Case Law Details
DCIT Vs Anil Kumar Sharma; (ITAT Delhi)
The brief facts of the case shows that the assessee is an individual who is chief managing director of M/s. Ultra Home Construction Pvt. Ltd. Search u/s 132 of the Act was carried out in Amrapali Group of Cases on 09.09.2010 wherein, assessee was also covered.
During the assessment proceedings it was found that assessee has taken advance from Ultra Home Construction Pvt Ltd of Rs. 6307160/- where assessee is holding 39.6% shares as on 31.03.2006 and 36.66% as on 31.03.2007. The ld AO noted that lender company is not in the business of giving finance and therefore, according to him the provisions of section 2(22) (e) were hit. The ld Assessing Officer issued notice which remained unreplied and therefore, the addition of Rs. 6307160/- was made vide order dated 26.03.2013 passed u/s 143(3) read with Section 153A of the Income Tax Act.
Held by ITAT
The impugned Assessment Year before us is Assessment Year 2007-08. The assessee filed return of income on 22.10.2007. The notice u/s 143(2) of the Act could have been issued to the assessee up to 30.09.2008. No such notice was issued. Therefore, as on the date of search the assessment was completed assessment. Therefore, if any addition is made in the concluded assessment it has to be made only on the basis of incriminating material found during the course of search. If there is no incriminating material found then assessment u/s 153A of the Act was to be passed only on the returned income or earlier assessed income. In the present case, it is apparent that addition has been made on the basis of the same material, which was there prior to the date of search, and no incriminating material was mentioned in the assessment order or produce before us. Therefore, the issue is squarely covered by the decision of the Hon’ble Delhi High Court in case of CIT Vs. Kabul Chawla 380 ITR 573. In view of this we are of the opinion that addition of deemed dividend could not have been made in the hands of the assessee in absence of any incriminating material. In view of this ground No. 3 of the cross objection of the assessee the whole addition of Rs. 6307160/- made by the ld Assessing Officer is unsustainable in law.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
1. These are the three appeals filed by the revenue for Assessment Year 2007-08 to 2009-10. The assessee has filed cross objections in all these appeals making it a bunch of six appeals. All these six appeals involved common grounds pertaining to the respondent and therefore, they are disposed of by this common order.
2. The revenue has filed ITA NO. 4834/Del/2014 for Assessment Year 2007-08 raising the following grounds of appeal:-
“1. The order of the ld CIT (A) is not correct in law and facts.
2. On the facts and circumstances of the case the ld CIT(A) has erred in deleting the addition of Rs. 63,07,160/- made by AO on account of deemed dividend u/s 2(22)(e) of the IT Act.”
3. The assessee has filed a cross objection in this appeal in CO No. 148/Del/2015 for the Assessment Year 2007-08 raising following grounds of appeal:-
“1. On the facts and circumstances of the case and in law, the notice u/s 153A issued in this case is illegal & without jurisdiction and accordingly, the assessment order passed on the foundation of such notice is not sustainable and is liable to be quashed. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) should have held that the assessment order passed by the Assessing Officer is bad-in-law and void.
2. On the facts and circumstances of the case and in law, the initiation of assessment proceedings and issue / service of notices by the assessing officer is not in accordance with the provisions of law and accordingly the assessment order passed is liable to be quashed.
3. On the facts and circumstances of the case and in law, the addition of Rs.6307160/- made by A.O. by the assessing officer is beyond the scope of provision of section 153A of Income Tax Act, 1961.
4. On the facts and circumstances of the case and in law, the addition of Rs.6307160/- made by A.O. by applying provisions of section 2(22)(e) of Income Tax Act, 1961 is totally erroneous. On the facts and circumstances of the case and in law, the assessing officer has misapplied the provisions of section 2(22)(e) of Income Tax Act, 1961.”
4. The brief facts of the case shows that the assessee is an individual who is chief managing director of M/s. Ultra Home Construction Pvt. Ltd. Search u/s 132 of the Act was carried out in Amrapali Group of Cases on 09.09.2010 wherein, assessee was also covered. The return of income u/s 139 was filed on 22.10.2007 at Rs. 5255320/-. Subsequently, notice u/s 153A was issued on 13.04.2011 wherein by letter dated 18.07.2011 assessee requested the ld Assessing Officer to treat the original return filed as in response to the notice.
5. During the assessment proceedings it was found that assessee has taken advance from Ultra Home Construction Pvt Ltd of Rs. 6307160/- where assessee is holding 39.6% shares as on 31.03.2006 and 36.66% as on 31.03.2007. The ld AO noted that lender company is not in the business of giving finance and therefore, according to him the provisions of section 2(22) (e) were hit. The ld Assessing Officer issued notice which remained unreplied and therefore, the addition of Rs. 6307160/- was made vide order dated 26.03.2013 passed u/s 143(3) read with Section 153A of the Income Tax Act.
6. The assessee preferred appeal before the ld CIT (A). The ld CIT (A) held that appellant has provided personal guarantee of more than Rs. 20 crores for bank loans by the company and pledged the shares. Thus, there was commercial and business expediency in the amount received. He deleted the addition u/s 2(22) (e) of the Act. The assessee also challenged the action u/s 153A of the Act and the addition submitting that the addition is beyond the scope and jurisdiction of provision of section 153A of the Act. This ground was not decided by the ld CIT (A) as he allowed relief to the assessee on merits. Therefore, now the revenue is in appeal before us on the merits of the addition whereas the assessee has filed cross objection challenge on the legality of the addition u/s 153A of the Act.
7. The ld CIT Departmental Representative vehemently submitted that the ld CIT (A) has deleted the whole addition merely on the basis of submission made by the assessee. She submitted that before the ld Assessing Officer no explanation was given by the assessee. She submitted that the person guarantee provided by the assessee of more than Rs. 20 crores for bank loan is totally unsubstantiated. She further stated that as a Director one has to provide guarantee to the banker when the assessee is Chief Executive Officer of that company. She submitted that it is not the case of providing guarantee commission to the assessee but providing loan to the assessee. Therefore, she submitted that the assessee has given merely a façade to get out of the taxability of the deemed dividend that advances were given because of commercial expediency. On the cross objection of the assessee she submitted that addition has been correctly made u/s 153A of the Act by the ld Assessing Officer. The ld CIT (A) has also upheld the same indirectly as per para No. 4.1 of the order.
8. Despite notice by speed post at the address mentioned in the cross objection filed by the assessee it has been returned back as unserved with a remark “left”. No new address has been provided by the assessee. Therefore, the issue is decided on the basis of information available on record on merit.
9. We have carefully considered the contentions of the ld CIT DR and perused the orders of the lower authorities. In the present case, the search took place on 09.09.2010 in Amrapali Group of Cases. The impugned Assessment Year before us is Assessment Year 2007-08. The assessee filed return of income on 22.10.2007. The notice u/s 143(2) of the Act could have been issued to the assessee up to 30.09.2008. No such notice was issued. Therefore, as on the date of search the assessment was completed assessment. Therefore, if any addition is made in the concluded assessment it has to be made only on the basis of incriminating material found during the course of search. If there is no incriminating material found then assessment u/s 153A of the Act was to be passed only on the returned income or earlier assessed income. In the present case, it is apparent that addition has been made on the basis of the same material, which was there prior to the date of search, and no incriminating material was mentioned in the assessment order or produce before us. Therefore, the issue is squarely covered by the decision of the Hon’ble Delhi High Court in case of CIT Vs. Kabul Chawla 380 ITR 573. In view of this we are of the opinion that addition of deemed dividend could not have been made in the hands of the assessee in absence of any incriminating material. In view of this ground No. 3 of the cross objection of the assessee the whole addition of Rs. 6307160/- made by the ld Assessing Officer is unsustainable in law. In view of this we allow the cross objection of the assessee and consequently the appeal of the revenue for AY 2007-08 is dismissed.
10. It is made clear that we do make any comment on the merits of the addition.
11. In the result, appeal of the revenue is dismissed and Cross objection of the assessee is partly allowed.
12. Now we come to the appeal of the revenue in ITA No. 4835/Del/20104 for Assessment Year 2008-09 and cross objection of the assessee 149/Del/2015 filed against the order of the ld CIT (A)-1, New Delhi dated 18.06.2014.
13. The revenue has raised following grounds of appeal:-
14. The revenue has raised the following grounds of appeal in ITA NO. 4835/Del/2014 for the Assessment Year 2008-09:-
“1. The order of the ld CIT(A) is not correct in law and facts.
2. On the facts and circumstances of the case the ld CIT(A) has erred in deleting the addition of Rs. 9661785/- made by AO on account of deemed dividend u/s 2(22)€ of the IT Act.
3. On the facts and circumstances of the case the ld CIT(A) has erred in deleting the addition of Rs. 3420000/- made by the AO on account of Benefit perquisite u./s 2(24)(iv) of the IT Act. “
15. The assessee has raised the following grounds of appeal in CO No. 149/Del/2015 for the Assessment Year 2008-09:-
“1. On the facts and circumstances of the case and in law, the notice u/s 153A issued in this case is illegal & without jurisdiction and accordingly, the assessment order passed on the foundation of such notice is not sustainable and is liable to be quashed. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) should have held that the assessment order passed by the Assessing Officer is bad-in-law and void.
2. On the facts and circumstances of the case and in law, the initiation of assessment proceedings and issue / service of notices by the assessing officer is not in accordance with the provisions of law and accordingly the assessment order passed is liable to be quashed.
