Neha Home Builders (P.) Ltd. Vs DCIT (ITAT Mumbai)
Conclusion: Since the transaction between assessee-company and other group concern were in the nature of current account and inter banking account containing both types of entries i.e., receipts and payments and assessee was neither the beneficial nor the registered shareholder of the company, therefore, the amount received from other group concern could not be brought in the purview of loans and advances so as to attract Section 2(22)(e).
Held: Assessee was a company engaged in the business of real estate construction – Builder & Developer. During the year, assessee (NHBPL) received a loan from EIPL which was repaid during the year. AO made addition u/s.2(22)(e) on the ground that EIPL was not lending concern and that voting Power of share holders in both the companies were more than 10% in both company (NHBPL & EIPL). Held: Since assessee was neither the beneficial nor the registered shareholder of the company, the amount so received was not liable to be taxed as deemed. Moreover, the transaction between two group concerns were in the nature of current account and inter banking account containing both types of entries i.e., receipts and payments, the same could not be brought in the purview of loans and advances so as to attract Section 2(22)(e).
FULL TEXT OF THE ITAT JUDGMENT
This is an appeal filed by assessee against the order of CIT(A)-21, Mumbai dated 06/03/2018 for A.Y.2013-14 in the matter of order passed u/s. 143(3) of the IT Act.
2. The following grounds have been taken by the assessee:-
1. The Ld CIT(A) erred in confirming and treating Rs. 10,82,10,904/- on account of Deemed Dividend under section 2(22)(e) of the Income Tax Act, 1961 and thereby erred in adding the same to the total income of the assessee.
2. The LD. CIT(A) failed to consider that:
a) Assessee received the amount from M/s Equator Investments Ltd. (EIPL) which is an investment, and advancing the amount is ordinary business of the EIPL, therefore, as per the clause (ii) of section 2(22)(e) amount received from EIPL do not fall under the definition of Dividend.
b) For applying the provision of section 2(22) (e) it is basic condition that assessee must be shareholder of the company from which amount is received. But, assessee is not a shareholder of EIPL. Therefore section 2(22) (e) cannot be applicable in the case of the assessee.
3. The Ld. CIT(A) erred in confirming the charging of interest under section 234B and 234C of the Income Tax Act 1961.
4. The Ld. CIT(A) erred in confirming the initiation of the penalty proceeding under section 27 l(l)(c) of the Income Tax Act 1961.
5. The Assessee craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.
3. Rival contentions have been heard and record perused.
4. Facts in brief are that assessee is a company engaged in the business of real estate construction – Builder & Developer. During the year assessee (NHBPL) received a Loan of RS.56.32 Crore from Equator Investment Pvt. Ltd. (EIPL) which was repaid during the year. Reserve and surplus of EIPL was Rs.10,82,10,904/-, therefore upto that amount AO made addition u/s.2(22)e. Plea of Department was that EIPL is not lending concern and that voting Power of Paras Gundecha and Poonam Gundecha (share holders in both the companies) are more than 10% in both company (NHBPL & EIPL). Therefore, section 2(22)(e) applies in hand of AOfurther observed that identical issue pending before Supreme Court in case of Impact Containers P Ltd.
5. By the impugned order, CIT(A) had confirmed the order of AO against which assessee is in further appeal before us. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us. For clearly understanding as to whether provisions of Section 2(22)(e) is applicable, we hereunder reproduce relevant provisions:-
Section 2(22) (e) in the Income- Tax Act, 1961
“(e) 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 holder of the share is not entitled in the event of liquidation to participate in the surplus assets;”
But “dividend” does not include__
(i) A distribution made in accordance with sub-clause © 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:
(ii) 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 of 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;
(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956);
(v) any distribution of shares pursuant to 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).
In simple words Provision of sec 2(22)(e) are as under, 2(22)(e) – Any Loan, Advances given by a closely held company.
(a) To a beneficial owner of equity share holding atleast 10% of Voting power. OR
(b) To any concern in which such share holder has a substantial interest any time during the previous year. OR
(c) Any payment made by a closely held company to a person on behalf of or for the individual benefit of such share holder
Meaning of Substantial Interest:-
Ownership interest of a business/concern that is greater than twenty percent (20%).
6. It was contention of learned AR that giving loans and advances was substantial business of EIPL, therefore, provisions of Section 2(22)(e) was not applicable. He contended that Equator Investment Pvt. Ltd. is an investment company and providing financial assistant is the business of the company. Therefore, the loan and advances received from the Equator Investment did not fall into the definition of dividend. Hence, provision of section 2(22)(e) could not be apply. For this purpose, reliance was placed on M/s. Shell Business (P) Ltd. Vs. ITO, ITA No,1737/K/07, Tanuj Holdings (P) Ltd., V/s. DCIT (2017) 88 Taxmann.com 385 (Kol-Trib) & Shri Jhamu U. Sughand v/s. CIT 2006 284 ITR 83 Mum.
7 .It was also contention of learned AR that 2(22)(e) is not applicable as assessee is not even a share holder of EIPL.
8. From the record, we observe that pattern of Share Holding of NHBPL and EIPL is as under:
