers and stock brokers (though no extracts are reproduced in the assessment order). This is enumerated at para 5.3 to para 5.8, pages 2 to 4 of the assessment order. * Price and volume movement of shares of Trinity Tradelink Pvt. Ltd. in the stock market during the period 01.04.2011 to 31.12.2016 as provided in para 7.1. page 5 of the assessment order. * Financial health of the said company lacked commercial feasibility as depicted at para 7.3, page 6 of the assessment order. * The learned AO has then assumed that the appellant has purchased shares through Kolkatta based entry providers namely Rinam Dealmark Pvt.Ltd and Diganta Properties Pvt. Ltd. - para 7.6, page 6 of the assessment order. * The learned AO has the....
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.... Trade Link Limited as well as of the appellant is appearing in the investigation report as identified beneficiary, the said report cannot be used against the appellant to allege that he has earned bogus capital gains. 17. The assessment order is passed without providing opportunity for cross-examination of the persons who have alleged/investigated, thereby not following rule of natural justice. 18. As regards reliance placed on statement of Rinam Dealmark Pvt Ltd and Diganta Properties Pvt. Ltd, they have no connection with the appellant and the appellant has fulfilled his onus fully. No opportunity was granted to cross examine these parties. There is violation of principle of natural justice and therefore additions need to be deleted. 19. Further as regards the name of Crescent Digital Technologies being the alleged entry operator in the appellant's case, it is submitted that the appellant is not aware as to how this name is referred and how is that entity connected to the appellant. The learned AO has neither examined him nor he has given any copy of the statement wherein that entity has said that it knows the appellant. The learned AO has merely acted on here say with....
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....the same cannot be treated as bogus. with regard to Grounds of appeal no.2 in respect of Addition of Deemed Dividend u/s, 2(22)(e) of Rs. 1,50,00,000/- assessee submitted as under: - Facts : The Inter Corporate Deposit (hereinafter referred to as "ICD") of Rs. 1,50,00,000/- was given by Madhu Mattor Private Limited (hereinafter referred to as "MMPL") [Lender] to Madhu India Décor Limited (hereinafter referred to as "MIDL"). The appellant is a director of MIDL and MMPL holding substantial interest @50.84% and 19.86% respectively. It is a company in which public are not substantially interested. MIDL does not hold any shares/beneficial shareholding in MMPL. [Paras 11.1 and 11.2, Page 7 of 13 page 12 of the assessment order] 26. Share Holding Pattern of the said two companies:- (Page 13 of the assessment order) SI. No Name of the shareholder MIDL (No. of shares) Percentage holding MMPL (No. of shares) Percentage holding 1. Mr. Anand M Gupta 115920 50.84% 5098 19.61% 2. Mrs. Madhu A. Gupta 84005 36.84% 24544 79.03% 3. Madhu Finestock Pvt. Ltd. 20 0.01% 350 1.36%% 4. Madhu Mattor Pvt Ltd. 28020 12.28% - - 5. Othe....
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.... both the appeal to the said issue are being made together below. 34. Provisions of section 2(22)(e) are reproduced below. As per section 2(22) (e), "dividend includes - any payment by a company, not being a company in which the public are substantially interested, of any sum (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;- but "dividend" does not include- (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the h....
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....al evidence in the case of appellant 1. In the case of a deposit, the initiation is at the instance of the depositor, i.e. the giver as distinct from the case of a loan where the transaction is initiated at the instance of the borrower who is in need of the money. Extracts from Minutes of Board Resolution dated 24.12.2013 passed by MMPL is enclosed at page 86. Here it states that MMPL (ie depositor giver) in view of surplus funds proposes to make ICD. ICD Receipt is also issued which is enclosed at page of the paper book. 2. Depositor has surplus funds to park by placing ICD akin to fixed deposit placed with a bank whereas a loan is a transaction of advancing money to earn higher interest. (a) The existence of surplus funds with the depositor, i.e. MMPL is clearly noted in the aforesaid Board Resolution. b) Further the Cash flow statement (enclosed at page 80 of the pb) clearly states that there is surplus funds in the form of 'Cash generated from Operations' amounting to Rs 181.24 lakhs which is deployed in placing ICD amounting to Rs 150 lakhs (See para C - 'Cash flow from Financing Activities' in the said cash flow statement. 3. The dep....