3. On the facts and circumstances of the case and in law, the addition of Rs.96,61,785/- made by A.O. by the assessing officer is beyond the scope of provision of section 153A of Income Tax Act, 1961.
4. On the facts and circumstances of the case and in law, the addition of Rs.34,20,000/- made by A.O. by the assessing officer is beyond the scope of provision of section 153A of Income Tax Act, 1961.
5. On the facts and circumstances of the case and in law, the addition of Rs.96,61,785/- made by A.O. by applying provisions of section 2(22)(e) of Income Tax Act, 1961 is totally erroneous. On the facts and circumstances of the case and in law, the assessing officer has misapplied the provisions of section 2(22) (e) of Income Tax Act, 1961.
6. On the facts and circumstances of the case and in law, the addition of Rs.34,20,000/- made by A.O. by applying provisions of section 2(24)(iv) of Income Tax Act, 1961 is totally erroneous. On the facts and circumstances of the case and in law, the assessing officer has misapplied the provisions of section 2(24) (iv) of Income Tax Act, 1961.”
16. The brief facts of the case show that search took place on 09.09.2010. for the impugned assessment year return u/s 139 was filed by the assessee on 20.08.2008 declaring income of Rs. 11938800/-. Subsequently notice u/s 153A of the Act was issued on 13.04.2011 and assessee requested vide letter dated 18.07.2011 to treat the original return filed as return in response to the notice.
17. During the assessment proceedings the ld AO found that a loan of Rs. 9661785/- was advanced by Ultra Home Constructions Pvt. Ltd to the assessee during the year and assessee holds 37.65% shares in the company. According to the ld AO this income is chargeable to tax as deemed dividend but no reply was filed by the assessee. Therefore, addition of Rs. 9661785/- was made because of deemed dividend.
18. Further, it was noted by the ld Assessing Officer that assessee has received advance of Rs. 5.70 crores from M/s. AHS Joint Venture for which no interest has been paid and the joint venture was paid loan of Rs. 127712707/- from M/s. Ultra Home Construction Pvt. Ltd. Therefore, the benefit was given to the assessee by providing interest free loan by the joint venture. Therefore, the ld Assessing Officer made an addition u/s 2(24)(iv) of the Act considering interest @6% of amounting to Rs. 34.20 lacs as benefit received by UHCPL as income. Consequently, assessment u/s 143(3) read with section 153A of the Act was passed on 26.03.2013.
19. On appeal before the ld CIT (A) the addition of deemed dividend was deleted for the similar reasons as given by him in AY 2007-08. Further, the addition u/s 2(24(iv) was also deleted holding that section 2(24) (iv) is applicable in respect of benefits received by the Director and relatives of Director of a company and not from partnership firm. He further stated that it is also given for commercial expediency.
20. The ld CIT(A) did not adjudicate the issue of addition u/s 153A of the Act without any incriminating material as he has deleted the addition on its merit. Therefore, the revenue is in appeal against the deletion of the addition whereas the assessee has filed cross objection contesting that no addition can be made in such assessment without incriminating material.
21. The ld CIT Departmental Representative vehemently submitted that the ld CIT (A) has deleted the whole addition merely on the basis of submission made by the assessee. She submitted that before the ld Assessing Officer no explanation was given by the assessee. She submitted that the person guarantee provided by the assessee of more than Rs. 20 crores for bank loan is totally unsubstantiated. She further stated that as a Director one has to provide guarantee to the banker when the assessee is Chief Executive Officer of that company. She submitted that it is not the case of providing guarantee commission to the assessee but providing loan to the assessee. Therefore, she submitted that the assessee has given merely a façade to get out of the taxability of the deemed dividend that advances were given because of commercial expediency. She further stated that addition u/s 2(24) (iv) was the direct benefit given by the partnership firm which is deleted by the ld CIT (A) on superfluous explanation. On the cross objection of the assessee she submitted that addition has been correctly made u/s 153A of the Act by the ld Assessing Officer. The ld CIT (A) has also upheld the same indirectly as per para No. 5.1 of the order.
22. Despite notice by speed post at the address mentioned in the cross objection filed by the assessee it has been returned back as unserved with a remark “left.” No new address has been provided by the assessee. Therefore, the issue is decided on the basis of information available on record on merit.
23. We have carefully considered the contentions of the ld CIT DR and perused the orders of the lower authorities. In the present case, the search took place on 09.09.2010 in Amrapali Group of Cases. The impugned Assessment Year before us is Assessment Year 2008-09. The assessee filed return of income on 20.08.2008. The notice u/s 143(2) of the Act could have been issued to the assessee up to 30.09.2009. No such notice was issued. Therefore, as on the date of search the assessment was completed assessment. Therefore, if any addition is made in the concluded assessment it has to be made only on the basis of incriminating material found during the course of search. If there is no incriminating material found then assessment u/s 153A of the Act was to be passed only on the returned income or earlier assessed income. In the present case, it is apparent that addition has been made on the basis of the same material, which was there prior to the date of search, and no incriminating material was mentioned in the assessment order or produce before us. Therefore, the issue is squarely covered by the decision of the Hon’ble Delhi High Court in case of CIT Vs. Kabul Chawla 380 ITR 573. In view of this we are of the opinion that addition of deemed dividend could not have been made in the hands of the assessee in absence of any incriminating material. In view of this ground No. 3 of the cross objection of the assessee the whole addition of Rs. 9661785/- because of deemed dividend and of Rs. 3420000/- because of benefit u/s 2(24) (iv) made by the ld Assessing Officer is unsustainable in law. In view of this we allow the cross objection of the assessee and consequently the appeal of the revenue for AY 2008-09 is dismissed.
24. It is made clear that we do make any comment on the merits of the addition.
25. In the result, appeal of the revenue is dismissed and Cross objection of the assessee is partly allowed.
26. Now we come to the Assessment Year 2009-10.
27. The revenue has filed the appeal against the order of the ld CIT(A) passed on 18.06.2014 wherein, following grounds of appeal has been raised:-
“1. The order of the ld CIT(A) is not correct in law and facts
2. On the facts and circumstances of the case the ld CIT(A) has erred in deleting the addition of Rs. 3692002/- made by AO on account of deemed dividend u/s 2(22)€ of the IT Act.
3. On the facts and circumstances of the case the ld CIT(A) has erred in deleting the addition of Rs. 3406230/- made by the AO on account of Benefit perquisite u./s 2(24)(iv) of the IT Act.”
28. The assessee has filed cross objection and raised the following grounds of appeal in CO No. 150/Del/2015 for the Assessment Year 2009-10:-
“1. On the facts and circumstances of the case and in law, the notice u/s 153A issued in this case is illegal & without jurisdiction and accordingly, the assessment order passed on the foundation of such notice is not sustainable and is liable to be quashed. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) should have held that the assessment order passed by the Assessing Officer is bad-in-law and void.
2. On the facts and circumstances of the case and in law, the initiation of assessment proceedings and issue / service of notices by the assessing officer is not in accordance with the provisions of law and accordingly the assessment order passed is liable to be quashed.
3. On the facts and circumstances of the case and in law, the addition of Rs.3692002/- made by A.O. by the assessing officer is beyond the scope of provision of section 153A of Income Tax Act, 1961.
4. On the facts and circumstances of the case and in law, the addition of Rs.3406230/- made by A.O. by the assessing officer is beyond the scope of provision of section 153A of Income Tax Act, 1961.
5. On the facts and circumstances of the case and in law, the addition of Rs.3692002/- made by A.O. by applying provisions of section 2(22)(e) of Income Tax Act, 1961 is totally erroneous. On the facts and circumstances of the case and in law, the assessing officer has misapplied the provisions of section 2(22) (e) of Income Tax Act, 1961.
6. On the facts and circumstances of the case and in law, the addition of Rs.3406230/- made by A.O. by applying provisions of section 2(24)(iv) of Income Tax Act, 1961 is totally erroneous. On the facts and circumstances of the case and in law, the assessing officer has misapplied the provisions of section 2(24) (iv) of Income Tax Act, 1961.”
29. The brief facts of the case show that search took place on 09.09.2010. for the impugned assessment year return u/s 139 was filed by the assessee on 01.10.2009 declaring income of Rs. 22510840/-. Subsequently notice u/s 153A of the Act was issued on 18.07.2011 and assessee requested vide letter dated 18.07.2011 to treat the original return filed as return in response to the notice.
30. During the assessment proceedings the ld AO found that a loan of Rs. 3692002/- was advanced by Ultra Home Constructions Pvt. Ltd to the assessee during the year and assessee holds 37.65% shares in the company. According to the ld AO this income is chargeable to tax as deemed dividend but no reply was filed by the assessee. Therefore, addition of Rs. 3692002/- was made because of deemed dividend.
31. Further, it was noted by the ld Assessing Officer that assessee has received advance of Rs. 5670500/- from M/s. AHS Joint Venture for which no interest has been paid and the joint venture was paid loan of Rs. 127712707/- from M/s. Ultra Home Construction Pvt. Ltd. Therefore, the benefit was given to the assessee by providing interest free loan by the joint venture. Therefore, the ld Assessing Officer made an addition u/s 2(24)(iv) of the Act considering interest @6% of amounting to Rs. 34.06 lacs as benefit received by UHCPL as income. Consequently, assessment u/s 143(3) read with section 153A of the Act was passed on 26.03.2013.
32. On appeal before the ld CIT(A) the addition of deemed dividend was deleted for the similar reasons as given by him in AY 2007-08 stating that assessee has given guarantee more than Rs. 251 crores for bank loans. Further, the addition u/s 2(24(iv) was also deleted holding that section 2(24) (iv) is applicable in respect of benefits received by the Director and relatives of Director of a company and not from partnership firm. He further stated that it is also given for commercial expediency.
33. The ld CIT (A) did not adjudicate the issue of addition u/s 153A of the Act without any incriminating material as he has deleted the addition on its merit. Therefore, the revenue is in appeal against the deletion of the addition whereas the assessee has filed cross objection contesting that no addition can be made in such assessment without incriminating material.
34. The ld CIT Departmental Representative vehemently submitted that the ld CIT (A) has deleted the whole addition merely on the basis of submission made by the assessee. She submitted that before the ld Assessing Officer no explanation was given by the assessee. She submitted that the person guarantee provided by the assessee of more than Rs. 251 crores for bank loan is totally unsubstantiated. She further stated that as a Director one has to provide guarantee to the banker when the assessee is Chief Executive Officer of that company. She submitted that it is not the case of providing guarantee commission to the assessee but providing loan to the assessee. She further submitted that there was no agreement between the assessee and the company for providing any personal guarantee. Therefore, for what reasons the assessee was providing personal guarantee to the above company. There was no agreement between the company and the assessee for charging any bank guarantee commission. She submitted that it is not the payment of bank guarantee commission by the company to the assessee but it is provision of loans. It was further stated by her that the decision of the Hon‟ble Calcutta High Court in case of Pradeep Kumar Malhotra versus CIT 338 ITR 538 relied upon by the assessee is not applicable to the facts before us because in that particular case the assessee permitted property to be more engaged to the bank for enabling the company to take the benefit of loan and in spite of the request of the assessee the assessee company was unable to release the property from the mortgage. In the present case the assessee has not mortgage his any of the properties is merely pledged the shares given a personal 20 without hypothecation of any immovable property. She further submitted that there is no agreement placed by the assessee before the Ld. CIT (A as well as before the Ld. assessing officer of the bank loan to show that on what conditions that company (the loan and for what reasons the assessee has given its personal guarantee. She further stated that it is not known what is the personal capacity of the assessee and how the assessee was to give personal guarantee of more than 251 crores to the bank and what is the net worth of the assessee. It was her strong contention that the whole story raised by the assessee before the Ld. CIT (A) was devoid of any merit and does not have any backing of the law. Therefore, she submitted that the assessee has given merely a façade to get out of the taxability of the deemed dividend that advances were given because of commercial expediency.
35. She further stated that addition u/s 2(24) (iv) was the direct benefit given by the partnership firm which is deleted by the ld CIT (A) on superfluous explanation. She submitted that in the present case the benefit is provide by the company to the assessee by in turn providing interest free or lower interest loan to the firm, which has in turn provided the loan to the assessee without charging interest. She submitted that in fact, the company has given a loan of Rs 12.77 crores to J V and further JV Has given a loan of Rs 5.67 crores to the asessee, it is an established fact that the company has paid huge interest as stated in the ground of dividend. Therefore, she submitted that company has diverted interest-bearing funds to the JV who in turn provided the non-interest bearing loans to the assessee. Therefore, there is direct benefit provided by the company. She submitted that view taken by CIT is in direct contravention of decision of Hon Madras High court in case of Ravi Prakash Khemka V CIT 295 ITR 33 which has upheld addition u/s 2(24) (iv) where a firm has paid sums and which were subsequently reimbursed by the company where assessee was a director. Therefore, it is not the direct benefit to be paid by the company as interpreted by the ld CIT (A). Hence, she submitted that finding of the CIT (A) is against the provisions of the act.
36. On the cross objection of the assessee she submitted that addition has been correctly made u/s 153A of the Act by the ld Assessing Officer. The ld CIT (A) has also upheld the same indirectly as per para No. 5.1 and 5.2 of the order.
37. Despite notice by speed post at the address mentioned in the cross objection filed by the assessee it has returned as unserved with a remark “left.” No new address has been provided by the assessee by filing revised CO also. Therefore, the issue is decided based on information available on record on merit.
38. We have carefully considered the contentions of the ld CIT DR and perused the orders of the lower authorities. In the present case, the search took place on 09.09.2010 in Amrapali Group of Cases. The impugned Assessment Year before us is Assessment Year 2009-10. The assessee filed return of income on 01.10.2009. The notice u/s 143(2) of the Act could have been issued to the assessee up to 30.09.2010. Therefore, upto 30.09.2010 if the search took place then this Assessment Year is not a completed Assessment Year. In fact, search took place on 09.09.2010, as on the date of search the assessment was pending assessment. Therefore, any addition can be made in the pending assessment without finding any incriminating material found during the course of search. In view of this we are of the opinion that addition of deemed dividend could have been made in the hands of the assessee even in absence of any incriminating material, if other conditions have been fulfilled. In view of this ground No. 3 of the cross objection of the assessee is rejected. Further similarly, the ground No. 4 with respect to addition of Rs. 3406230/- is also rejected. All other grounds of cross objection are supportive in nature and therefore they are dismissed.
