TMI Blog2012 (12) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee rejected that he had received deposit and not loan/advances and hold that the assessee had received loan/advances during the year which are covered by the provisions of section 2(22)(e). The exception from the provisions of section 2(22)(e) is available if the money is advanced in the normal course of business of the company advancing the money. There is no provision for exemption on the ground that the money received has been used by the shareholder in its business. In the present case, there is no material to show that ITL Industries Ltd. advanced the money in the normal course of its business. As decided in CIT vs. V. Damodaran [1979 (10) TMI 5 - SUPREME COURT] & M.B. Stock Holding Pvt. Ltd. vs. ACIT [2001 (12) TMI 190 - ITAT AHMEDABAD-B] that business profit of the company accrued only at the end of the year and, therefore, current year business profit are not to be included in the accumulated profit relying on cases as submiited by assessee as no contrary decision of any High Court or Apex Court has been brought to notice by the DR section 2(22)(e) has to be applied only to loan/advances received during the year which was Rs.1,04,31,062/-. The opening balanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. The AO further noted that M/s. ITL Industries Ltd. was having accumulated profit/reserves and surplus of Rs.97,91,884/- till 31.3.2001 and Rs.1,25,65,756/- till 31.3.2002. Therefore sum of Rs.1,25,65,756/- was assessable as deemed dividend under section 2(22)(e) of the Income tax Act in case of the assessee. AO also noted that the assessee had not furnished share holding pattern in respect of ITL Industries Ltd. for assessment year 2002-03. The assessee had therefore, failed to disclose truly and fully all material facts necessary for assessment. He, therefore, formed the belief that income chargeable to tax to that extent had escaped assessment. Therefore, after recording reasons to the above effect, the AO reopened the assessment by issuing notice under section 148 on 17.10.2008. The assessee challenged the re-opening of the assessment before AO. It was submitted that the original assessment had been completed by AO after obtaining necessary details under section 143(3) of the Act. It was pointed out that both the assessee and ITL Industries Ltd. were assessed under the same charge and both assessments were completed by the AO. There was therefore, no failure on part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment by AO aggrieved by which assessee is in appeal before the Tribunal. 2.3 Before us, the ld. AR argued that original assessment in this case had been completed under section 143(3) on 18.3.2005 and same had been re-opened after expiry of four years from the end of relevant assessment year which was possible only if there was failure on part of the assessee to disclose truly and fully all material facts necessary for assessment in terms of proviso to section 147. In this case, complete details had been disclosed by the assessee. The ld. AR referred to the balance sheet of the assessee placed at page-20 of the paper book in which a sum of Rs.2.00 crores had been shown as deposit received from M/s. ITL Industries Ltd. It was also disclosed that the assessee had made investment in 190510 shares of ITL Industries Ltd. at face value of Rs.10/- The balance sheet also showed the opening balance of loans and advances from ITL Industries Ltd. which was Rs.95,68,938.88. The ld. AR further referred to the balance sheet of ITL Industries placed at page 43 of the paper book in which a sum of Rs.2.00 crores had been shown as loans and advances to the assessee. It was thus argued that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of original assessment and therefore it was a case of change of opinion and assessment could not be reopened after expiry of four years from the end of the relevant assessment year. 2.6 Before we proceed to adjudicate the issue, it would be appropriate to deal with a preliminary objection raised by the ld. AR regarding reasoning given for re-opening of the assessment. Reason given by AO for application of section 2(22)(e) was that Shri Rajan K. Lal was a common share holder in the assessee company and ITL Industries Ltd. having more than 20% share holding in both the companies and therefore, provisions of section 2(22)(e) were applicable. The ld. AR for the assessee argued that this could not be reason for application of provisions of section 2(22)(e). The provisions could be applied when loan / advances have been received by a share holder having more than 10% of share holding as held by the Special Bench of the Tribunal in the case of Bhowmik Colour Lab Ltd. (supra). We find that before the decision of Special Bench of the Tribunal there was some ambiguity in provisions of section 2(22)(e). The provisions were applicable when loans/advances were received by share holder ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscovered by the AO will not necessarily amount to disclosure within the meaning of the said section. Therefore, even if the balance sheet of ITL Industries Ltd. had been filed before AO and from which necessary details could have been gathered by AO this does not mean disclosure of information by the assessee within the meaning of the proviso. Since assessee had received loan/advance from ITL Industries Ltd. assessee was required to give details before AO at the time of original assessment that assessee was holding more than 10% of the share capital in ITL Industries Ltd. but, it was not declaring the amount received during the year as deemed dividend because the same was a deposit and not loan/advance. This would have been the true and full disclosure of materials necessary for assessment which had not been done by the assessee. Merely, because the ITL Industries Ltd. was being assessed in the same charge, could not be the ground to argue that material facts were available with the AO. The material facts have to be disclosed by the assessee in case of the assessee in the return of income or during the assessment proceedings which had not been done. Therefore, in our view on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on this point. 