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2015 (12) TMI 187 - ITAT KOLKATA

2015 (12) TMI 187 - ITAT KOLKATA - TMI - Addition made by AO on account of low gross profit rate - CIT(A) deleted the addition - Held that:- AO has estimated the gross profit @ 6.46% on sales of spare being the same rates of profit shown by the assessee in the immediately preceding assessment year. The AO has examined the books of account including the stock register but could not point out any defect as is evident from the above that the assessee has maintained complete books of account includi .....

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unt no disturbance in the profit rate can be made by AO and hence, the issue is squarely covered in favour of assessee

Addition of deemed dividend - CIT(A) deleted the addition - whether the transaction is commercial in nature and even otherwise the lender company is not a shareholder in the assessee company - Held that:- We find that the assessee has taken loan on interest from MTPL and paid interest to the tune of ₹ 9,55,288/- and the lender company's business is that of money .....

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nce this is the position, the issue is covered by the judgment of Hon'ble Calcutta High Court in the case of Pradip Kr. Malhotra, [2011 (8) TMI 16 - CALCUTTA HIGH COURT] wherein it is held the authorities below erred in law in treating the advance given by the company to the assessee by way of compensation to the assessee for keeping his property as mortgage on behalf of the company to reap the benefit of loan as deemed dividend within the meaning of section 2(22)(e) of the Act.

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er company and not in the hands of a person other than a shareholder, i.e., the concern. - Decided in favour of assessee. - ITA No. 172/Kol/2013, CO No. 24/Kol/2013 - Dated:- 5-11-2015 - Shri Mahavir Singh, JM And Shri Waseem Ahmed, AM For the Appellant : Shri P K Chakraborty, JCIT, Sr. DR For the Respondent : Shri Sunil Surana, FCA ORDER Per Shri Mahavir Singh, JM The appeal by revenue and cross objection by assessee are arising out of order of CIT(A)-XII, Kolkata in Appeal No.336/CIT(A)-XII/R- .....

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s not justified in deleting the addition of ₹ 26,62,416/- on the ground that the AO rejected the gross profit ratio shown by the assessee without rejecting the books of accounts." 3. Briefly stated facts are that the assessee is a dealer in Maruti vehicles, trading of spare parts, dealing in shares and securities and property business. The AO during the course of assessment proceedings on examination of trading account of spare parts and accessories found that it has suffered substant .....

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suffered loss in Taratola Branch @ 48%. By analyzing all the aspects, the AO applied GP rate as declared in the immediate preceding year at 6.46% and determined GP at ₹ 26,62,416/- and added to the total income of the assessee. Aggrieved, assessee preferred appeal before CIT(A), who deleted the addition by stating that the AO has examined the books of account but no defect was pointed out either in the books of account or in the stock register. He observed that even the assessee has produc .....

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he fact that complete books of account were produced before him. Ld. Counsel for the assessee drew our attention to the assessment order page 1 wherein the following finding is recorded by the AO: "In response to the statutory notices, Shri P. K. Banerjee, authorized representative (A/R) for the assessee, appeared from time to time and filed details. Submissions and documents received were placed on record. Books of accounts as well as relevant supporting documents were produced and test ex .....

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pointed out before him in the books of account and simply on the basis of surmises and conjectures he estimated the GP rate just on the basis of earlier year's result in one of the branch. Ld. Counsel for the assessee drew our attention to questionnaire issued by AO wherein detail in respect to party wise purchase and sale of spare parts and accessories and oil and lubricant was called for and the same was duly supplied to the AO. Ld. Counsel for the assessee in support of its claim relied .....

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ll, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time [income computation and disclosure standards] to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where th .....

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tisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided u/s.145(1) of the Act or accounting standards as notified under Section 145(2) of the Act have not been regularly followed by the Assessee. The AO has to compute income from business accounting to the books of accounts of the Assessee. It is only when the book results are rejected the question of estimation of income arises for consideration. The AO has to specifically point .....

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s is evident from the above that the assessee has maintained complete books of account including the stock register and complete details of purchase of spare parts were filed before the AO and none of the purchase and sales or opening or closing stock have been doubted or disputed. Another notable feature is that the AO has missed out to note that the three free services have to be provided to the customers after purchase of car with free spare parts. This fact has not been recognized by the AO .....

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n this appeal of revenue is against the order of CIT(A) deleting the addition of deemed dividend on the ground that the transaction is commercial in nature and even otherwise the lender company is not a shareholder in the assessee company. For this, revenue has raised following ground no.2: "2. That on the facts and circumstances of the case, Ld. CIT(A) was not justified in deleting the addition of ₹ 1,16,50,000/- on account of deemed dividend u/s. 2(22)(e) of the I. T. Act, 1961 on t .....

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dal is holding 38,500 shares out of total issued shares of 60,000 i.e. 65.16% of MTPL as on 31.03.2007 and he is also holding shares of assessee company as on 31.03.2008 for 50.25%. According to AO, MTPL has reserve and surplus of ₹ 2,61,42,503/- which consists of General Reserve created out of accumulated profits of ₹ 1,16,50,000/- and profit of this year at ₹ 2,37,503/-. Apart from these shares a Revaluation Reserve of ₹ 1,42,55,000/-. Accordingly, the AO added the loan .....