39. In the result, cross objection filed by the assessee is dismissed.
40. Now we come to the appeal of the revenue where ground No. 2 related to the addition of deemed dividend of Rs. 3692002/- and ground No. 3 relates to addition of Rs. 3406230/- because of benefit of perquisite u/s 2(24(iv) of the Act.
41. Now we 1stcome to the issue of the deletion of the addition of Rs. 3 6, 92, 002/– made by the Ld. AO on account of deemed dividend under section 2 (22) (is) of the income tax act. The brief facts shows that during the year under consideration the assessee has taken advance against property from M/s ultra home constructions private limited at Rs. 36,92,002/– resulting into total advance taken at Rs. 1 9660, 947. This advance received from the above company is directly by the provisions of deemed dividend according to the Ld. AO as the assessee is the director holding substantive shareholding of the above company which is at 37 .65 percentage share as on 31/3/2008 and 39.59 percentage as on 31/3/2009 as per the chart submitted by the Ld. assessing officer in para No. 5 of his order. According to him the above company is having a reserve and surplus of Rs. 6 71, 39, 125/– as on 31/3/2009. He further noted that the above company is not engaged in the business of Finance against any property or otherwise therefore the transaction of advancement of loan is not the normal business of the above company has provided the advance is a benefit to its director. The assessee furnished no explanation before the assessing officer and therefore the addition of Rs. 3 6, 92, 002/– was made to the income of the assessee is deemed dividend.
42. The addition was contested before the Ld. CIT (A) where it has been stated that assessee has given a personal guarantee to the banks and other financial institutions in respect of the loans taken by the above company from various banks. It was further stated that entire net worth of the appellant has been given as a personal guarantee to the banks and financial institutions and even the shares held by the appellant in that company has been pledged in lieu of security of those loans. It was further stated that appellant has not charged any guarantee commissions from the above company and therefore the amount which is been paid by that company to the assessee is out of its business expediency and need because in the absence of guarantee being given by the appellant the company could not have obtained loans from banks and financial institutions and carry on the business. It was further stated that the amount received by the assessee or much less than the guarantee given by the assessee to the various bank for the loan obtained by the company. The assessee pressed reliance upon the decision of the Hon’ble Calcutta High Court in case of Pradeep Kumar Malhotra versus CIT 338 ITR 538. Further reliance was placed on the decision of ACIT versus Smt. G.sreevidya ITA No. 1270/A.D./2011. It was further stated that the appellant has invested substantial sum in the company of Rs. 9 1.60 Lacs in the share capital and further a sum of Rs. 1 9.26 Lacs have been paid on account of share application money and Rs. 3 7, 756/– on account of the receivables were outstanding recoverable by the appellant from the aforesaid company. The assessee further relied on the decision of the Hon’ble Delhi High Court in case of control and switchgear connectors Ltd versus DCIT. It was further submitted that the advances given by the company to the appellant were purely because of commercial expediency and there is no case for applying provisions of the deemed dividend in treating the advance is deemed dividend. For this assessee relied upon CIT versus creative dying and printing private limited 318 ITR 476, CIT versus Ambassador travels private limited 318 ITR 376, in CIT versus Rajkumar 318 ITR 462.
43. The Ld. CIT (A) deleted the addition holding that appellant has provided personal guarantee of more than Rs. 2 51 crore for bank loans raised by the company and shares of Rs. 12.22 crores held by the assessee have also been pledged to the bank and therefore the sum total of the above is much more than the amount received from that company. He therefore held that there is a commercial and business expediency in the amount received by the assessee, which is gone towards funding the personal guarantee for loan raised by the company. He therefore deleted the addition.
