Pallava Resorts Private Limited Vs ITO (ITAT Chennai)
Held that provision of deemed dividend u/s 2(22)(e) cannot be invoked unless the recipient of loan is a shareholder of the company. If recipient of loan is not shareholder in a company from which loan is received, such loan cannot be assessed as deemed divided.
Facts-
During the course of reassessment, AO treated the loan received by the assessee from QNEI as ‘deemed dividend’ and assessed to tax u/s.2(22)(e) of the Act. Being aggrieved, the appellant preferred an appeal before CIT(A). CIT(A) confirmed the addition. Accordingly, being aggrieved, the appellant preferred the present appeal.
Conclusion-
It is clear that the transactions between the assessee along with its holding company were in the nature of current account and not in the nature of loans and hence does not fall under the scope of the deemed dividend u/s.2(22)(e) of the Act.
Held that even if common shareholders are there in both the companies, the deemed dividend can be taxed only in the hands of the registered shareholder of the company and not in the hands of the company which has received the loan.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the Assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-3, Chennai in ITA No.103/CIT(A)-3/2018-19, order dated 27.02.2020. The reassessment was framed by the Income Tax Officer, Corporate Ward – 5(1), Chennai for the Assessment Year 2011 – 2012 u/s.143(3) r.w.s.147 of the Income Tax Act, 1961 (hereinafter “the Act”) dated 30.12.2018.
2. At the outset, it is noted that this appeal of the Assessee is barred by limitation by 96 days and the learned Counsel for the Assessee drew our attention to Form No.36 and stated that the order of the Commissioner of Income Tax (Appeals) was received on 04.03.2020 and during the outbreak of ‘Covid-19’ pandemic. The Hon’ble Bench took into cognizance the Order of the Hon’ble Supreme Court the “Suo Moto WP 03/2020 dated 20.03.2020 while considering the condonation of delay. It is a fact that ‘Covid-19’ pandemic was prevalent during the period and in term of the directions issued by the Hon’ble Supreme Court in Miscellaneous Application No.21/2022 in Suo Motu Writ Petition No.3 of 2020, we condone the delay of 96 days and admit the appeal for adjudication on merits.
3. The Assessee has raised two issues, i.e. (i) challenging the reopening of the assessment u/s.147 r.w.s.148 of the Act vide Ground Nos.2 to 6, as under:
“2) He erred in re-opening the assessment of the Appellant u/s.147 of the Act, beyond a period of four years as the Appellant had truly and fully disclosed all material facts necessary for completion of the original assessment (completed u/s.143(3) of the Act) and, hence the first proviso to Sub-Section (1) to Section 147 of the Act would apply.
3) The CIT(A) erred in law in re-opening the assessment as the reasons recorded for re-assessment does not state that there is a failure on the part of the Appellant to disclose fully and truly all primary material or relevant facts which were necessary for completion of the original assessment.
4) The CIT(A) failed to appreciate that the details of loans obtained by the Appellant from QNEI were available in the financial statements which was on records, while completing the assessment of the Appellant under the Act.
5) The CIT(A) failed to appreciate that between the date of the order of assessment sought to be re-opened and the date of forming of present opinion by the Assessing Officer, while re-opening the assessment, nothing new has happened, there is no change of law, no new material has come on record, no information has been received.
6) The CIT(A) erred not to note that an assessment completed u/s.143(3) of the Act cannot be re-opened on account of change of opinion on the same set of facts available with him during the original assessment.”
4. The Assessee has raised Ground Nos.1 and 7 to 10 as regards to the addition made by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals) on ‘deemed dividend’. Firstly, we will decide the issue on merits, i.e., the deemed dividend u/s.2(22)(e) of the Act assessed by the Assessing Officer and confirmed by the CIT(A). The Ground Nos.1 and 7 to 10 raised by the Assessee are as under:
“1) The CIT(A) erred both in law and on the facts of the case in treating an inter-Corporate Deposit received by the Appellant amounting to Rs.1,40,67,365/- from its Holding Company, viz. M/s. Questnet Enterprises Private Limited (QNEI] as deemed dividend u/s.2(22)(e) of the Act.
7) The CIT(A) erred in not appreciating that from a factual perspective, the Appellant was never a shareholder of QNEI and hence the provisions of Section 2(22)(e) of the Act would not apply to loans obtained by it from QNEI.
8) The CIT(A) erred in not appreciating the legal position that the provision of Section 2(22)(e) of the Act can be applied only in the hands of a person who is a recipient of a loan and the shareholder of the Payer Company. Since, the Appellant was never a shareholder of QNEI, the provisions of Section 2(22)(e) of the Act would not apply to the Appellant.
9) The CIT(A) erred in not following the jurisdictional High Court decision in the case of PCIT Vs. Ennore Cargo Terminal Private Limited (406 ITR 477] (Madras High Court).
10) The Appellant, therefore prays that the reassessment be annulled and the addition made u/s.2(22)(e) of the Act amounting to Rs.1,40,67,365/- be deleted.”
5. The brief facts of the case are that the Assessee is a Private Limited company namely, Pallava Resorts Private Limited and it has filed its return of income on 01.10.2012. The original assessment was completed u/s.143(3) of the Act and subsequently the assessment was reopened u/s.147 of the Act dated 30.12.2018. The Assessing Officer during the course of reassessment proceedings noted on perusal of the financials that the Assessee company has received a loan to the tune of Rs.1,40,67,365/- from Questnet Enterprises Private Limited [QNEI] during the Financial Year 2010 – 2011 relevant to the Assessment Year 2011 – 2012. It was observed from the financials of QNEI that it has accumulated profit as on 31.03.2011 at Rs. 12,21,49,133/-. The Assessing Officer has brought out the shareholder pattern of both the companies, as under:
