TMI Blog2012 (8) TMI 1160X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction between itself M/s. Sanitech Engineers Pvt. Ltd. 3) The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the assessing officer be restored. 3. The solitary issue involved in the effective grounds no. 1 2 is with regard to the applicability of section 2(22)(e). 4. The CIT(A) has reproduced the relevant portions of the AO s observations and assessee s submissions, before arriving at the decision, which are as under: During the course of assessment proceedings A.O., observed that received advance moneys/unsecured loans from M/s. Sanitech Engineering Pvt. Ltd. in which Nilesh Badani and Sanjay Badani, were having 23.99% and 20% during the year. A.O. further noted that the shareholders are also holding more than 10% shareholding in the assessee company, was also having accumulated profits during the year of ₹ 1,09,74,931/-. Accordingly, A.O. asked the assessee as to why the amount of unsecured loans received from the company should not treated as deemed dividend ii the hands of assessee company u/s. 2(22)(e) of the I.T.Act. Before A.O. the assessee has filed its explanation dated 22.11.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) (e) are that closely held companies (i.e., companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions such payment by the company is treated as dividend. The intention behind the provisions of section 2(22) (e) is to tax dividend in the hands of shareholder. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The intention of the Legislature is, therefore, to tax dividend only in the hands of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an of ₹ 1.19 crores. Relying upon the judgement of Hon ble ITAT in ACIT Vs. Bhaumik Colour Pvt. Ltd. (2009 118 ITD 1 it was stated that the provision regarding deemed dividend u/s.2(22)(e) cannot be invoked where the loan is given to non shareholder. Appellant has also furnished parawise comparison of facts of its case to that of Bhaumik Colour Pvt. Ltd. Reliance is also placed on the judgement of Hon ble Bombay High court in case of CIT Vs. Universal Medicare Pvt. Ltd. 190 Taxman 144, giving parawise Comparison of the two cases. The appellant has also relied upon the judgement Delhi High Court in CIT Vs. Ankitech Pvt. Ltd. and of Rajasthan High Hotel Hilltop, 313 ITR 116. The facts of the case have been analized and it is noted that the contention of the appellant that it is not a shareholder in the lender company i.e. M/s. Sanitech Engineers Pvt. Ltd. is correct. The A.O. has not disputed this fact in the assessment order hence the decision of Hon'ble ITAT, Mumbai in Bhaumik Colour Pvt. Ltd. squarely applies to the facts of the appellant case wherein the Hon'ble ITAT observed as under: The intention behind the provisions of s. 2(22)(e) is to tax dividend in the han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 144, Hon ble Bombay High Court while deciding the case on facts have observed as under: Consequently, the effect of clause (e) of section 2(22) is to broaden the ambit of the expression dividend by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does hot alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently in the present case the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. Respectfully following the above case laws, the A.O. is directed to delete the addition of₹ 1,09,74,931/- made uls.2(22)(e) of I.T.Act. 6. Against this decision, the department is in appeal before the ITAT. 7. Before us, the DR conceded that the facts involved in impugned issue are covered by the decision of Special Bench of the Tribunal in the case of Bhaumik Colour Pvt. Ltd. (supra) and also by the Hon'ble jurisdictional High Court at Bombay in the case of CIT v/s Universal Medicare (P) Ltd. (supra). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad debited ₹ 69,79,740/- under the head travelling expenses, the AO found that the expenses had been incurred in the names of directors and mainly in cash. The AO, therefore, disallowed 10% out of these expenses, holding that it cannot be verified that the expenses were wholly and exclusively for the purpose of business. 12. The CIT(A), sustained the disallowance, holding that the appellant had failed to rebut the findings of the AO. 13. Aggrieved, the assessee is now before the ITAT. 14. We have heard the arguments and have gone through the records, we find that the assessee is a company, which is a separate person, distinct from its employees, which includes directors. Once the expense is incurred in the ordinary course of business, it has to be allowed. The issue, whether it is wholly and exclusively for the purpose of business, has to be gauged only from the eyes of the assessee, who in the instant case is a company. The assessee, during appellate proceedings placed reliance on the decision of DCIT v/s Haryana Oxygen Ltd. reported in 76 ITD 32 (Del); ITO v/s Ashoka Betelnut Co. Ltd. reported in 21 TTJ 465 (Mad) and Daks Copy Service (P) v/s I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could have been acceptable had interest bearing funds were being utilised for non commercial purpose. Here in this case, the entire loan is working capital loan and in any case the assessee was having substantial own funds, from which the construction was being carried on. He placed heavy reliance on the decision of Hon'ble Punjab Haryana High Court in the case of CIT v/s Vardhman Polyster Ltd., reported in 288 ITR 152 (P B-FB) and on the decision of Hon'ble Supreme Court in the case of DCIT v/s Lou Health Care Ltd. reported in 167 Taxman 206 (S.C), wherein the Hon'ble Supreme Court Held, A proviso has since been inserted in section 36(1)(iii). That proviso has been inserted by the Finance Act, 2003 with effect from 1-4-2004. Hence, the said proviso will not apply to the facts of the instant case. Further, the said proviso would operate prospectively. In this connection, it may be noted that by the same Finance Act, 2003, insertions have been made by way of proviso in section 36(i)(viia ), which is made effective from 1-4-2004. Same is the position with regard to insertion of a sub-section after section 90(2). This insertion also operates with effect from 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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