44. On careful examination of the facts it is apparent that assessee has been provided loan of Rs. 1 966 0947/– up to 31/3/2009 out of which a sum of Rs. 3 6, 92, 002/– was provided during the year. Admittedly by the Ld. CIT (A) assessee has provided the personal guarantee of Rs. 2 51 crores for bank loans raised by the lender company. Further the shares of Rs. 1 2, 22, 48, 900/– held by the appellant were also pledged to the bank. The claim of the assessee is that as assessee has provided the so much of security to the bankers the amount of loan that has been given by the lender company to the assessee is does not fall in the mischief of deemed dividend under section 2 (22) (is) of the act. The stronger alliances been placed on the decision of the Hon’ble Calcutta High Court in case of Pradeep Kumar Malhotra versus CIT (supra). Apparently, in that case the assessee has given his immovable property on rent to the company and further when the funds were required by the lender company the assessee provided more to gauge of the immovable property to the bank as collateral security against the loan taken by the company. The assessee needed funds and therefore he asked the lender company to allow him to sell the mortgage property or to release the above property. None of this could be done and therefore a resolution was passed by the company to give loans up to Rs. 50 Lacs to the assessee and out of which only Rs. 20.75 lakhs were paid. Therefore, Hon’ble Calcutta High Court held that shareholder with 10 per cent. interest in a company offered his property as collateral for a loan to be obtained by the company and in return was sanctioned, by a resolution of the company, a gratuitous loan up to Rs. 50 lakhs without interest with the actual amount drawn being limited to Rs. 20.75 lakhs as loan and taxed as deemed dividend under section 2(22) (e) of the Act. Since such treatment was upheld by the Tribunal, the matter came up before the High Court in Pradip Kumar Malhotra v. CIT [2011] 338 ITR 538 (Cal). The High Court found that the loan was given not solely for the benefit of the shareholder, but to protect the business interest of the company and that it could not be treated as a loan simpliciter, so as to attract section 2(22)(e) of the Act ; it has to be treated as one in the course of business. In coming to the conclusion, the High Court followed the rationale of the decisions in CIT v. Creative Dyeing and Printing P. Ltd. [2009] 318 ITR 476 (Delhi) and CIT v. Nagindas M. Kapadia [1989] 177 ITR 393 (Bom). No such facts are available in the present case. It is not the case of the assessee that assessee-wanted funds and therefore has requested the lender company either to buy back its shares or to get them released. Such facts are also not available on record that whether all the key management personnel have provided for pledging of their shares in terms of loan (by the lender company, which is generally the case. Therefore merely because the assessee has provided the pledge of the shares held by him in the assessee company to the bank as a condition of loan granted by banks to the lender company and therefore loan given by the lender company to the assessee becomes a case of business expediency. Such story cannot be believed on face value unless they are shown to have existed at the time of pledging of the shares. In addition, even otherwise they cannot fall into the clause of business expediency in the hands of the lender company. Pledge of the shares of the promoter in the borrowing company is part of the borrowing agreement of the banks and cannot be said that it entitles the lender company to pay sums out of the funds so borrowed by the company from the banks being advanced to the promoters. Further, no agreement exists between the assessee and the company for payment of any guarantee commission, which has been waived by the assessee. Generally banks in their lending agreement provides that no commission shall be paid by the borrowing company to the guarantors in lieu of their personal guarantee provided for borrowing of the funds. Therefore according to us, the assessee has not shown the facts relating to business expediency and advances for the purpose of business falling outside the definition of deemed dividend. All the decisions relied upon by the assessee also shows that advances were in the nature of trade advances, which is not the case before us. Furthermore, the Ld. CIT (A) has allowed claim of the assessee without mentioning any of such documents. Further more recently the Central board of direct taxes have issued a circular No. 19/2007 which provides as under :-
CIRCULAR NO.19/2017 [F.NO.279/MISC./140/2015/ITJ], DATED 12-6-2017
Section 2(22) clause (e) of the Income-tax Act, 196) (the Act) provides that “dividend” includes any payment by a company, not being a company in which the public are substantially interested, of any sum 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.
2. The Board has observed that some Courts in the recent past have held that trade advances in the nature of commercial transactions would not fall within the ambit of the provisions of section 2(22) (e) of the Act. Such views have attained finality.
2.1 Some illustrations/examples of trade advances/commercial transactions held to be not covered under section 2(22) (e) of the Act are as follows:
i. Advances were made by a company to a sister concern and adjusted against the dues for job work done by the sister concern. It was held that amounts advanced for business transactions do not to fall within the definition of deemed dividend under section 2(22) (e) of the Act. (CIT v. Creative Dyeing & Printing Pvt. Ltd.1Delhi High Court).
ii. Advance was made by a company to its shareholder to install plant and machinery at the shareholder’s premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. (CIT Amrik Singh, P&H High Court)2.
iii. A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilised gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister concern was a business transaction arising in the normal course of business between two concerns and the transaction did not attract section 2(22) (e) of the Act. (CIT, Agra Atul Engineering Udyog, Allahabad High Court)
3. In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word ‘advance’ in section 2(22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon.”