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purpose on which interest was duly paid at ₹ 9,55,288/-. The assessee explained that the nature of business of MTPL is also of money lending, which is substantial business of that company, which is evident from the P&L Account of the said company. Copy of which was filed before the AO as well as before CIT(A). The CIT(A) relying on the judgment of Hon'ble Calcutta High Court in the case of Pradip Kr. Malhotra Vs. CIT (2011 338 ITR 538 (Kol) allowed the claim of the assessee vide pa .....

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no. of shares of 60,000 in Machino Transport Pvt. Ltd. and simultaneously he holds 50.25% shares of the assessee company. Therefore, the provisions of Sec. 2(22) (e) of the I. T. Act, 1961 would be applicable here. The AO. has also discussed the case of Oscar Industries Pvt. Ltd. Vs. DCIT 98 ITD 339 (Mumbai Tribunal). During the appellate proceeding the A.R. submitted "the assessee company is not holding any share in the lender company. It is Mr. M. D. Jindal who is registered share holder .....

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copy of the judgement of jurisdictional Calcutta High. Court in the case of Pradip Kr. Malohatra reported in 338 ITR 538 (Kol.). In this case the Hon'ble Kolkata High Court has observed "after hearing the Ld. Council for the parties and after going through the aforesaid provisions of the Act. We are of the opinion that the fresh 'by of advance of loan' appearing in sub-sec. (e) .must be construed to mean those advances or loans which a share holder enjoys for simply on account o .....

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have considered the find of the A.O. on this issue and I have also considered the submission filed by the AR. It is clear that the lender company has given loan for the consideration of interest @ 12% p.a. Therefore, it cannot be said that the lender company has not earned any income/consideration for the loan/advance given to the assessee company. The same view has been taken by Hon'ble Delhi High Court in the case of CIT VS. Rajkumar 318 ITR 462 (Delhi). Thus, keeping in view the observati .....

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sessee company although it is a sister concern. Only common feature is that one of the directors Shri M. D. Jindal is holding common shareholding of the assessee company at 50.25% and in MTPL at 64.16%. But admittedly, assessee is not a shareholder in MTPL nor MTPL is a shareholder in assessee company not holding 10% or more shares or voting powers. We find that the assessee has paid interest on the above loans and this is purely a commercial transaction. Once this is the position, the issue is .....

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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 ; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to a deemed dividend within the meaning of the Act. Thus, for gratuitous loan or advance given .....

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aining the benefit of loan availed of from Vijaya Bank if decision is taken to give advance to the assessee such decision is not to give gratuitous advance to its shareholder but to protect the business interest of the company. 12. The view we propose to take finds support from the two decisions, one of the Bombay High Court and the other of the Delhi High Court relied upon by Mr. Khaitan as indicated earlier. 13. We, therefore, find that the authorities below erred in law in treating the advanc .....

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confirmed. This ground of appeal of revenue is dismissed. 9. As regards to alternative plea of the assessee that none of the company i.e. neither lender nor the assessee company is registered shareholder in each other to the extent of 10% as mandated in the provision of section 2(22)(e) of the Act for charging deemed dividend. This issue is also covered by the order of Hon'ble Special bench of this Tribunal in the case of ACIT Vs. Bhaumick Colour Pvt. Ltd. (2009) 313 ITR(AT) 146 (ITAT, Mum), .....

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been interpreted under the 1922 Act to mean a registered shareholder. This expression "shareholder" found in the 1961 Act has to be therefore construed as applying only to registered shareholders. It is a principle of interpretation of statutes that once certain words in an Act have received a judicial construction in one of the superior courts, and the Legislature has repeated them in a subsequent statute, the Legislature must be taken to have used them according to the meaning which .....

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a registered holder of shares. If a person is a registered shareholder but not the beneficial shareholder then the provisions of section 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of the provisions of section 2(22)(e) will not apply. The new category of payment which was considered as dividend introduced by the Finance Act, 1987, with effect from April 1, 1988, by the second limb of section 2(22)(e) is paym .....

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2)(e) as amended by the Finance Act, 1987, with effect from April 1, 1988, do not say in whose hands the dividend has to be brought to tax, whether in the hands of the "concern" or the "shareholder". The intention behind enacting the provisions of section 2(22)(e) arose from that fact that closely held companies which are controlled by a group of members, would not distribute such profit as dividend because the dividend income would become taxable in the hands of the sharehol .....

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section 2(22)(e) of the Act is an inclusive definition which enlarges the meaning of the term "dividend" according to its ordinary and natural meaning to include even a loan or advance. The ordinary and natural meaning of the term dividend would be a share in profits to an investor in the share capital of a limited company. If the definition of "dividend" is extended to a loan or advance to a nonshareholder the ordinary and natural meaning of the word dividend is taken away. .....

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oan of ₹ 9 lakhs from a company (UPPL). The company had a common shareholder, a trust, which held 20 per cent. of the shares in the assessee-company and ten per cent. of the shares in UPPL. The Assessing Officer was of the view that the transaction was covered by the second limb of the provisions of section 2(22)(e) of the Income-tax Act, 1961, under which 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 .....

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