TMI Blog2017 (9) TMI 1936X X X X Extracts X X X X X X X X Extracts X X X X ..... n right perspective. Assessee has not extended any undue benefit to the persons covered u/s.40A(2)(b). Deemed dividend u/s.2(22)(e) - HELD THAT:- If assessee is not a share holder of both the companies then Section 2(22)(e) of the Income Tax Act cannot be attracted or effected. As it has been held by the Hon'ble Delhi High Court, in the case of CIT vs. Ankitech (P.) Ltd [ 2011 (5) TMI 325 - DELHI HIGH COURT] that the assessee should be a share holder in the lender company and such holding should be more than 10% of the voting rights, only then Section 2(22)(e) would be attracted. Therefore, this Ground of debarment is dismissed. Disallowance in respect of late payment to PF ESIC treating the same as income u/s.2(24)(x) r.w.s. 36(i)(vi) and not allowing the said payment as expenditure in computing total income - HELD THAT:- CIT(A) has decided the matter against the assessee quoting the judgment of CIT(A) vs. Gujarat State Road Transport Corporation, in which it is held (supra) the section 36(1)(va) of the Income Tax Act, 1961 read with sub-clause(x) of clause 24 of section 2 was applied, the assessee shall be entitled to deduction in computing the income referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market rate and business exigency was not established. 2. The relevant facts as culled out from the materials on record are as under:- In this case, assessee company is engaged in business of running Hotel and Restaurants. It was seen from Annexure-2 of Tax Audit Report that the following payments towards the contribution of employees PF and ESI were not made within due dates. Provident Fund CAMA Hotels Ltd. Month Employee s Contribution Due Date Paid Date J uly 9 09 43,368 20/08/2009 21/08/2009 Sep 9 09 43,339 20/10/2009 21/10/2009 Total 86,707 Provident Fund CAMA Caterers Ltd. Month Employee s Contribution Due Date Paid Date J uly 9 7,630 20/08/2009 21/08/2009 Sep 9 6,982 20/10/2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 1,51,125/- and ₹ 14,966/- received from employees towards PF ESI respectively are to be treated as income of the assessee as per provision of section 2(24)(x) r.w.s. 36(1)(va) of the Act. Hence, the late payments of employee s contribution of ₹ 1,66,091/- towards PF ESI were added to the total income of the assessee. 2.3 On perusal of the accounts, it is seen that the assessee has received an amount of ₹ 31,75,791/- from Cama Motors Pvt. Ltd. and received ₹ 1,99,39,955/- from R. J. Cama Co. Pvt. Ltd. The assessee was show caused that why the amount of ₹ 31,75,791/- received from Cama Motors Pvt. Ltd. and ₹ 1,99,38,955/- from R. J. Cama Co. Pvt. Ltd. should not be treated as deemed dividend u/s.2(22)(e) of the I.T. Act. 2.4 In response to the said notice assessee submitted its reply, same is reproduced as under: As regards the Loans received from Cama Motors Pvt. Ltd. and R.J. Cama Co. Pvt. Ltd., at the outset, we have to state that we have gone through the ledger account of these parties and we find that during the year, the assessee had repaid loan of ₹ 11.00 lacs to Cama Motors in which opening balance was ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 2(22)(e),the same are not at all applicable as the appellant does not hold any share in Cama Motors Pvt Ltd. and R.J. Coma Co. Pvt. Ltd. and, therefore, in view of the decision of Hon'ble ITAT Mumbai in the case of ACIT v. Bhaumic Colour Pvt. Ltd. reported in 118 ITD 1 (Mum)(SB) no deemed dividend can be taxed in the hands of the appellant even if the provisions of section 2(22) (e) were otherwise applicable. As a matter of fact, none of the shareholders of Cama Motors Pvt. Ltd. and R.J. Cama Co. Pvt. Ltd. holding more than 10% of its shareholding holds not less than 20% of the total share capital of 2059200 shares i.e. voting power of the appellant company and, therefore, the pre-conditions of Section 2(22) (e) are not fulfilled at all. The said provisions require that in case of a loan to a concern, the shareholder of loan giving company holding more than 10% of share capital should also have a substantial interest which is not less than 20% of the share capital i.e. voting power. Moreover, Cama Motors Pvt. Ltd. and R.J. Cama Co. Pvt. Ltd. both used to lend money to parties and earn interest income and, therefore, also the loan amount cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act on account of their association with the assessee, then the deduction claimed for that benefit ought to be disallowed to the assessee. In other words, if the assessee can avail the facility from the open to market at a lower price, then similar facility availed from the persons covered u/s.40A(2)(b) then that excess payment would not be allowed to the assessee as deduction. The question before us is what was the fair market value of interest paid by the assessee on the loans obtained from the persons covered u/s.40A(2)(b). According to the Assessing Officer, the loans ought to have been taken at the interest rate of 12% and not the interest rate of 15 or 16%. The assessee ought to have provided a security for the loans taken from the bank, These are unsecured loans. It has avoided a lot of formalities by taking loans from the associate concern. In our opinion, the payment of interest at a little higher rate to the person even if covered u/s.40A(2)(b) cannot be termed as exorbitant when the fair market value of such interest cost is being considered. The assessee has paid interest commensurate with the interest rate prevailing in the open market. An order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nkitech (P.) Ltd. in [2012] 340 ITR 14 that the assessee should be a share holder in the lender company and such holding should be more than 10% of the voting rights, only then Section 2(22)(e) would be attracted. Therefore, this Ground of debarment is dismissed. 4.7 The ratio of the judgment is that it is the fair market value of interest paid by the assessee on the loans obtained from the persons covered u/s.40A(2)(b). Sometime it is not available even @15% or 16% because from market a person has to complete so many formalities. Sometime it is not possible for the person to complete all the complex formalities. Therefore, in our considered opinion, assessee has not taken undue advances and then Ground of appeal is dismissed. 5. In the result, appeal of the department is dismissed. 6. Now we take up the assessee s Cross Objection in CO No.287/Ahd/2014 for Asst. Year 2010-11, on the following Grounds of Cross Objection: The ld.CIT(A) has erred in law and on facts in upholding the disallowance of ₹ 1,66,091/- in respect of late payment to PF ESIC treating the same as income u/s.2(24)(x) r.w.s. 36(i)(vi) of the Income Tax Act, 1961 and not allowing the said paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
