AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (8) TMI 722
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....ances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 16,73,473/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income. 2. a) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who rejected the explanation of the appellant against the applicability of the provisions of section 2(22) (e) of Income Tax Act, 1961. b) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in in confirming the action of AO who considered loan of Rs. 21,92,55,967/- received from M/s. Apeejay Tea Ltd. as deemed dividend within the meaning of section 2(22)(e) of Income Tax Act, 1961. 3. That the appellant craves leave to add, alter, adduce or amend any ground on or at the time of hearing of the appeal." Assessment Year : 2014-15 1. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 18,00,595/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income. 2. a) That on the facts and i....
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.... circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who rejected the explanation of the appellant against the applicability of the provisions of section 2(22) (e) of Income Tax Act, 1961. b) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in in confirming the action of AO who considered loan of Rs. 1,15,00,000/- received from M/s. Apeejay Tea Ltd. as deemed dividend within the meaning of section 2(22)(e) of Income Tax Act, 1961. 2. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 1,40,266/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income. 3. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who proceeded on erroneous belief and misconception of law in disallowing interest on delayed deposit of TDS for Rs. 91,306/-. 4. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who made addition of Rs. 34,631/- for so-called delayed deposit of employees contribution to PF u/s 2(2....
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....wances were made and the same can be deciphered from the following chart:- Issues AY 2013-14 AY 2014-15 AY 2016-17 AY 2017-18 Disallowance u/s 14A 16,73,473 18,00,595 65,23,307 1,40,266 Deemed Dividend u/s 2(22)(e) 21,92,55,967 47,07,00,000 5,15,00,000 1,15,00,000 PF and ESI u/s 2(24)(x) - 27,126 53,507 34,631 Disallowance of Interest on IT, ST & TDS - - 4,23,358 91,306 6. Aggrieved the assessee preferred appeal before the ld. CIT(A) but failed to succeed on the issues, which are in challenge before us. 7. So far as the main issue relating to deemed dividend under section 2(22)(e) of the Act is concerned, the ld. CIT(A), confirmed the view taken by the AO that second limb of section 2(22)(e) of the Act, is applicable, since there is a common substantial shareholder between the two parties. 8. Aggrieved the assessee is now in appeal before this Tribunal. 9. The first common issue for our consideration is the disallowance under section 14A of the Act made under Rule 8D(2)(ii) and 8D(2)(iii) of the Rules. At the outset, the ld. Counsel for the assessee submitted that interest disallowance under Rule 8D(2)(ii) of the Rules, is uncalled for since the assesse....
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....e situation for the remaining assessment years wherein also the interest free funds available with the assessee company in the form of shareholder funds is almost 9 to 10 times of the investments held by the assessee in the equity shares. It is an admitted fact that there is no finding of the revenue authorities at any stage indicating specifically that interest bearing funds have been applied for the purpose of making investments. In absence of any such finding, we find that the judgement of the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra), are squarely applicable on the facts of the present case and, therefore, on account of sufficient availability of interest free funds, we find no merit in the finding of the ld. AO making interest disallowance under Rule 8D(2)(ii) of the Rules. Thus, the finding of the ld. CIT(A) is set aside and disallowance made under Rule 8D(2)(ii) for the impugned assessment years are hereby deleted. 12. As far as the remaining disallowance under Rule 8D(2)(iii) is concerned for AY 2013-14, the ld. Counsel for the assessee has not challenged the said disallowance of Rs. 2,22,977/- and, therefore, the same is confirmed. ....
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....to the written submission placed before the lower authorities for all the impugned assessment years, further took us through the relevant provisions of Section 2(22)(e) of the Act and the three limbs provided therein and then stated that the Hon'ble Special Bench of ITAT in the case of ACIT vs. Bhaumik Colour Pvt. Ltd. [118 ITD 1 (MUM)], has been held that deemed dividend can be assessed only in the hands of the person who is a shareholder of the lender company and not in the hands of any other person. Based on this ratio laid down by the Hon'ble Special Bench of ITAT in the case of Bhaumik Colour Pvt. Ltd. (supra), the ld. Counsel for the assessee submitted that the assessee is not a shareholder in Apeejay Tea Ltd., and, therefore, addition under section 2(22)(e) of the Act is uncalled for in the hands of the assessee. Further reliance was placed on the following decisions:- * Mahimananda Mishra Vs ACIT [147 Taxmann.com 521] * CIT Vs MCC Marketing Pvt Ltd [ 343 ITR 350 (Del- HC)] * CIT VS Sharman Woolen Mills Ltd [204 Taxman 82 (P & H HC) * CIT VS Navyug Promoters Pvt Ltd. [ 203 Taxman 618 (Del-HC) * CIT VS Ankitech Pvt Ltd. [340 ITR 14 (Del-HC)] * CIT Vs Narmina Trade....