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....ficial shareholder. 43. The word 'shareholder is followed by the expression 'being a person who is the beneficial owner of shares'. This expression used in section 2(22)(e) both in the Act, and in the amended provisions with effect from 1-4-1988 only qualifies the word 'shareholder and does not in any way alter the position that the shareholder has to be a registered shareholder. 44. This provision also does not reduce the requirement of being a registered shareholder to a requirement of merely holding a beneficial interest in the shares without being a registered holder of shares. 45. Therefore, it is only where a loan is advanced by the company to the registered shareholder and the other conditions set out in section 2(22)(e) are satisfied, that amount of loan should be liable to be regarded as deemed dividend within the meaning of said section. Accordingly MIDL cannot be subject to tax u/s 2(22)(e) as it is not registered and beneficial shareholder 46. The following conditions are required to be satisfied for application of the above category of payment to be regarded as dividend (a) There must be a payment to a concern by a company (b)A person must ....
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....s and vehemently supported the same. Further, complementing the findings of the Assessing Officer Ld.DR submitted the data extracted from BSE and MCA website and filed the same before us. The various financial data relating Omnitech Petroleum Limited and he submitted that this data clearly indicate that present company has no financial means to trade at such market rates. He placed the same on record and he relied on the following case laws: - i. Suman Poddar v. ITO (2019) 112 taxmann.com 330 (SC) ii. Sanjay Bimalchand v. Pr.CIT (20158) 89 Taxmann.com 196 (Bombay) iii. CIT v. Mrs. Manish D. Jain (HUF) (2020) 122 taxmann.com 180 (madras) iv. Sandeep Bhargava v. ACIT (2019) 109 taxmann.com 174 (Delhi-Trib) 16. With regard to u/s. 2(22)(e) of the Act, Ld.DR supported the findings of the Ld.CIT(A) and relied on the following case laws: i. Shri Sahir Sami Khatib v. ITO [2018] 98 taxmann.com 453 (Bombay) ii. ACIT v. Jasubhai Engineering (P.) Ltd., [2020] 118 taxmann.com 430 (Mumbai - Trib.) 17. Considered the rival submissions and material placed on record, with regard to addition made u/s. 69 of the Act, we observe that assessee has claimed long term capital gain exemption....
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....subsequent development, the assessee cannot claim benefit. Therefore, we do not find any reason to disturb the findings of the Ld.CIT(A), accordingly, ground raised by the assessee is dismissed. 18. With regard to deemed dividend, we observe that Assessing Officer has observed from the disclosure mandate by AS-18 in financial statement that inter-corporate deposit of Rs.. 1.5 crores was made between MIDL and MMPL. From the above transaction, it is clear the MMPL has given Inter-corporate deposit to MIDL in which assessee is a common share holder along with his wife and from the record it is very clear that the ICD was given to another sister concern and the tax authorities has not brought on record how this transaction will benefit the assessee. We have considered the various submissions of the assessee and Ld.DR, we observe that on similar facts Ahmadabad bench of the ITAT decided the issue in the case of DCIT v. Jateen Madanlal Gupta [2021] 126 taxmann.com 20 (Ahmedabad - Trib.) and the relevant facts and decision are reproduced below:- "9. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee is a share....
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....essee get some benefit out of such loans and advances. In the case on hand, the learned CIT (A) has given very clear-cut finding that there was no benefit accrued to the assessee out of the loans and advances given by the company namely JP Infrastructure Pvt. Ltd. to the companies as discussed above. It is also pertinent to note that, same contention was also raised by the assessee before the AO during the assessment proceedings as well as before us which was not disputed either by the AO or by the ld. DR. 9.3 We also find that there was another shareholder of JP infrastructure Limited and Gujarat Mall Management Pvt. Ltd. namely Shri Jayesh T Kotak, who was also subject to similar addition for the year under consideration i.e. being dividend under section 2(22)(e) of the Act. But the Hon'ble Gujatrat High Courts in his case reported in 116 taxmann.com 426, has held that to apply the provision of section 2(22)(e) there must be personal benefit arises to the assessee out of such loan and advances. The relevant finding of the Hon'ble Court is reproduced as under: any payment made by a company in which a shareholder has shareholding exceeding 10 per cent of the voting power to any....