45. Therefore transactions of the loan received by the assessee is also required to be examined from the aspect of the circular where it has been stated that the nature of advances given will determine whether it would be considered as deemed dividend or not. Some of the decisions relied upon by the assessee before the Ld. CIT (A) are also mentioned in the above circular however, the Ld. CIT appeal has not verified whether the facts of the present case are covered by those decisions. In view of above facts, in the interest of Justice, we set aside ground No. 2 of the appeal back to the file of the Ld. AO. for examination of the full facts of the loans given by the lender company to the assessee and its taxability as deemed dividend. The assessee is first directed to produce all the necessary details to show that how the advances received by the assessee does not fall into the definition of deemed dividend. Then The LD AO will examine the full facts of the loans given by the lender company to the assessee and its taxability as deemed dividend. Needless to say, that Ld. AO will give adequate opportunity to the assessee to represent its case and to put forth relevant facts. The Ld. AO may also examine the relevant statutory records of the lender company as well as the assessee for examining the veracity of the statement of the parties. In the result ground No. 2 of the appeal of the revenue is allowed with above directions.
46. Coming to ground No. 3 where the addition of Rs. 3 4, 06, 230 made by the Ld. assessing officer because of benefit or perquisite under section 2 (24) (iv) of the income tax act is deleted by the Ld. CIT appeal. The brief facts shows that during the year the assessee has received advance of Rs. 5.67 crores from one joint-venture for which no interest has been paid. M/s a capital H capital as capital joint-venture firm has received an amount of Rs. 12.77 crores from M/s Ultra home constructions private limited wherein the assessee is holding the beneficial interest of more than 39%. Assessee is also one of the partners in the firm. Therefore the claim of the Ld. assessing officer is that the joint-venture firm wherein the assessee is a partner has received a sum of Rs. 12.77 crores as loan and in turn has granted loan of Rs. 5.67 crores to the assessee without charging interest. Therefore the Ld. AO held that 6% of the interest on the amount advanced by the joint-venture firm to the assessee is in the nature of benefit chargeable to tax under section 2 (24) (IV) of the act.
47. Assessee preferred appeal before the Ld. CIT (A) who held that such income is chargeable to tax in the hands of the assessee only if it is received from the company in which the assessee is holding substantial interest but not from a partnership firm. He further stated that the amount was advanced to the assessee to provide counter guarantee for raising bank loans and therefore headed due commercial expediency. It was further stated that it does not have any legal or factual basis and hence he deleted the addition.
48. The provisions of section 2 (24) (iv) of the act provides that Income includes the
(i) value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person,
(ii) any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid.
The above section defines income that any benefit or perquisite obtained from the company by a director is income. Apparently, in the present case the company in which assessee is a director has provided loan of Rs. 12.77 crores to a partnership firm and from that firm assessee has got interest free funds as loans of Rs. 5.67 crores. Whether the about transaction falls under the definition of income under section 2 (24) (IV) of the act or not is delimited issue. The Ld. CIT (A) has held that as the benefit has not been hoped in from a company but from the partnership firm he deleted the addition. The above view of Ld. CIT (A) is not in conformity with the views of the Hon‟ble Madras High Court in Ravi Prakash Khemka versus CIT (supra) wherein credit card payments of the director of a company which were forced paid by a partnership firm and subsequently reimbursed by the company to the partnership firms was held to be chargeable to tax as income as benefit under section 2 (24) (iv) of the act. In the issue before the Hon‟ble Madras High Court, the benefit was not directly paid by the company to the director but rooted through a partnership firm. Therefore, we reject the finding of the Ld. CIT (A) that benefit is to be „received‟ from the company. We could not find the text of the section that benefit is to be received from the company. It provides rather that the benefit is to be „obtained‟ from the company. Furthermore, there is no relationship between the amount advanced to the appellant to provide guarantee for raising of the bank loan by the lender company to fund the project and headed you commercial expediency. The Ld. CIT (A) has applied the reasons given by him while deleting the addition of the deemed dividend also for deleting the above addition with respect to the benefit of deemed. In view of above findings, we set aside ground No. 3 of the appeal of the revenue to the file of the Ld. assessing officer with a direction to the assessee to show before him that how the about transaction of receiving loan from a firm to the assessee free of interest where a company where the assessee is director which is provided huge interest free funds to such firm is not chargeable to tax as income under section 2 (24) (iv) of the act. The Ld. AO may examine the arguments of the assessee and decide the issue afresh in accordance with the law after granting assessee adequate opportunity of hearing. Accordingly, ground No. 3 of the appeal of the revenue is allowed with above direction.
49. Ground No. 1 of the appeal of the revenue is general in nature and therefore it is dismissed.
50. In the result, appeal of the revenue is allowed for assessment year 2009 – 10 in ITA No. 4836/Del/2014 statistical purposes and cross objection of the assessee in CO No. 150/Del/2015 is dismissed.
51. In the result all 6 appeals pertaining to the same assessee are disposed off Allowing the cross objection of the assessee partly and dismissing the appeal of the revenue for AY 2007-08 and 2008-09 and dismissing the CO of the assessee and allowing the appeal of the revenue for statistical purposes for AY 2009-10.
Order pronounced in the open court on 26/03/2018.