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.... the loan or advance will be liable to be taxed on this amount as a dividend, to the extent to which the company has accumulated profits, under the deeming provisions of section 2(22). 9.1 However, w.e.f. from A.Y 2019-20, the company giving such loan or advances shall be liable to pay tax, that is, dividend distributed tax 30% and not the recipient. Although such loan or advance may have been given for genuine business purposes and even if the paying company may have received back the loan amount. Thus, the section deems certain payments as dividend income which is not income under ordinary commercial parlance. Therefore, the name Deemed dividend. 9.2 The concept of deeming certain payments or loans or advances to substantial shareholders as income was introduced with the object of curbing tax evasion. Up to 31-5- 1997 dividend was taxed in the hands of the recipient of the dividend. However, many closely held companies never declared any dividend and accumulated profits in the company itself. Since no dividend was declared the same could not be taxed. However, the companies did give loans or advances to substantial shareholders or to their concerns/companies who presumably en....
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....TR 198 (SC). Section 2(22) starts with the words" Dividend includes " Thus, the definition of dividend is inclusive and not exhaustive. 9.5 Section 2(22)(e) reads as 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 Beneficial owner of not less than 10% of the voting power It is not the registered shareholder but the beneficial owner of the shares'who is covered by the section 2(22)(e). Also, the shareholding as on....
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....place the hypothetically presumed companies namely "A", "B" and "C" by the companies namely "Appejay Tea Ltd.", "Appejay Pvt. Ltd." and "KathuerSteel Works Ltd.", then the situation will turn identical to the situation discussed above under para no. 9.7*. 9.9 Hence, it is clear that if the company namely "Appejay Tea Ltd." extends loan to "Appejay Pvt. Ltd." then "Appejay Pvt. Ltd." being the concern in which "Kathua Steel Works Ltd.", is having substantial interest, then the provisions of section 2(22)(e) will get attracted by virtue of second limb of the section. 9.10. The appellant has filed a detailed submission which has been reported under para no. 07 of this order and has also relied upon various case laws. The main line of their argument is that the provisions of section 2(22)(e) are not applicable because "Appejay Pvt. Ltd." is not a direct shareholder of "Appejay Tea Ltd.". The argument of the appellant holds good as far as the limb one (as discussed above) of section 2(22)(e) is concerned. However, from the Assessment Order it is apparent that the AO has invoked the second limb of section 2(22)(e), on which the appellant is conveniently silent. 9.11 In view of the ....
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....ed 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 Explanation-3 to Section 2(22)(e) is as follows: - "Explanation-3: For the purpose of this clause- (a) "concern" means a Hindu Undivided Family, or a firm or an association of persons or a body of individuals or a company; (b) 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 twenty percent of the income of such concern;" 21. From perusal of the above, one important term mentioned in the above provision is "substantial interest" and Section 2(32) defines, who is a person having substantial interest in the company, and the same reads as follows:- "(32) person who has....
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.... 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, Second limb (b) 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) Third limb (c) 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." 24. Now, so far as going through the above three limbs, we notice that so far as the first limb is concerned, the same is applicable to a shareholder of the company who gives such loan or advance and the shareholder is a beneficial owner of the shares as mentioned in the provisions of Section 2(22)(e) of the Act. Third limb applies in a case where payments are made by such company for individual benefit any such shareholder. 24.1. Now, so far as the second limb is concerned, where a concern in which such shareholder as referred in the first limb is a member or a partner having substantial interest receives loan/advance....
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....mulated 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) is to tax dividend in the hands of shareholder. 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 loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The intention of the Legislature is therefore to tax dividend only in the hands of the shareholder and not in the hands of the concern. 36. The basis of bringing in the amendment to section 2(22)(e) of the Act by the Finance Act, 1987 with effect from 1-4-1988 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 c....
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....rsal Medicare Pvt. Ltd., 324 ITR 263 (Bom) and CIT Vs. Ankitech Pvt. Ltd. & others 340 ITR 14 (Del.). The Hon'ble Supreme Court in CIT Vs. Madhur Housing and Development company in Civil Appeal No.3961 of 2013 judgement dated 5.10.2017, wherein the Hon'ble Supreme Court confirmed the view taken by the Hon'ble Delhi High Court in the case of CIT Vs. Ankitech Pvt. Ltd. & others 340 ITR 14 (Del). Reliance is also placed upon the decision of Hon'ble Bombay High Court in the case of CIT Vs Jignesh (P) Shah reported in 372 ITR 392 where the adverse order passed by following the judgment passed by the Hon'ble Apex Court in the case of CIT Vs. Vatika Township (P) Ltd. reported in 367 ITR 466 was followed. It is relevant to mention that in this case the Hon'ble Apex Court has been pleased to make following observations: - "On this interpretation of sec 2(22)(e) of the Act, unless the appellant is the shareholder of the company lending him money, no occasion to apply can arise." 27. Now, let us examine the other case-laws relied upon by the assessee:- Orissa High Court. Mahimananda Mishra Vs ACIT [147 Taxmann.com 521] Deemed dividend paid by a company was to ....