3. The assessee has also raised disputes on merit of addition made by AO as deemed dividend under section 2(22)(e) of the Income tax Act. On query raised by AO to assess the advance received from ITL Industries as deemed dividend under section 2(22)(e), the assessee submitted that it had given its premises on rent to ITL Industries at Bangalore, Delhi and Madras on monthly rent of Rs.1,50,000/- and deposit of Rs.95,68,938/- in the Financial Year 2000-01. The AO in the assessment order for assessment year 2001-02 under section 143(3) had assessed income as income from house property. During the current year, the assessee had requested ITL Industries to increase the said deposit to Rs.2.00 crores and there would be no rent for the current year. It was pointed out that M/s. ITL Industries vide letter dated 20.3.2001 had accepted the proposal and deposit was increased to Rs.2.00 crores. Assessee had requested for increase in deposit because assessee needed funds for setting up factory in Daman. It was thus argued that the deposit had been taken in the ordinary course of business and therefore provisions of section 2(22)(e) were not applicable in view of provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken only deposit in connection with letting out of the premises as assessee needed funds to set up new project and it was not a case of loan or advance. Money had been taken by the assessee in regular course of business and, therefore, provisions of section 2(22)(e) were not applicable. Alternatively it was also submitted that while computing deemed dividend under section 2(22)(e), only accumulated profit of ITL up to 31.3.2001 could be considered and not entire accumulated profit till 31.3.2002. CIT(A) however did not accept the claim that the assessee had accepted deposit. It was observed by him that irrespective of the nomenclature given by the assessee to the money received, its basic character was that of advance rent which was clearly hit by provisions of section 2(22)(e). The true substance of transactions was advance as assessee had already taken deposit in the earlier year and there was no fresh space let out during the year. CIT(A) therefore, agreed with AO that provisions of section 2(22)(e) were applicable. CIT(A) also did not accept the alternate contention that only accumulated profit till 31.3.2001 should be considered. It was observed by him that the accumulated pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out that reserves and surplus till 31.3.2001 was only Rs.97.00 lacs and if the opening balance of loan of Rs.95.00 lacs taken earlier was excluded addition could be made only to the tune of Rs.2.00 lacs. 3.5 The ld. Departmental Representative on the other hand strongly supported the orders of authorities below on merit also and placed reliance on the findings given in the respective orders. 3.6 We have perused the records and considered the rival contentions carefully. The dispute is regarding merit of addition made by AO as deemed dividend under section 2(22)(e). Under the provisions of section 2(22)(e), any payment made by a company not being a company in which the public are substantially interested by way of advance or loan to a shareholder being a person who is the beneficial owner of shares holding not less than 10% of voting power in the company or to any concern in which such share holder is a member or partner and in which he has substantial interest or any payment by any such company on behalf or for individual benefit of any such shareholder has to be treated as deemed dividend to the extent to which the company in either case has accumulated profits. Further Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same has been described as deposit in the balance sheet or in correspondence with ITL Industries Ltd. which is a group concern of the assessee. We, therefore, reject the argument that the assessee had received deposit and not loan/advances and hold that the assessee had received loan/advances during the year which are covered by the provisions of section 2(22)(e). 3.8 Another argument advanced is that money had been received by the assessee for the purpose of business i.e. for setting up of new project and, therefore, provisions of section 2(22)(e) are not applicable. As pointed out earlier, the provisions of section 2(22)(e) are not applicable if loan/advance is given in the ordinary course of business of the company as mentioned in clause (ii) to section 2(22)(e) where lending money is substantial part of business of the company. Thus money should be lent in the ordinary course of business of money lending of the lending company. Authorities below have given a finding that money lending was not substantial part of business of ITL Industries Ltd. which has not been controverted before us nor any other material has been produced before us to show that M/s. ITL Industries had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT vs. V. Damodaran, (supra) and on the decision of Ahmedabad Bench of the Tribunal in the case of M.V. Stock Holding P. Ltd. vs. ACIT (84 ITD 542). In view of these decisions, accumulated profit for the purpose of computation of dividend has to be considered only till 31.3.2001. Till 31.3.2001, the accumulated profit were to the tune of Rs.97,91,884/-. The ld. AR has further argued that opening balance of loan/advance could not be considered for addition in the current year even if in relation to opening balance, no addition had been made under section 2(22)(e) in the earlier year. Reliance has been placed on the decision of the Tribunal in the case of ITO vs. Govardhandas Khimji (supra). No contrary decision of any High Court or Apex Court has been brought to our notice by the ld. Departmental Representative. Therefore, following the said decision, we hold that section 2.(22)(e) has to be applied only to loan/advances received during the year which was Rs.1,04,31,062/-. The opening balance of Rs.95,68,938/- was in fact not loan/advance but deposit given in connection with letting out of the properties in financial year 2000-01 and therefore, in the earlier y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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