TaxTMI 
TaxTMI 
2016 (10) TMI 1414
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....mitted that he shall not be pressing for ground against reopening. Hence ground No. 1 stands dismissed as not pressed. 3. Brief facts of the case are as under : The AO in this case received information from ACIT, Circle-7, Nagpur that M/s Shree Gajanand Plastics Pvt. Ltd. had received unsecured loans of Rs.24,91,690/- from M/s Gaurav Mutilayers Pvt. Ltd. The appellant Shri Damodar Sarda is a shareholder in the loanee company holding 26.31% of shares in addition to 25.72% shares to the loaner company M/s Gaurav Mutilayers Pvt. Ltd. Hence the AO held that as per provision of section 2(22)(3) the amount loaned to the loanee company as reduced by the reserves and surplus (Rs.13,65,999/-) was to be added to the taxable income of the appellant. 4. Before the learned CIT(Appeals) the assessee submitted as under : "1. That, the AO added Rs.13,65,999/- merely on the basis of remarks passed by CIT(A)-II vide order no. CIT(A)II/302/09-10, dated 31.07.2012. 2. That, the AO without verifying the facts that whether the assessee has used the amount out of loan taken by M/s Shri Gajanand Plastics (P) Ltd. from M/s Gaurav Mutilayers Pvt. Ltd. added Rs.13,65,999/- as deeme....
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....ng a direct share holding of the lender company, then there are several decisions according to which the fiction cannot be extended to assess deemed dividend in the hands of the assessee company. The Hon'ble Bombay High Court in CIT v/s Impact Containers Pvt. Ltd. (2014) 367 ITR 346 (Bom) has discussed decision of the Hon'ble Delhi High Court in CIT v/s Ankitech Pvt. Ltd., (2012) 340 ITR 14 (Del) and also the decision of the Hon'ble Bombay High Court in CIT v/s Universal Medicare Pvt. Ltd. (2010) 324 ITR 263 (Bom) and concluded that deemed dividend can be assessed only in case of a person who is a shareholder of lender company and not in the hands of a person other than shareholder. Respectfully following the above precedence, we hereby confirm the findings of the learned Commissioner (Appeals) and dismiss the grounds of appeal raised by the Revenue." 10. A perusal of ITAT's order in the above mentioned case clearly shows that the Hon'ble ITAT has confirmed the finding of CIT(A). Accordingly, I find no infirmity in the order passed by the AO in the case of the appellant. The addition made by the AO amounting to Rs. 13,65,999/- u/s 2(22)(e) in case of the appellant is susta....
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....med dividend. In the present case Shree Gajanand Plastics has paid 12% interest to M/s Gaurav Multilayers Pvt. Ltd.. So learned counsel submitted that there is no case that Shree Gajanand Plastics has received any undue benefit from M/s Gaurav Multilayers Pvt. Ltd. Further learned counsel has emphasized that the assessee individually has not taken any loan from both the companies rather he has advanced money to both the companies. 8. Per contra learned D.R. relied upon the orders of the authorities below. She further submitted as under : "Interest is an inherent part of Loan and just because interest has been received or paid the loan will not go out of the purview of 2(22)(e) if all the other limbs of the section are satisfied unless specifically excluded by proviso (ii) of 2(22)(e). (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 assessee In the case relied on by the assessee in Smt Sangeeta Jain v Is ITO (paper book pgs 4-7), it has been established that the assessee that lending of money is a substantial p....
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....granted relief not on the basis that lending was substantial part of assessee's business. The ITAT had considered that the assessee's transaction was a business transaction and the lender was suitably compensated by way of interest. Hence there was no question of any undue benefit or deemed dividend. In this regard learned counsel of the assessee has further referred to the decision of Hon'ble Delhi High Court in the case of CIT vs. Creative Dyeing & Printing (P) Ltd. 229 CTR 250 for the following proposition : (Head notes only) "The finding of facts, arrived at by the Tribunal is that the transaction in question was a business transaction and which transaction would have benefited both the assessee company and PE Ltd. In fact, the counsel for the appellant has conceded that the amount is in fact not a loan but only an advance because the amount paid to the assessee company would be adjusted against the entitlement of moneys of the assessee company payable by PE Ltd. in the subsequent years. The contention that since PE Ltd. is not into the business of lending of money, the payments made by it to the assessee company would be covered by s. 2(22)(e) (ii) and consequently pa....
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....aurav Multilayers Pvt. Ltd. Hence it is a business transaction. 12. In this regard Hon'ble Calcutta High Court decision in the case of Pradip Kumar Malhota (supra) has expounded as under : "9. In order to appreciate the said question, it will be profitable to refer to the provisions contained in s. 2(22)( of the Act, which is quoted below : (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company; (b) any distribution to its shareholders by a company of debentures, debenture-stock or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not; (c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not; (d) any distribution to its ....
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....o a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company). Explanation 1 : The expression 'accumulated profits', wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st March, 1948, and before the 1st day of April, 1956. Explanation 2 : The expression 'accumulated profits' in sub-cls. (a), (b), (d) and (e) shall include all profits of the company upto the date of distribution or payment referred to in those sub-clauses, and in sub-cl. (c) shall include all profits of the company upto the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place. Explanation 3 : For the purposes of this clause,- (a) 'concern' means an HUF or a firm ....
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....ing of s. 2(22)(e) of the Act. 14. We, consequently, set aside the order of the Tribunal below by directing the AO not to treat the advance of Rs. 20,75,000 as a deemed dividend. 15. The appeal ~ thus, allowed by answering the point No. (ii) in the affirmative and against the Revenue. / 16. In the facts and circumstances, there will be, however, no order as to costs." 13. Following the above decision, the ITAT, Kolkata Bench in the case of Smt. Sangita Jain (supra) has held as under : "5. We have heard the arguments of both the sides and also perused the relevant material available on record. One of the main contentions raised by the ld. Counsel for the assessee at the time of hearing before us is that the loan in question treated as deemed 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 Id. D.R. has vehemently opposed this....
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....on in the form of interest was paid by the assessee to the benefit of the Company is not sustainable. We, therefore, delete the same and allow Grounds No. 1 & 2 of the assessee's appeal." 14. Again the ITAT, Chennai Bench in the case of ACIT vs. Smt. C. Rajini (supra) expounded as under : (Head note only). " Dividend-Deemed dividend under s. 2(22)(e)-Transactions in the normal course of business-Assessee is a director in CPDPL and also in CHPL having 80 per cent and 41.67 per cent shareholding, respectively-CPDPL made a payment of Rs. 20,00,000 to CHPL which was held to be deemed dividend and added under s. 2 (22)(e) in the hands of the assessee-Not justified-This section can be invoked to curtail the misuse of the funds belonging to a private limited company by its shareholder but not when there is a business transaction between the two entities-Assessee is holding substantial amount with company without interest and to brush aside this fact is against the spirit of the section+Advance of Rs. 20,00,000 was made by CPDPL to CHPL on 26th Dec., 2000 and balance of the assessee with company was Rs. 4,35,67,200-Contract referred to by the AD was completed after two year....