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....ies were same. Section 2(22) of the Income-tax Act, 1961 Deemed dividend Company 'A' advanced unsecured loan to assessee-company Assessing Officer added amount of loan in assessee's income as deemed dividend under section 2(22)(e) on ground that shareholders of lending company and that of assessee were same and, therefore, unsecured loan advanced by lending company to assessee was in fact loan to its shareholders - On appeal, Tribunal deleted addition holding that in terms of section 2(22)(e) dividend income is assessable only in hands of shareholders of lending company and since assessee was not a shareholder of lending company amount of loan could not be assessed in hands of assessee in terms of section 2(22)(e) - Whether, on facts, Tribunal had taken correct decision - Held, yes. Delhi High Court. CIT VS Navyug Promoters Pvt Ltd. [ 203 Taxman 618 (Del-HC) An assessee who is not a shareholder of company, from which he received a loan or an advance, cannot be treated as being covered by definition of word 'dividend' as provided in section 2(22)(e). Section 2(22) of the Income-tax Act, 1961 Deemed dividend - Assessment year 2006-07 - Whether an assesse....
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....ved an advance from a company and it was assessee's partners who were shareholders in said company and not assessee-firm, such an advance could not be taxed as deemed dividend in hands of assessee-firm. Section 2(22) of the Income-tax Act, 1961 Deemed dividend - Assessee-firm had received certain amount as an advance from a company under an agreement to handover management of firm's hotel to said company - Partners of assessee-firm were also shareholders in said company Assessing Officer treated said amount received by assessee-firm as deemed dividend under section 2(22)(e) in hands of assessee and assessed same to tax- Whether it was not assessee-firm which was shown to be shareholder of company but in fact it was its partners who were holding more than requisite amount of shareholding in company and were having requisite interest in firm - Held, yes - Whether, therefore, aforesaid amount received by assessee would not be deemed dividend in hands of assessee-firm, rather it would obviously be deemed dividend in hands of individuals (partners), on whose behalf, or on whose individual benefit, being such shareholders, amount was paid by company to concern - Held, yes. 28.....
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..... Ostensibly, assessee-recipient is not a shareholder in the payer company, i.e. Portescap and, therefore, it is not covered by the first category of payment. In fact, it is the second category which is sought to be invoked by the Assessing Officer. No doubt, there is a common shareholder, both in the assessee-company and Portescap, and even if we were to assume that the amount received by the assessee-company is for the benefit of the stated aforesaid common shareholder, yet, it could only be assessed in the hands of such registered shareholder and not in the hands of the assessee- company. This proposition has been relied upon by CIT(A) to delete the addition, and which is well supported by the judgments of the Hon'ble Bombay High Court in the case of Universal Medicare (P.) Ltd. (supra), Impact Containers (supra) and NSN Jewellers (P) Ltd. (supra). Thus, we find no justifiable ground to interfere in the conclusion drawn by the CIT(A). 11. So far as the reliance placed by the Revenue on the judgment of the Hon'ble Supreme Court in the case of Gopal and Sons (HUF) (supra) is concerned, the same, in our view, is quite inapplicable to the facts of the present case. Firstly....
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....There is also no dispute that there are common shareholders both in the assessee-company and Indev Logistics Pvt. Ltd. Therefore, quite correctly, as noted by the Tribunal, though, the advance received by the assessee company may have been for the benefit of the aforementioned registered shareholders, it could only be assessed in the hands of those registered shareholders and not in the hands of the assessee-company. 4.4 In our view, on a plain reading of the provisions of Section 2 (22)(e) of the Act, no other conclusion can be reached. As a matter of fact, a Division Bench of this Court, in the case of Commissioner of Income Tax vs. Printwave Services P. Ltd., (2015) 373 ITR 665 (Mad.), has reached a somewhat similar conclusion. 5. Mr. Senthil Kumar, however, contends to the contrary and relies upon the judgment of the Supreme Court in Gopal and Sons (HUF) vs. Commissioner of Income-tax, Kolkata-XI, (2017) 77 taxmann.com 71 (SC). 5.1 In our view, the question of law considered by the Supreme Court in the case of Gopal and Sons (supra) was different from the issue which arises in the present matter. The question of law which the Supreme Court was called upon to consider was ....