TMI Blog2015 (6) TMI 1119X X X X Extracts X X X X X X X X Extracts X X X X ..... Member) For the Appellant : K. K. Kanak, JCIT/ld.DR For the Respondent : Subash Agarwal, Advocate, ld.AR ORDER B. P. Jain (Accountant Member) This appeal of the revenue arises from the order of the ld. CIT(A), Kolkata dated 01-05-2012 for the assessment year 2006-07. 2. The revenue has raised the following grounds of appeal:- 1. Tat ld. CIT(A) erred both in facts as well as in law in allowing the assessee s appeal in deleting the addition by the AO U/s.2(22)(e) of the Income Tax Act in respect of M/s. Prosad Group Resources Pvt. Ltd of ₹ 90,31,676/- and M/s. Tolly Nirman Pvt. Ltd of ₹ 87,93,372/- without appreciating the totality of facts of the case and materials brought on record during the course of assessment. 2. That ld.CIT(A) erred both in facts as well as in law in allowing the assessee s appeals in deleting the additions made by the AO U/s. 2(22)(e) in respect of M/s. Prosad Group Resources Pvt. Ltd of ₹ 90,31,676/- and M/s. Tolly Nirman Pvt. Ltd of ₹ 87,93,372/- without appreciating the facts that the said companies have not got themselves registered and/or obtained license on the business of money len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audit case with commission being only/chief source of income during current year. It was also noted that land was considered as closing stock in hand. Clearly, the M/s. Prasad Overseas Pvt. Ltd was not in the lending business and the impugned loan/advance of ₹ 78,50,000/- was not given to the assessee in the ordinary course of its business. Evidently, the accumulated profit was passed on to the sister concern in the garb of loan. And such devious arrangement was engineered to escape incidence of taxation. Mischief of section 2(22) of the Act is, therefore, clearly attracted. The issue of deemed dividend was raised before the assessee by requisition dated 20.06.08 and also at the time of hearings. The assessee in its replies had never contested the applicability of the said section. Therefore, it appears that loan/advances given were squarely covered by the provisions of section 2(22)(e) of the Act. However, in the present case deemed dividend income of the assessee is restricted to the amount of reserve surplus available i.e ₹ 1,03,466/-. In the case of M/s. Tolly Nirman the assessee was holding more than 65% of the shares. TAR distinguished the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forwarded to the assessee can be considered as undertaken by the company in regular course of its business. Fourthly, interest earned by M/s. Prasad Group Resources P.Ltd also formed a miniscule part of its total income. Manifestly, argument of the assessee that M/s. Prasad Group Resources P.Ltd, had commercial expediency behind the impugned loan/advance was misleading. Considering all these, it clearly appear that the company, M/s. Prasad Group Resources P.Ltd was not carrying on a business of finance company and, therefore, impugned loan was not extended by it in the regular course of its business. Consequently, the sum so advanced is to be treated as deemed dividend in the hands of the assessee. However, deemed dividend should be restricted to ₹ 90,31,676/-, as appearing at sch. 2 of the accounts of M/s. Prasad group Resources P.Ltd. 5. The ld. CIT(A) vide page 8 9 of his order relying upon the decision of ITAT for A.Y 2005-06 dtd. 31-03-2010 in assessee s own case in ITA No.1239/Kol/09 deleted the disallowance made by the AO with a view that the principal business of M/s. Prasad group Resource P.Ltd was of granting loans and advances and section 2(22)e of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment, the Assessing Officer added said sum to the assessee s income as deemed dividend. On appeal, the Commissioner (Appeals) deleted said addition However, on the revenue s appeal, the Tribunal upheld the Assessing Officer s order. 7.1 The Hon ble Jurisdictional Calcutta High Court in the case of Pradip Kumar Malhotra(supra) has held as under:- The phrase by way of advance or loan appearing to sub-clause (e) of section 2(22) must be construed to mean those advances or loans which a shareholder enjoys for simply on account of 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 10 per cent of the voting power; but if such loan or advance is given to such share holder 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 by a company to those classes of shareholders would come within the purview of section 2(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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