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TMI Blog2015 (12) TMI 1371X X X X Extracts X X X X X X X X Extracts X X X X ..... t Ltd Dina S Shah 75 72 Milan S Shah 20 23 Jesal Shah 1 1 Milan Sl Shah-HUF 1 1 Premal Shah-HUF 1 1 Sudhir K Shah 1 1 Sudhir K Shah-HUF 1 1 The AO received an information that M/s ADJPL has given loan of Rs. 4.64 to M/s DJPL. It was further noticed by the AO that M/s ADJPL was having reserve (accumulated profits) of Rs. 6.87 cores. Since the assessee herein was holding s hares of more than 20% in both the companies, the AO took the view that the provisions of section 2(22)(e) is applicable. Accordingly, the AO proposed to assess the loan amount of Rs. 4.64 cr. as deemed dividend u/s 2(22)(e) of the Act. The AO further noticed that the above said amount of Rs. 4.64 cr. included in certain trading transactions and the money transaction was to the tune of Rs.Rs.4.64 cr only. Even though the assessee filed written submissions on 25.3.2013 contending about the applicability of the provisions of section 2(22)(e) of the Act, yet the AO assessed the amount of Rs. 4.48 referred above as deemed dividend in the hands of the assessee. 4. In the appellate proceedings, the assessee submitted before the ld. CIT(A) that the amount of Rs. 4.64 cr. was given by ADJPL t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessing officer has excluded a sum of Rs. 22.80 lakhs as relating to trading transactions, he did not properly examine the nature of the transctions pertaining to Rs. 4.48 crores. He submitted that M/s DJPL owns a flat admeasuring about 1112 sq.ft. on the fifth floor of the Building known as "Panchratna", Opera House, Mumbai. By a MOU entered between the two companies cited above, DJPL agreed to sell the above said flat to M/s ADJPL for a total consideration of Rs. 4.65 cr. In connection therewith M/s DJPL received an advance of Rs. 4.48 cr. As per the terms and conditions entered into between the parties balance payment was to be made within 24 months. Accordingly he submitted that the amount of Rs. 4.48 crores received by M/s DJPL was in connection with a commercial transaction relating to sale of building and hence, the same cannot be categorized as loan or deposit. He further submitted that the Ld D.R was right in stating that the provisions of sec. 2(22)(e) shall be attracted immediately on receipt of loan or advance. Accordingly he submitted that the nature of the transaction, i.e., whether it is a loan or not has to be determined at the time of making payment. He submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as Milan S Shah has not benefitted from this commercial transaction. Even otherwise, since the transactions carried out between the two companies is a business/commercial transaction and hence the assessing officer was not justified in invoking the provisions of sec. 2(22)(e) in the hands of the assessee. He further submitted that the ld.CIT(A) has passed a speaking order by making reference to many case laws and hence the same needs to be sustained. 9. We have heard the rival contentions and carefully perused the record. The provisions of sec. 2(22)(e) reads as under:- "Sec. 2 In this Act, unless the context otherwise requires.... (22) "Dividend" includes .... (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 share holder, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establish the principle that once the payment made to a shareholder is deemed as dividend then the mere fact that it is repaid would not take it out of the ambit of the tax net. In the instant case, however, a discussion with respect to which has been made hereinabove, the issue is whether the payment received by the shareholder would at all fall within the four corners of the provisions of section 2(22)(e) of the Act. Having held otherwise, the said judgments of the Supreme Court, in our view, will have no applicability to the facts of the instant case." 10. The decision rendered in the case of Rajkumar (supra) was followed by the Hon'ble Delhi High Court in the case of CIT Vs. Creative Dyeing and Princint P Ltd (2009)(318 ITR 476). In the said case, an advance was given to the said assessee by the sister concern, which held 50% of the share holding in the assessee concern for modernization project. The advance so given was adjusted against the dues for job work to be done by the assessee. The Delhi High Court held that it was a business transaction and the advance was not assessable as a deemed dividend under section 2(22)(e) of the Act. The said decision was affirmed by the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn to the latest decision of Madhya Pradesh High Court in the case of CIT v/s Omprakash Suri 359 ITR 41 in which it has been held that provisions of section 2(22)(e) can be invoked only if the transactions between the parties are of the nature of Loans and Advances and whether the said transactions are of that nature, is a matter of fact. In the instant case, it is established from the nature of transactions that they were not loans or advances but were actually deposit for the proposed sale of office premises and hence, in this case, provisions of section 2(22)(e) would not apply. 2.4.11 Let us now also see the provisions relating to "deemed dividend". From a plain reading of sec.2(22)(e) it is apparent that its contents can be broken down for analysis into 4 parts:- i. Clause (e) applies to 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 assets of the company or otherwise made after the 31st May 1987; ii. Clause (e) covers a payment made by way of a loan or advance to (a) a shareholder, being a beneficial owner of shares (not being shares entitled to a fixed rate of dividend whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. 2.4.14 The Gujarat High Court in the case of CIT-II V/s Shripad Concrete (P) Ltd (2013) 33 taxmann.com 614 held as under:- "Section 2(22) of the Income-tax Act, 1961 - Deemed dividend [Loans or advances] - Assessment year 2006-07 - During assessment proceedings, Assessing Officer found that assessee had given certain amount as advance to its sister concern - Assessee's explanation was that said amount was not a loan or advance rather it represented value of goods sold to sister concern - Assessing Officer rejected assessee's explanation and made addition under section 2(22)(e) -Commissioner (Appeals) as well as Tribunal finding that assessee had in fact sold goods to its sister concern, set aside addition made by Assessing Officer -Whether since amount in question involved business transaction and it could not be categorised as loan or advance, question of application of section 2(22)(e) did not arise - Held, yes - Whether, therefore, impugned addition was rightly deleted - Held, yes [Para 2] [In favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evealed that it had received a sum as unsecured loan from company 'A '. Explanation furnished by the assessee that the aforesaid amount was not a loan but a business transactions between the assessee and company "A" was not accepted by the Assessing Officer and alleged amount was treated as deemed dividend. Held that mere nomenclature of entry in the books of account is not determinative of the true nature of transaction. In the instant case, after going through the relevant evidence as well as current account maintained between the parties, it had been established that the payment made was the result of trading transaction between the parties and the amount was not given by way of loan or Advance. Hence, such amount could not be treated as deemed dividend" 2.4.19 Thus, after taking into consideration, the totality of facts obtaining in this case, I find that the Ld. AO has proceeded only on the information received by him from ITO, 5(1 )(3), Mumbai and has not carried out any investigation himself whatsoever to reach to the truth of the matter. He has also brushed aside the appellant's submission regarding the existence of MOU in an arbitrary and whimsical manner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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